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, 2006ORo
            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:


None





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


Common
      Stock, $.01 par value


(Title
      of
      class)








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: $14,824,242.





As
      of
      December 15, 2006, 24,325,113 shares of the Company's common stock were
      outstanding. As of December 15, 2006, the aggregate market value of shares
      of
      the Company's common stock held by non-affiliates was approximately $26.5
      million (based upon the last reported sale price of $1.58 on that date on the
      Over the Counter Bulletin Board).





2


FORM
      10-KSB INDEX





PART
      I





PageItem
                1.
            Description
                of Business
            5Item
                2.
            Description
                of Property
            13Item
                3.
            Legal
                Proceedings
            14Item
                4.
            Submission
                of Matters To A Vote Of Security
                Holders
            14





Part
      II





Item
                5.
            Market
                For Common Equity, Related
                Stockholder Matters and Small Business Issuer Purchases of Equity
                Securities
            15Item
                6.
            Management's
                Discussion and Analysis of
                Financial Condition and Results of Operations
            16Item
                7.
            Financial
                Statements
            23Item
                8.
            Changes
                in and Disagreements With
                Accountants On Accounting and Financial Disclosure
            23Item
                8A.
            Controls
                and Procedures
            23Item
                8B.
            Other
                Information
            23





Part
      III





Item
                9.
            Directors
                and Executive Officers; Compliance
                with Section 16(a) of the Exchange Act
            24Item
                10.
            Executive
                Compensation
            30Item
                11.
            Security
                Ownership Of Certain Beneficial Owners
                and Management and Related Stockholder Matters
            34Item
                12.
            Certain
                Relationships and Related
                Transactions
            38Item
                13.
            Exhibits
            39Item
                14
            Principal
                Accountant Fees and
                Services
            45





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 108
      countries. It is commercially marketed directly to consumers in 10 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.





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 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. 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. FHC plans to submit a supplement for FC2 to its original
      Pre-Market Approval (PMA) to the FDA early in 2007.





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, 2006 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. This material
      is generally available from a number of suppliers, but the Company has chosen
      to
      concentrate its purchases from a single supplier.





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 39.5 million people
      globally were living with HIV. In 2006, 4.3 million people were newly infected
      with HIV and 2.9 million people died of the disease. This is an increase of
      2.6
      million from 2004. Women now comprise the majority of the new cases in many
      areas of the world. In a recently 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.




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.





6


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.





In
      October 2006, a study regarding FC2 entitled “County-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.





7


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 Indian Regulatory authorities. The Company
      plans to submit a supplement for FC2 to its original PMA to the FDA early in
      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.





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.





Because
      customers assume shipping and marketing expenses, volume increases will have
      little impact on the Company’s operating expenses.





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. 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. FHC plans to submit
      a
      supplement for FC2 to its original PMA to the FDA early in calendar
      2007.





8


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 10
      countries, including the United States, Canada, Mexico, Spain, France and India.
      These agreements are generally exclusive for a single country. Under these
      agreements, the Company manufactures and sells FC to the distributor partners,
      who, in turn market and distribute the product to consumers in the established
      territory.





On
      March
      28, 2006, the Company signed an agreement with Fuji Latex, one of the largest
      male condom manufacturers and distributors in Japan, appointing Fuji Latex
      as
      FHC’s exclusive marketer and distributor of the female condom in Japan. The
      Company and Fuji Latex had previously signed an agreement to manage the
      importation and quality control of FC under Japanese regulatory requirements,
      which began repositioning the FC female condom’s availability in Japan. Fuji
      Latex has initiated commercial distribution of the FC in Japan.





On
      May 9,
      2006, the Company announced it has entered into a Memorandum of Understanding
      with Hindustan Latex Limited (HLL), a Government of India Enterprise, to
      negotiate, in good faith, formal agreements related to the manufacture of FC2,
      the Company’s second generation product, in India. Negotiations are currently
      underway. In May 2006, HLL introduced the FC to consumers under the name
      Confidom Passion Rings. HLL markets the product as India’s first female condom
      for safe sex and contraception, targeting high-end upwardly mobile consumers.
      FC, already available in three major cities, will be introduced sequentially
      into a total of 34 cities within India. HLL is the Company’s exclusive
      distributor in India.





9


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 £0.38 and £0.445 (British
      pounds sterling), or approximately $0.74 to $0.87. Under the agreement, UNAIDS
      and the Company cooperate in educational efforts and marketing FC in developing
      countries. Sales of FC are made directly to international public agencies and
      to
      public health authorities in each country at the price established by the
      agreement with UNAIDS. The agreement expires on December 31, 2006, but is
      automatically renewed for one year unless either party gives at least 90 days
      prior written notice of termination. FC is available in approximately 92
      countries through public sector distribution.





In
      May
      2006, the Company received an initial order for 500,100 FC female condoms from
      the National Aids Control Organization (NACO) of the Ministry of Health &
Family Welfare, Government of India. The order was placed through UNFPA, the
      United Nations Population Fund. The female condoms will be used in NACO’s
      Reproductive Health and HIV/AIDS prevention programs and distribution will
      initially be focused on commercial sex workers in six high prevalence states
      in
      India. In May 2006, India was reported as having 6.1 million HIV/AIDS cases,
      less than 1% of its 1 billion plus population, but the largest HIV population
      in
      the world. UNAIDS reported in 2005 that a significant portion of new infections
      in India are occurring in women who are married and who have been infected
      by
      husbands who frequent sex workers. UNAIDS further states that commercial sex
      serves as a major driver of the epidemic in most parts of India. The Indian
      Government is implementing prevention programs to preclude what happened in
      some
      sub-Saharan Africa countries where more than 20% of the population is HIV
      positive.





In
      the
      United States, the product is marketed to city and state public health clinics,
      as well as not-for-profit organizations such as Planned Parenthood.





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 manufactures and warehouses FC2 within 1,900 square footage of a leased
      facility located in Selangor D.E., Malaysia. The facility is presently capable
      of producing 7.5 million units per year. A second manufacturing line, scheduled
      to be in production in February 2007, will bring the Malaysian facility’s
      capacity to 15 million units per annum.




10


The
      Company’s India-based FC2 end-stage production capacity will be located at a
      facility owned by its India business partner, Hindustan Latex Limited (HLL).
      The
      Company expects that production, at an initial capacity of 7.5 million units
      annually, will be operational early in calendar 2007.





FHC
      will
      bring its FC2 production capacity to 22.5 million units annually during the
      first quarter of calendar 2007. The Company intends to expand its capacity
      at
      existing locations and/or manufacture at additional locations as the demand
      for
      FC2 develops.





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. FHC plans to
      submit a supplement for FC2 to its original PMA to the FDA early in 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.





11


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 2006 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 secure its competitive
      position. The Company has registered the trademark “FC2 Female Condom” in the
      United States.





Employees





As
      of
      December 15, 2006, the Company had 159 full-time employees, all but four 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, 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. The comparable amount as of the
      same date of the prior year was $3,940,000. Unfilled orders materially fluctuate
      from quarter to quarter, and include orders with requested delivery dates later
      in fiscal 2007. The Company expects current unfilled orders to be filled during
      fiscal 2007.





Research
      and Development





The
      Company incurred approximately $211,000 of research and development costs in
      fiscal 2006 and $274,000 of research and development costs in fiscal 2005.
      Such
      expenditures pertained to the Company’s need to conduct acceptability studies
      and analyze second generation products.





Industry
      Segments and Financial Information About Foreign And Domestic Operations





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





12


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.





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 rest ructured
      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 over 124 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 near Minneapolis, Minnesota 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. The Malaysian lease, which expires May 31, 2007, automatically
      renews for an additional six month period unless either party gives written
      notice of termination. The Company expects the Malaysian facility to produce
      at
      an annual rate of approximately 15 million units per year by the first quarter
      of calendar 2007. Management believes the properties are adequately
      insured.




13


Item
      3.    Legal Proceedings





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





Item
      4.    Submission of MattersTo 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, 2006.





14


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 are traded on the OTC Bulletin Board under the symbol
      "FHCO." The approximate number of record holders of the Company's common stock
      at December 18, 2006 was 449. 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. These
      sales prices reflect inter-dealer prices, without retail mark-ups, mark downs,
      or commissions.





QuartersFIRST
            
            
            SECOND
            
            
            THIRD
            
            
            FOURTH2006
                Fiscal YearPrice
                per common share - High
            
            $
            1.80
            
            $
            1.78
            
            $
            1.63
            
            $
            1.65Price
                per common share - Low
            
            $
            1.32
            
            $
            1.50
            
            $
            1.25
            
            $
            1.192005
                Fiscal YearPrice
                per common share - High
            
            $
            2.13
            
            $
            2.10
            
            $
            1.95
            
            $
            1.86Price
                per common share - Low
            
            $
            1.50
            
            $
            1.66
            
            $
            1.45
            
            $
            1.37





Recent
      Sales of Unregistered Securities





In
      January 2006, the Company issued 150,000 shares of common stock to an outside
      consultant to provide investor relations services to the Company for the 2006
      calendar year. Additionally, in June 2006, the Company appointed a public
      relations firm to assist the Company in developing an investor relations
      program. The Company issued 20,000 shares of its common stock in part for
      payment of such services. 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 14, 2016. The Company believes that the
      issuances of the common stock and warrants in connection with the performance
      of
      services to the Company were exempt from registration under section 4(2) of
      the
      Securities Act and/or Regulation D promulgated under the Securities Act because
      such issuances were made to persons who are accredited investors. The accredited
      investors represented to the Company that they were purchasing for investment
      without a view to further distribution. Restrictive legends were placed on
      all
      instruments evidencing the securities described above.





15


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 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 completing partnership arrangements with companies with the
      necessary marketing and financial resources and local market expertise. The
      Company's customers include the following:




l 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 £0.38 and £0.445
          (British pounds sterling), or approximately $0.74 to $0.87. Currently,
          the
          female condom is available in approximately 92 countries through public
          sector
          distribution.


l
            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.





l
            The
                Company sells the female condom in the commercial private sector
                principally through distribution partners. Currently the female condom
                is
                currently available through various channels in 108 countries and is
                commercially marketed directly to consumers in 10 countries,
                including the United States, Canada, Mexico, Spain, France and
                India.





l
            On
                September 30, 2003, the Company entered into an agreement with the
                U.S. Agency for International Development (USAID) to supply up to
                25
                million units of FC during the term of the contract, which originally
                expired on December 31, 2006 and was later extended until
                March 31, 2007. The product would be used primarily in USAID HIV/AIDS
                prevention programs in developing countries. In 2006, USAID exercised
                the
                option to procure six million incremental units within the calendar
                year.
                Between the inception of the agreement and December 18, 2006, the
                Company has shipped USAID 8.3 million units and estimates the number
                of to be units purchased to be
                11.7 million.





16





l
            On
                March 25, 2004, the Company appointed Global Protection Corporation
                as the exclusive distributor of the female condom for public sector
                sales
                within a nine-state region in the eastern United States. Global Protection
                Corporation is required to purchase 2.6 million units within a
                three-year period to retain exclusive distribution rights. As of
                December 18, 2006, the Company had sold Global Protection Corporation
                1.1 million units of its minimum purchase
                requirement.





l
            On
                December 18, 2001, the Company announced the three year appointment
                of
                Total Access Group as the exclusive distributor for public sales
                within a
                15 state region in the western United States. Total Access Group
                was
                required to meet minimum unit purchase requirements within the three
                year
                period to retain exclusive distribution rights and achieved the required
                levels. As a result, effective January 1, 2005, Total Access Group
                received a two year extension as the exclusive distributor for public
                sales within a 20 state region located between the Midwest and Western
                portion of the United States. Total Access Group is now required
                to
                purchase 1.4 million units within the two year period to retain exclusive
                distribution rights. As of December 18, 2006, Total Access Group has
                purchased 1.0 million units under the
                extension.





l
            On
                May 9, 2006, the Company announced that it had entered into a Memorandum
                of Understanding with Hindustan Latex Limited, or HLL, a Government
                of
                India Enterprise, to negotiate, in good faith, formal agreements
                related
                to the manufacture of FC2 in India. Negotiations are currently underway.
                In May 2006, HLL introduced the female condom to consumers under
                the name
                Confidom Passion Rings. HLL markets the product as India’s first female
                condom for safe sex and contraception, targeting high-end upwardly
                mobile
                consumers. FC, already available in three major cities, will be introduced
                eventually into a total of 34 cities within India. HLL is the Company's
                exclusive distributor in India.





l
            In
                May 2006, the Company received an initial order for 500,100 female
                condoms
                from the National Aids Control Organization of the Ministry of Health
                & Family Welfare, Government of India. The order was placed through
                UNFPA, the United Nations Populations Fund. The female condoms will
                be
                used in National Aids Control Organization's Reproductive Health
                and
                HIV/AIDS prevention programs and distribution will initially be focused
                on
                commercial sex workers in six high prevalence states in India. In
                May
                2006, India was reported as having 6.1 million HIV/AIDS cases, less
                than
                1% of its 1 billion plus population, making India the largest HIV
                population in the world. UNAIDS reported in 2005 that a significant
                portion of new infections in India are occurring in women who are
                married
                and who have been infected by husbands who frequent sex workers.
                UNAIDS
                further states that commercial sex serves as a major driver of the
                epidemic in most parts of India. The Indian Government is implementing
                prevention programs to preclude what happened in some sub-Saharan
                Africa
                countries where more than 20% of the population is HIV
                positive.





17


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 2006, 58% of the Company's net revenues, 88%
      of
      the Company's cost of products sold and 28% of the Company's operating expenses
      were affected by changes in the exchange rate of British pounds sterling
      relative to the United States dollar. Approximately, 18% of net revenues in
      2006
      were to the Company's customers in Brazil, whose purchases are denominated
      in
      U.S. dollars. On an ongoing basis, management continues to evaluate the
      Company's commercial transactions and is prepared to employ currency hedging
      strategies when it believes such strategies are appropriate. For 2006, the
      Company estimated that the net adverse impact of the exchange rate fluctuations
      was not significant.





*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 products
      sold consist 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 latex
      hybrid 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 2005 and 2006,
      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. To date, 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.





*Operating
      Highlights.* The
      Company's net revenues have increased in recent periods. The Company had net
      revenues of $14,824,242 in the fiscal year ended September 30, 2006 as
      compared to net revenues of $11,161,555 in the fiscal year ended
      September 30, 2005.





The
      Company had positive cash flow from operations of $0.3 million during the fiscal
      year ended September 30, 2006.  In fiscal 2005, the Company had
      negative cash flows from operations of $0.2.





18


In
      fiscal
      2005, the Company had a net loss attributable to common stockholders of
      $(1,516,863) or $(0.07) per share for the fiscal year ended September 30,
      2005. The Company had net income attributable to common stockholders of $120,778
      or $0.01 per share in fiscal 2006. Based on the level of the Company's expenses
      and the average selling price per unit in fiscal 2006, the Company must achieve
      cumulative annual unit sales of approximately 19.5 million female condoms to
      cover operating and non-operating expenses. The Company had unit sales of
      19.6 million in fiscal 2006.





Results
      of Operations





Fiscal
      Year Ended September 30, 2006 ("2006") Compared to Fiscal Year Ended September
      30, 2005 ("2005")





The
      Company had net revenues of $14,824,242 and net income attributable to common
      stockholders of $120,778 or $0.01 per share in 2006 compared to net revenues
      of
      $11,161,555 and a net loss attributable to common stockholders of $(1,516,863)
      or $(0.07) per share in 2005.





Gross
      profit increased $1,445,577, or 36%, to $5,489,410 for 2006 from $4,043,833
      for
      2005. The increase was a result of expanding net revenues more than offsetting
      the increase in fixed and variable costs incurred to manufacture the Company's
      product in 2006.





Net
      revenues increased $3,662,687, or 33%, in 2006 over the prior year. The higher
      net revenues resulted from increased demand from global public sector customers.
      The increased global public sector shipments in the countries of Brazil,
      Zimbabwe and Tanzania were partially offset by slightly reduced purchasing
      from
      South Africa, Botswana and France.





Cost
      of
      products sold increased $2,217,110, or 31%, to $9,334,832 for 2006 from
      $7,117,722 for 2005. 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 increased $95,397 to $218,500 for 2006 from
      $123,103 for 2005. The increase relates to the cost of engaging a public
      relations firm, beginning in the third quarter of 2005 and continuing throughout
      fiscal 2006, to promote FC2 and communicate the Company’s global contribution to
      woman’s health.





Selling,
      general and administrative expenses decreased $138,529, or 3%, from $4,958,208
      in 2005 to $4,819,679 in 2006. The decrease resulted from reductions in
      amortization expense, reduced consulting fees and expense reimbursement from
      the
      BLCF grant which were partially offset by higher employee compensation costs.
      Amortization expense declined as intangible assets became fully amortized during
      the second quarter of 2006. Consulting fees dropped at the conclusion of
      Sarbanes-Oxley compliance preparation activities, early in 2006.





Research
      and development costs decreased $62,900 to $210,876 in 2006 from $273,776 in
      2005. The costs in 2005 and, to a lesser extent, the costs in 2006 primarily
      relate to expenses related to the safety and acceptability studies for the
      FC2
      program and establishing manufacturing capacity in Malaysia and
      India.


19


The
      Company's operating income increased $1,551,609 to $240,355 in 2006 from
      $(1,311,254) in 2005 due to the improved gross profit coupled with a slight
      decrease in operating expenses. Total operating expenses decreased $106,032
      from
      $5,355,087 in 2005 to $5,249,055 in 2006 as a result of decreases in selling,
      general and administrative and research and development expenses which were
      offset slightly by an increase in advertising and promotional expenses.





In
      the
      category of net interest and miscellaneous income/expense, the Company recorded
      income of $41,671 for 2006 compared to $44,402 of expense for 2005. The
      improvement was a result of debt elimination during the latter part of the
      first
      quarter of 2005 and an increase in interest income as a result of improved
      cash
      flow in 2006





By
      reaching annual unit sales of 19.6 million female condoms in 2006 the Company
      was able to cover fixed manufacturing overhead costs, exceed break-even at
      the
      gross profit level, and cover operating and non-operating expenses.





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. In 2006, sales of the female
      condom were sufficient to cover the Company's operating costs.





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 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.





20


On
      September 30, 2003, the Company entered into an agreement with the U.S. Agency
      for International Development (USAID) to supply USAID with up to 25 million
      units of FC during the term of the contract. The contract, which originally
      had
      a three year term scheduled to expire on December 31, 2006, has been
      extended until March 31, 2007. The female condom is used primarily in USAID
      HIV/AIDS prevention programs in developing countries. USAID also has the option
      to order up to 8 million units of FC for the 2006 calendar year. In 2006, USAID
      exercised a contract option allowing it to procure six million incremental
      units
      within a calendar year. Between the inception of the agreement and December
      18,
      2006, the Company has shipped USAID 8.3 million units. The Company estimates
      total units purchased under the contract to be 11.7 million.





On
      March
      25, 2004, the Company announced the appointment of Global Protection Corporation
      (“Global”) as the exclusive distributor for public sector sales within a 9 state
      region in the eastern United States. Global is required to purchase 2.6 million
      units within a three year period to retain exclusive distribution rights. As
      of
      December 18, 2006, Global has purchased 1.1 million units.





On
      December 18, 2001, the Company announced the three year appointment of Total
      Access Group (“TAG”) as the exclusive distributor for public sales within a 15
      state region in the western United States. TAG was required to meet minimum
      unit
      purchase requirements within the three year period to retain exclusive
      distribution rights and achieved the required levels. As a result, effective
      January 1, 2005, TAG was rewarded a two year extension as the exclusive
      distributor for public sales within a 20 state region located between the
      Midwest and Western portion of the United States. TAG was required to purchase
      1.4 million units within the two year period to retain exclusive distribution
      rights. As of December 18, 2006, TAG has purchased 1.0 million units under
      the
      extension. Presently, the Company is in the process of negotiating a new four
      year extension with TAG which the Company anticipates will become effective
      in
      January 2007.




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 2006, 58% of the Company’s net revenues, 88% of the Company’s cost of
      products sold and 28% of the Company’s operating expenses were affected by
      changes in the exchange rate of foreign currencies relative to the United States
      dollar. Approximately, 18% of net revenues in 2006 were to customers in Brazil,
      whose purchases are denominated in U.S. dollars.





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. For 2006, the Company estimates
      that the net impact of the exchange rate fluctuations was not
      significant.





21




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.





Liquidity
      and Sources of Capital





Historically,
      the Company has incurred cash operating losses relating to expenses to develop,
      manufacture, and promote the female condom. However, in 2006 the Company
      generated $0.3 million in positive cash flow from operations as a result of
      increased sales volume and reduced operating and non-operating expenses. In
      2005
      cash used in operations was $0.2 million.




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, 2006, the Company had working capital of $5.0 million and
      stockholder’s equity of $4.8 million compared to working capital of $3.8 million
      and stockholder’s equity of $3.3 million as of September 30, 2005.





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, 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 and expire on July 1, 2007. 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
      8.25% at September 30, 2006). 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, 2006.





As
      of
      December 18, 2006, the Company had approximately $1.5 million in cash, net
      trade
      accounts receivable of $3.2 million and current trade accounts payable of $1.6
      million. Presently, the Company has no required debt service obligations.







22




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 2005 and 2006
      the Company has, where possible, increased selling prices to offset such
      increases in costs.





New
      Accounting Pronouncements





Please
      see "New Accounting Pronouncements" in Note 1 of the financial statements.





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 and
      Disagreementswith Accountants on Accounting and Financial Disclosure





Not
      Applicable.




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.





23


PART
      III





Item
      9.    Directors and ExecutiveOfficers; 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, 2006, is as follows:





NAME
            POSITION
            AGEO.B.
                Parrish
            Chairman
                of the Board, Chief Executive Officer, acting President and Director
            73Mary
                Ann Leeper, Ph.D.
            Senior
                Strategic Adviser and Director
            66William
                R. Garguilo, Jr.
            Secretary
                and Director
            78Michael
                Pope
            Vice
                President and General Manager of The Female HealthCompany
                (UK) Plc
            49Donna
                Felch
            Vice
                President and Chief Financial Officer
            59Jack
                Weissman
            Vice
                President - Sales
            59Robert
                R. Zic
            Vice
                President - Finance
            43David
                R. Bethune
            Director
            66Stephen
                M. Dearholt
            Director
            60Michael
                R. Walton
            Director
            68James
                R. Kerber
            Director
            74Richard
                E. Wenninger
            Director
            59Mary
                Margaret Frank
            Director
            37




O.B.
      PARRISH


Age:
      73;
      Elected Director: 1987; Present Term Ends: 2007 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 ViatiCare, L.L.C., a financial services company, and Chairman and
      a
      Director of Abiant, Inc., a neuroimaging 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.





24


MARY
      ANN
      LEEPER, Ph.D.


Age:
      66;
      Elected Director: 1987; Present Term Ends: 2007 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:
      78;
      Elected Director: 1987; Present Terms Ends: 2007 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:
      49;
      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.





25


DONNA
      FELCH


Age
      59;
      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 injectable 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:
      59;
      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.





ROBERT
      R.
      ZIC


Age:
      43;
      Vice President - Finance





Mr.
      Zic
      has served as Vice President - Finance since February 2006. Prior to being
      promoted to his current position, he served from March 1999 until February
      2006
      as the Company’s Principal Accounting Officer. From 1998 to 1999, Mr. Zic held
      the dual positions of Acting Controller and Acting Chief Financial Officer
      at
      Ladbroke's Pacific Racing Association division. From 1995 to 1998, Mr. Zic
      served as the Chief Accounting Manager and Assistant Controller at Argonaut
      Insurance Company. In this capacity, he was responsible for the financial and
      accounting operations of Argonaut and its four subsidiaries. From 1990 to 1994,
      he was the Assistant Controller of CalFarm Insurance Company, where he was
      responsible for external reporting duties. From 1988 to 1990, Mr. Zic was a
      Senior Accountant responsible for the statutory-based financials of Allstate
      Insurance Company. Mr. Zic began his career in 1986 as an auditor with Arthur
      Andersen & Co.





26


DAVID
      R.
      BETHUNE


Age:
      66;
      Elected Director: 1996; Present Term Ends: 2007 Annual Meeting





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





STEPHEN
      M. DEARHOLT


Age:
      60;
      Elected Director: 1996; Present Term Ends: 2007 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 33 years of experience in direct response
      advertising and data based marketing of niche products. Since 1985, he has
      been
      a 50% owner of R.T. of Milwaukee, a private investment holding company which
      operates a stock brokerage business in Milwaukee, Wisconsin. In late 1995,
      Mr.
      Dearholt arranged, on very short notice, a $1 million bridge loan which assisted
      the Company in its purchase of Chartex. Mr. Dearholt is also very active in
      the
      non-profit sector. He is currently on the Board of Directors of Children's
      Hospital Foundation of Wisconsin, an honorary board member of the Zoological
      Society of Milwaukee, and the national Advisory Council of the Hazelden
      Foundation. He is a past board member of Planned Parenthood Association of
      Wisconsin, and past Chairman of the Board of the New Day Club, Inc.





MICHAEL
      R. WALTON


Age:
      68;
      Elected Director: 1999; Present Term Ends: 2007 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.





27


JAMES
      R.
      KERBER


Age:
      74;
      Director: 1999; Present Term Ends: 2007 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.





RICHARD
      E. WENNINGER


Age:
      59;
      Director: 2001; Present Term Ends: 2007 Annual Meeting





Mr.
      Wenninger has served as a Director of the Company since July 2001. Mr. Wenninger
      currently serves as 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 current 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 current
      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:
      37;
      Director: 2004; Present Term Ends: 2007 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.





28


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 fiscal 2006 all section 16(a) filing requirements applicable to its
      officers, directors and greater than 10% beneficial owners were complied with,
      except that Mr. Pope filed a Form 4 on December 13, 2006 reporting a transaction
      occurring on October 1, 2006 and a Form 4 on October 6, 2006 reporting
      transactions occurring September 28, 2006 and September 29, 2006;
      Mr. Zic filed a Form 4 on December 13, 2006 reporting a transaction
      occurring on October 1, 2006 and a Form 4 on July 5, 2006 reporting a
      transaction occurring on June 3, 2006; Mr. Parrish filed a Form 4 on
      May 8, 2006 reporting a transaction occurring on May 1, 2006; and Mr.
      Kerber filed a Form 4 on April 19, 2006 reporting a transaction occurring
      on June 19, 2000.





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, Chief
      Financial Officer and Vice President - Finance. 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 Financial Expert





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 Nasdaq Stock Market. The Audit Committee is an "audit committee" for
      purposes of Section 3(a)(58)(A) of the Securities Exchange Act of
      1934.





29


Item
      10.  Executive Compensation





Compensation
      of the Named Executive Officers




The
      table
      shown below provides information for each of the Company's last three fiscal
      years regarding all annual, long-term and other compensation paid by the Company
      to its Chief Executive Officer, the two other executive officers whose total
      annual salary and bonus exceeded $100,000 for services rendered during the
      fiscal year ended September 30, 2006 and the other former executive officer
      whose total annual salary and bonus exceeded such amount during fiscal 2006.
      The
      individuals listed in this table are referred to elsewhere in this report as
      the
      "named executive officers."




**Summary
      Compensation Table**


**Annual
                  Compensation**
              **Long-Term****Compensation
                  Awards****Name
                  and Principal Position**
              **Fiscal**
                **Year**
              **Salary
                  ($)**
              **Bonus
                  ($)**
              **Restricted**
                **Stock**
                **Awards
                  ($)**
              **Securities**
                **Underlying**
                **Options
                  (#)**O.B.
                  Parrish, Chairman, Chief Executive Officer and Acting
                  President
              2006
                2005
                2004
              110,833
                90,000
                90,000
              ---
                ---
                ---
              538,000
                75,000
                117,500
              (1)(2)
                (3)
                (4)
              ---
                ---
                464,000 (5)Mary
                  Ann Leeper, Ph. D., Senior Strategic Adviser (6)
              2006
                2005
                2004
              204,167
                250,000
                250,000
              ---
                ---
                ---
              51,000
                37,500
                47,000
              (1)
                (3)
                (4)
              ---
                ---
                790,000
                  (5)Michael
                  Pope, Vice President
                and
                  General Manager of the
                Female
                  Health Company (UK) Plc. (8)
              2006
                2005
                2004
              168,811
                160,343
                155,059
              ---
                ---
                ---
              106,500
                7,500
                11,750
              (1)(7)
                (3)
                (4)
              ---
                ---
                370,000 (5)Donna
                  Felch, Chief Financial Officer and Vice President (9)
              2006
              108,202
              25,050
                  (10)
              81,000
              (7)
              ---





(1)
            On
                October 3, 2005, Mr. Parrish, Dr. Leeper and Mr. Pope were issued
                50,000,
                30,000 and 15,000 shares, respectively, of restricted common stock
                by the
                Company’s Board of Directors. The shares had a one year restriction and
                became vested on October 1, 2006. The closing price of the Company’s
                common stock on October 3, 2005 was $1.70 per share. As of September
                30,
                2006, the value of Mr. Parrish’s restricted stock was $66,500, the value
                of Dr. Leeper’s restricted stock was $39,900 and the value of Mr. Pope’s
                restricted stock was $19,950 based on a value of $1.33 per share,
                the
                closing price of the Company’s common stock on that date. The shares of
                restricted stock have all the rights of the Company's common stock,
                including voting and dividend
                rights.




30


(2) On
      May 1,
      2006, Mr. Parrish was issued 300,000 shares of restricted common stock by the
      Company’s Board of Directors. The shares vest pro rata over a two-year period
      such that 150,000 shares vest on each of May 1, 2007 and May 1, 2008.
      None of the shares were vested on October 1, 2006. The closing price of the
      Company’s common stock on May 1, 2006 was $1.51 per share. As of September 30,
      2006, the value of Mr. Parrish’s restricted stock was $399,000 based on a value
      of $1.33 per share, the closing price of the Company’s common stock on that
      date. The shares of restricted stock have all the rights of the Company’s common
      stock, including voting and dividend rights.





(3)
            On
                October 1, 2004, Mr. Parrish, Dr. Leeper and Mr. Pope were issued
                50,000,
                25,000 and 5,000 shares, respectively, of restricted common stock
                by the
                Company’s Board of Directors. The shares had a one year restriction and
                became vested on October 1, 2005. The closing price of the Company’s
                common stock on October 1, 2004 was $1.50 per share. As of September
                30,
                2006, the value of Mr. Parrish’s restricted stock was $66,500, the value
                of Dr. Leeper’s restricted stock was $33,250 and the value of Mr. Pope’s
                restricted stock was $6,650 based on a value of $1.33 per share,
                the
                closing price of the Company’s common stock on that date. The shares of
                restricted stock have all the rights of the Company's common stock,
                including voting and dividend
                rights.




(4)
            On
                October 1, 2003, Mr. Parrish, Dr. Leeper, and Mr. Pope were issued
                50,000,
                20,000 and 5,000 shares, respectively, of restricted common stock
                by the
                Company’s Board of Directors. The shares had a one year restriction and
                became vested on October 1, 2004. The closing price of the Company’s
                common stock on October 1, 2003 was $2.35 per share. As of September
                30,
                2006, the value of Mr. Parrish’s restricted stock was $66,500, the value
                of Dr. Leeper’s restricted stock was $26,600, and the value of Mr. Pope’s
                restricted stock was $6,650 based on a value of $1.33 per share,
                the
                closing price of the Company’s common stock on that date. The shares of
                restricted stock have all the rights of the Company's common stock,
                including voting and dividend rights.




(5)
            On
                April 22, 2003, Mr. Parrish, Dr. Leeper and Mr. Pope were issued
                options
                to purchase shares of the Company's common stock as part of an exchange
                for the cancellation of previously issued common stock options, which
                cancellation occurred on September 26, 2002. The common stock options
                have
                an exercise price of $1.40 per share, which was the closing stock
                price of
                the Company's common stock on April 22, 2003. The options vest pro
                rata
                (one thirty-sixth) on the first of each month for 36 months following
                the
                date of the grant, commencing on May 1, 2003 and ending on April
                1,
                2006.





(6) Dr.
      Leeper ceased to be an executive officer of the Company on May 1,
      2006.





(7) On
      June 30, 2006, Mr. Pope and Ms. Felch were each issued 60,000 shares of
      restricted common stock by the Company’s Board of Directors. The shares vest pro
      rata over a two-year period such that 30,000 shares vest on each of
      June 30, 2007 and June 30, 2008. None of the shares were vested on
      October 1, 2006. The closing price of the Company’s common stock on June 30,
      2006 was $1.35 per share. As of September 30, 2006, the value of both Mr. Pope
      and Ms. Felch’s restricted stock was $79,800 based on a value of $1.33 per
      share, the closing price of the Company’s common stock on that date. The shares
      of restricted stock have all the rights of the Company’s common stock, including
      voting and dividend rights.





31


(8) Mr.
      Pope’s salary is paid in U.K. pounds. Amounts shown for Mr. Pope’s salary are
      based on the 12- month average exchange rate for each year, which was 1.80
      U.S.
      dollars per U.K. pound in fiscal 2006, was 1.85 U.S. dollars per U.K. pound
      in
      fiscal 2005 and 1.79 U.S. dollars per U.K. pound in fiscal 2004.





(9) Ms.
      Felch
      became an executive officer of the Company with her appointment as Chief
      Financial Officer and Vice President in February 2006.





(10) On
      February 6, 2006, Ms. Felch was issued 15,000 shares of common stock by the
      Company. The closing price of the Company’s common stock on February 6, 2006 was
      $1.67 per share.





Stock
      Options





No
      stock
      options were granted to the named executive officers of the Company during
      the
      fiscal year ended September 30, 2006.





The
      following table provides information regarding the value of unexercised options
      held by the named executive officers at September 30, 2006. No named executive
      officer exercised any option during the fiscal year ended September 30, 2006.





**Aggregated
      Fiscal Year-end Option Values**


**Name**
            **Number
                of Securities Underlying Unexercised Options at Fiscal Year End****(#)****Exercisable/Unexercisable**
            **Value
                of Unexercised**
              **In-the-Money
                Options at Fiscal Year End ($)**
              **Exercisable/Unexercisable****(1)**O.B.
                Parrish
            464,000
                / 0
            0
                /
                0Mary
                Ann Leeper
            790,000
                / 0
            0
                /
                0Michael
                Pope
            370,000
                / 0
            0
                /
                0Donna
                Felch
            0
                /
                0
            0
                /
                0





(1)          
      Calculated based upon a closing sale price of $1.33 on September 30, 2006.


32


Director
      Compensation and Benefits




Directors
      who are officers of the Company do not receive compensation for serving in
      such
      capacity. Individual directors who are not officers of the Company receive
      $1,000 for attendance in person at each Board meeting or meeting of a committee
      of which he or she is a member. In addition, each director who is not an
      employee of the Company receives an automatic grant of options to purchase
      30,000 shares of common stock under the Company's Outside Director Stock Option
      Plan. Stephen M. Dearholt, Richard E. Wenninger, Mary Margaret Frank, Ph.D.,
      James R. Kerber, David R. Bethune and Michael R. Walton were awarded a
      post-election grant of 30,000 options each on October 12, 2006. All of the
      options have an exercise price of $1.27 per share and vest pro rata over a
      thirty-six month period commencing November 12, 2006 and ending on October
      12,
      2009.





Employment
      and Change of Control Agreements




On
      January 20, 2006, the Company entered into an employment agreement with Dr.
      Leeper, the Company's Senior Strategic Adviser and former President and Chief
      Operating Officer of the Company, and a member of the Company’s Board of
      Directors. The employment agreement is effective May 1, 2006. The employment
      agreement terminated all previous agreements between the parties relating to
      Dr.
      Leeper’s employment, including the employment agreement between the Company and
      Dr. Leeper effective as of May 1, 1994. Pursuant to the terms of the employment
      agreement, Dr. Leeper will serve as a strategic adviser to the Company. The
      employment agreement originally expiring on September 30, 2006, was extended
      for
      a period of ninety days. Pursuant to the employment agreement, Dr. Leeper
      originally received an annual base salary of $150,000. As part of the extension
      of the employment agreement, Dr. Leeper temporarily assumed some additional
      duties and her base salary was increased to $200,000. The employment agreement
      may be further extended upon the mutual agreement of the Company and Dr. Leeper.
      Under the employment agreement, Dr. Leeper 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. 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.





33


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 Corporation. 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 $165,000.
      Additionally, Ms. Felch is entitled to participate in the Company's bonus plans,
      stock incentive plan and other employee benefit plans. As a hiring bonus, Ms.
      Felch received a grant of 15,000 shares of common stock. Additionally, the
      Company agreed to grant Ms. Felch an additional 15,000 shares of common stock
      on
      the one year anniversary date of her hire date if she remained employed by
      the
      Company on such date. Ms. Felch is eligible to participate in any medical,
      health, dental, disability and life insurance policy that is in effect for
      the
      Company's other employees who are located in the United States.





Effective
      October 1, 2005, the Company entered into Amended and Restated Change of Control
      Agreements with each of O.B. Parrish, its Chairman and Chief Executive Officer,
      Mary Ann Leeper, its Senior Strategic Adviser, 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
      a
      severance payment from the Company equal to the amount of compensation remaining
      to be paid to the executive under the agreement for the balance of the
      three-year term.





Item
      11.  Security Ownershipof Certain Beneficial
      Owners and Management and Related Stockholder Matters




The
      following table sets forth information regarding the beneficial ownership of
      the
      Company's common stock as of December 15, 2006 with respect to (a) each person
      known to the Company to own beneficially more than 5% of the Company's common
      stock, (b) each named executive officer and each director of the Company and
      (c)
      all directors and executive officers as a group.





The
      Company has determined beneficial ownership in accordance with the rules of
      the
      SEC. Unless otherwise indicated, the persons and entities included in the table
      have sole voting and investment power with respect to all shares beneficially
      owned, except to the extent authority is shared by spouses under applicable
      law.
      Shares of the Company's common stock subject to options or warrants that are
      either currently exercisable or exercisable within 60 days of December 15,
      2006
      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.





34





**Shares
                Beneficially Owned****Name
                and Address of Beneficial Owner****(1)**
            
            **Number**
            
            **Percent**O.B.
                Parrish (2)
            
            
            1,421,901
            
            
            5.7
            %William
                R. Gargiulo, Jr. (3)
            
            
            137,500
            
            
            *Mary
                Ann Leeper, Ph.D. (4)
            
            
            949,500
            
            
            3.8
            %Stephen
                M. Dearholt (5)
            
            
            3,987,208
            
            
            15.3
            %David
                R. Bethune (6)
            
            
            168,333
            
            
            *James
                R. Kerber (7)
            
            
            572,043
            
            
            2.3
            %Michael
                R. Walton (8)
            
            
            823,889
            
            
            3.4
            %Richard
                E. Wenninger (9)
            
            
            3,054,584
            
            
            12.5
            %Mary
                Margaret Frank (10)
            
            
            25,833
            
            
            *Michael
                Pope (11)
            
            
            454,245
            
            
            1.8
            %Donna
                Felch (12)
            
            
            75,000
            
            
            *Gary
                Benson (13)
            
            
            1,963,503
            
            
            7.6
            %All
                directors and executive officers
              as
                a group (12 persons)
                (2)(3)(4)(5)(6)(7)(8)(9)(10)(11)(12)(14)
            
            
            11,768,786
            
            
            41.3
            %


_______________


*  Less
      than
      1 percent.





(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 and the address of Mr. Benson is Regency Athletic Club, 1300
                Nicollet Mall, Suite 600, Minneapolis, MN 55403.





(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 462,900 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 36,500 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.





35


(5)
            Includes
                1,410,855 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, 18,100
                shares held by Mr. Dearholt's minor child, 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 135,833 shares of
                common
                stock subject to stock options and common stock purchase warrants
                for
                1,632,500 shares of common stock.  (6)
            Consists
              of 32,500 shares of common stock owned directly by Mr. Bethune and
              135,833
              shares of common stock subject to stock options held by Mr.
              Bethune.




(7)
            Includes
                366,210 shares of common stock owned directly by Mr. Kerber and 105,833
                shares of common stock subject to stock options held by Mr. Kerber.
                Also
                includes 100,000 shares subject to exercise of common stock purchase
                warrants.





(8)
            Consists
                of (a) 440,992 shares of common stock owned directly by Mr. Walton,
                (b)
                75,833 shares of common stock subject to stock options held by Mr.
                Walton,
                (c) 72,106 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.





(9)
            Consists
                of (a) 2,653,751 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, (d) 25,833 shares of common stock subject to stock
                options and (e) common stock purchase warrants for 120,000 shares
                of
                common stock.  (10)
            Consists
              of 25,833 shares of common stock subject to stock options held by Dr.
              Frank.




(11)
            Consists
                of 84,245 shares of common stock owned directly by Mr. Pope and 370,000
                shares of common stock subject to stock
                options.  (12)
            Consists
              of 75,000 shares of common stock owned directly by Ms.
              Felch.




(13)
            Consists
                of 431,957 shares of common stock and warrants to purchase 1,500,000
                shares of common stock owned by Goben Enterprises, LP, a limited
                partnership of which Mr. Benson is a general partner. Also includes
                31,546
                shares of preferred stock.





(14)
            Also
                includes 29,750 shares of common stock owned directly by Mr. Zic
                and
                69,000 shares of common stock subject to stock options held by Mr.
                Zic.




36


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





Equity
      Compensation Plan Information





The
      following table summarizes share information, as of September 30, 2006, 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
            
            2,944,980
            
            $1.36
            
            190,528Total
            
            2,944,980
            
            $1.36
            
            190,528





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. All of the shares available for future
      issuance are under the Company's stock option plans. Shares of the Company's
      common stock are authorized for issuance under the 1997 Stock Option Plan to
      employees, officers and key executives of the Company and its subsidiaries
      and
      shares of the Company's common stock are authorized for issuance under the
      1997
      Outside Director Stock Option Plan to outside directors of the Company. The
      Board of Directors administers both plans. 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
      Company issued two options to purchase an aggregate of 150,000 shares of common
      stock to a consultant as compensation for certain services provided by the
      consultant to the Company with 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 14, 2016.






37


Item
      12.  Certain Relationshipsand Related
      Transactions





Between
      September 2004 and January 2005, the Company conducted a program to induce
      the
      holders of the Company’s outstanding common stock purchase warrants to exercise
      their warrants. Pursuant to this program, the Company offered an incentive
      to
      such holders providing for issuance of (1) shares of the Company’s common stock
      equal to 10% of the aggregate number of common stock purchase warrants exercised
      or (2) new common stock purchase warrants equal to 20% of the aggregate number
      of outstanding warrants exercised containing an exercise price per share equal
      to the closing price of the Company’s common stock as reported on the OTC
      Bulletin Board on the date the holder committed to exercise the outstanding
      warrants. Under this incentive program, one investor exercised 500,000 warrants
      as of September 30, 2004 and received 550,000 shares of common stock which
      includes 50,000 incentive shares. Between October 2004 and January 2005 four
      investors opted to exercise 1,000,000 warrants and receive 1,100,000 shares
      of
      common stock which includes 100,000 incentive shares and two investors opted
      to
      exercise 1,200,000 warrants and received 1,200,000 shares of common stock and
      240,000 incentive warrants with an exercise price in each case of $1.50 per
      share and an expiration date of November 23, 2007. Among the seven persons
      participating in this program were three of the Company’s directors (Stephen M.
      Dearholt, Richard E. Wenninger and O.B. Parrish). The Company received aggregate
      proceeds of 2.5 million from the exercise of the outstanding
      warrants.





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.





38


Item
      13.  Exhibits




EXHIBIT
                  NO.
              
              DESCRIPTION3.1
              
              
              Amended
                  and Restated Articles of Incorporation of the Company.(19)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.(25)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.(32)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.(33)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.(35)3.6
              
              
              Amended
                  and Restated By-Laws of the Company.(3)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
              
              
              Wisconsin
                  Pharmacal Company, Inc. (k/n/a The Female Health Company) 1990
                  Stock
                  Option Plan.(4)10.2
              
              
              Reality
                  Female Condom Clinical Trial Data Agreement between the Company
                  and Family
                  Health International dated September 24, 1992.(6)10.3
              
              
              Trademark
                  License Agreement for Reality Trademark.(7)10.4
              
              
              Office
                  space lease between the Company and John Hancock Mutual Life Insurance
                  Company dated June 1, 1994.(8)10.5
              
              
              1994
                  Stock Option Plan.(10)10.6
              
              
              Investor
                  relations and development services Consulting Agreement between
                  the
                  Company and C.C.R.I. Corporation dated March 13, 1995.(11)10.7
              
              
              Consultant
                  Warrant Agreement dated March 13, 1995 between the Company and
                  C.C.R.I. Corporation, as amended on April 22, 1996.(13)10.8
              
              
              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.(12)10.9
              
              
              Outside
                  Director Stock Option Plan.(13)10.10
              
              
              Exclusive
                  Distribution Agreement between Chartex International Plc and Taiho
                  Pharmaceutical Co., Ltd. dated October 18, 1994.(13)10.11
              
              
              Supply
                  Agreement between Chartex International Plc and Deerfield Urethane,
                  Inc.
                  dated August 17, 1994.(13)10.12
              
              
              Grant
                  Letter dated March 7, 1996 from the Government Office for London of
                  the Secretary of State of Trade and Industry regarding economic
                  development grant to the Company.(13)10.13
              
              
              Letter
                  Amendment to Asset Sale Agreement dated April 29, 1996 between the
                  Company and Dowty Seals Limited and Chartex International Plc.(13)
  39
  
 10.14
              
              Form
                  of Warrant issued by the Company to certain foreign investors as
                  of
                  September 12, 1996.(14)10.15
              
              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.(15)10.16
              
              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.(15)10.17
              
              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.(15)10.18
              
              Form
                  of Registration Rights Agreement between the Company and certain
                  private
                  placement investors dated as of June 1, 1999.(16)10.19
              
              Amendment
                  to Registration Rights Agreement between the Company and certain
                  private
                  placement investors dated as of June 1, 1999.(16)10.20
              
              $1 million
                  Convertible Debenture issued by the Company to Gary Benson dated
                  May 19, 1999.(16)10.21
              
              $100,000
                  Convertible Debenture issued by the Company to Daniel Bishop dated
                  June 3, 1999.(16)10.22
              
              $100,000
                  Convertible Debenture issued by the Company to Robert Johander
                  dated
                  June 3, 1999.(16)10.23
              
              $100,000
                  Convertible Debenture issued by the Company to Michael Snow dated
                  June 3, 1999.(16)10.24
              
              $100,000
                  Convertible Debenture issued by the Company to W.G. Securities
                  Limited Partnership dated June 3, 1999.(16)10.25
              
              Warrant
                  to purchase 1,250,000 shares of the Company's common stock issued
                  to Gary
                  Benson on May 19, 1999.(16)10.26
              
              Warrant
                  to purchase 125,000 shares of the Company's common stock issued
                  to Daniel
                  Bishop on June 3, 1999.(16)10.27
              
              Warrant
                  to purchase 125,000 shares of the Company's common stock issued
                  to Robert
                  Johander on June 3, 1999.(16)10.28
              
              Warrant
                  to purchase 250,000 shares of the Company's common stock issued
                  to Michael
                  Snow on June 3, 1999.(16)10.29
              
              Warrant
                  to purchase 125,000 shares of the Company's common stock issued
                  to
                  W.G. Securities Limited Partnership on June 3, 1999.(16)10.30
              
              Form
                  of Common Stock Purchase Warrant to acquire 337,500 shares issued
                  to
                  R.J. Steichen as placement agent.(16)10.31
              
              Lease
                  Agreement among Chartex Resources Limited, P.A.T. (Pensions) Limited
                  and
                  The Female Health Company.(17)10.32
              
              Agreement
                  dated March 14, 1997, between the United Nations Joint Programme on
                  HIV/AIDS and Chartex International PLC.(18)10.33
              
              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.(20)10.34
              
              1997
                  Stock Option Plan.(18)10.35
              
              Employee
                  Stock Purchase Plan.(18)10.36
              
              Agreement
                  dated September 29, 1997, between Vector Securities International and
                  The Female Health Company.(18)10.37
              
              Private
                  Equity Line of Credit Agreement between the Company and Kingsbridge
                  Capital Limited dated November 19, 1998.(2)10.38
              
              Registration
                  Rights Agreement between the Company and Kingsbridge Capital Limited
                  dated
                  as of November 19, 1998.(2)10.39
              
              Warrant
                  to Purchase up to 200,000 shares of common stock of the Company
                  issued to
                  Kingsbridge Capital Limited as of November 19, 1998.(2)10.40
              
              Agreement
                  between Kingsbridge Capital Limited and the Company dated
                  February 12, 1999.(22)10.41
              
              Consulting
                  Agreement between the Company and Kingsbridge Capital Limited dated
                  February 12, 1999.(22)
  40
  
 10.42
              
              Registration
                  Rights Agreement between Kingsbridge Capital Limited and the Company
                  dated
                  February 12, 1999.(22)10.43
              
              Warrant
                  for 100,000 shares of the Company's common stock issued to Kingsbridge
                  Capital Limited as of February 12, 1999.(22)10.44
              
              Company
                  Promissory Note to Stephen M. Dearholt for $250,000 dated
                  February 12, 2000 and related Warrants.(23)10.45
              
              Company
                  Promissory Note to O.B. Parrish for $50,000 dated February 18,
                  2000 and related Warrants.(23)10.46
              
              Company
                  Promissory Note to Stephen M. Dearholt for $1 million dated
                  March 25, 2000 and related Warrants.(23)10.47
              
              Stock
                  Purchase Agreement, dated as of June 14, 2000, between The Female
                  Health Company and The John W. Dearholt Trust.(24)10.48
              
              Warrant
                  to purchase 250,000 shares of the Company's common stock issued
                  to Gary
                  Benson on May 19, 2000.(24)10.49
              
              Warrant
                  to purchase 25,000 shares of the Company's common stock issued
                  to Daniel
                  Bishop on June 3, 2000.(24)10.50
              
              Warrant
                  to purchase 25,000 shares of the Company's common stock issued
                  to Robert
                  Johander on June 3, 2000.(24)10.51
              
              Warrant
                  to purchase 50,000 shares of the Company's common stock issued
                  to Michael
                  Snow on June 3, 2000.(24)10.52
              
              Warrant
                  to purchase 25,000 shares of the Company's common stock issued
                  to
                  W.G. Securities Limited Partnership on June 3, 2000.(24)10.53
              
              Stock
                  Purchase Agreement, dated as of June 14, 2000, between the Company
                  and The John W. Dearholt Trust.(24)10.54
              
              Exclusive
                  Distribution Agreement, dated as of October 1, 2000, between the
                  Company and Mayer Laboratories, Inc.(25)10.55
              
              Amended
                  and Restated Convertible Debenture issued by the Company to
                  Richard E. Wenninger dated March 30, 2001.(26)10.56
              
              Amended
                  and Restated Promissory Note to Stephen M. Dearholt for $250,000
                  dated
                  February 12, 2001 and related warrants.(5)10.57
              
              Amended
                  and Restated Promissory Note to O.B. Parrish for $50,000 dated
                  February 18, 2001 and related warrants.(5)10.58
              
              Amended
                  and Restated Promissory Note to Stephen M. Dearholt for $1,000,000
                  dated March 25, 2001 and related warrants.(26)10.59
              
              Loan
                  Agreement, dated as of May 18, 2001, between the Company and
                  Heartland Bank.(26)10.60
              
              Registration
                  Rights Agreement, dated as of May 18, 2001, between the Company and
                  Heartland Bank.(26)10.61
              
              Warrant
                  dated May 18, 2001 from the Company to Heartland Bank.(27)10.62
              
              Warrants
                  dated May 18, 2001 from the Company to Stephen M. Dearholt.(27)10.63
              
              Warrant
                  dated May 18, 2001 from the Company to James R. Kerber.(27)10.64
              
              Warrant
                  dated May 18, 2001 from the Company to Tom Bodine.(27)10.65
              
              Warrant
                  dated May 18, 2001 from the Company to The Geneva O. Parrish
                  1996 Living Trust.(27)10.66
              
              Warrants
                  dated May 23, 2001 from the Company to Richard E. Wenninger.(27)10.67
              
              Registration
                  Rights Agreement, dated as of May 18, 2001, among the Company and
                  certain guarantors.(27)10.68
              
              Exclusive
                  Distribution Agreement, dated October 18, 2001, between the Company
                  and Total Access Group.(28)10.69
              
              Memorandum
                  of Understanding, dated as of November 12, 2001, between the Company
                  and Hindustan Latex Limited.(29)10.70
              
              Warrant
                  dated December 18, 2001 from the Company to Dr. Jerry Kinder(30)10.71
              
              Warrant
                  dated December 20, 2001 from the Company to Tom Bodine(30)10.72
              
              Warrant
                  dated February 20, 2002 from the Company to Gerald Stein(30)10.73
              
              Amended
                  and Restated Promissory Note to Stephen M. Dearholt for $1,000,000
                  dated March 25, 2002 and related warrants.(31)10.74
              
              Amended
                  and Restated Promissory Note to Stephen M. Dearholt for $1,000,000
                  dated
                  March 25, 2003 and related warrants.(34)
  41
  
 10.75
              
              Amended
                  and Restated Change of Control Agreement between the Company and
                  O.B.
                  Parrish dated October 1, 2005.(36)10.76
              
              Amended
                  and Restated Change of Control Agreement between the Company and
                  Mary Ann
                  Leeper dated October 1, 2005.(36)10.77
              
              Amended
                  and Restated Change of Control Agreement between the Company and
                  Michael
                  Pope dated October 1, 2005.(36)10.78
              
              Change
                  of Control Agreement between the Company and Donna Felch dated
                  February 8,
                  2006.(37)10.79
              
              Letter
                  Agreement between the Company and Donna Felch dated February 2, 2006.(37)10.80
              
              Employment
                  Agreement between the Company and Mary Ann Leeper dated effective
                  as of
                  May 1, 2006.(38)21
              
              Subsidiaries
                  of Registrant.(21)23.1
              
              Consent
                  of McGladrey & Pullen,
                  LLP24.1
              
              Power
                  of Attorney (included as part of the signature page
                  hereof).31.1
              
              Certification
                  of Chief Executive
                  Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
                  2002.31.2
              
              Certification
                  of Principal
                  Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
                  Act of
                  2002.32.1
              
              Certification
                  of Chief Executive
                  Officer and Principal Financial Officer pursuant to 18 U.S.C. Section
                  1350
                  (Section 906 of the Sarbanes-Oxley Act of 2002.(39)
 ___________________
 
 (1)
              Incorporated
                  herein by reference to the Company's 1995 Form 10-KSB.(2)
              Incorporated
                  herein by reference to the Company's Form SB-2 Registration Statement
                  filed December 8, 1998.(3)
              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.(4)
              Incorporated
                  herein by reference to the Company's December 31, 1990 Form 10-QSB.
  42
 
 (5)
              Incorporated
                  herein by reference to the Company's March 31, 2001 Form 10-QSB.(6)
              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.(7)
              Incorporated
                  herein by reference to the Company's 1992 Form 10-KSB.(8)
              Incorporated
                  herein by reference to the Company's June 30, 1994 Form 10-Q.(9)
              Intentionally
                  omitted.(10)
              Incorporated
                  herein by reference to the Company's 1994 Form 10-KSB.(11)
              Incorporated
                  herein by reference to the Company's March 31, 1995 Form 10-Q.(12)
              Incorporated
                  herein by reference to the Company's June 30, 1995 Form 10-Q.(13)
              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.(14)
              Incorporated
                  herein by reference to the Company's 1996 Form 10-K.(15)
              Incorporated
                  herein by reference to the Company's March 31, 1999 Form 10-QSB.(16)
              Incorporated
                  herein by reference to the Company's June 30, 1999 Form 10-QSB.(17)
              Incorporated
                  herein by reference to the Company's December 31, 1996 Form 10-QSB.(18)
              Incorporated
                  herein by reference to the Company's Form 10-KSB/A-2 for the year
                  ended
                  September 30, 1997.
 
 43
  (19)
              Incorporated
                  herein by reference to the Company's Form SB-2 Registration Statement
                  filed with the Securities and Exchange Commission on October 19,
                  1999.(20)
              Incorporated
                  herein by reference to the Company's March 31, 1997 Form 10-QSB.(21)
              Incorporated
                  herein by reference to the Company's Form 10-KSB for the year ended
                  September 30, 1999.(22)
              Incorporated
                  herein by reference to the Company's December 31, 1998 Form 10-QSB.(23)
              Incorporated
                  herein by reference to the Company's March 31, 2000 Form 10-QSB.(24)
              Incorporated
                  herein by reference to the Company's June 30, 2000 Form 10-QSB.(25)
              Incorporated
                  herein by reference to the Company's Form SB-2 Registration Statement
                  filed with the Securities and Exchange Commission on September
                  21, 2000.(26)
              Incorporated
                  herein by reference to the Company's June 30, 2001 Form 10-QSB.(27)
              Incorporated
                  herein by reference to the Company's Form SB-2 Registration Statement
                  filed on November 13, 2001.(28)
              Incorporated
                  herein by reference to Amendment No. 1 to the Company's Form SB-2
                  Registration Statement filed on February 6, 2002.(29)
              Incorporated
                  herein by reference to Amendment No. 2 to the Company's Form SB-2
                  Registration Statement filed on February 27, 2002.(30)
              Incorporated
                  herein by reference to Amendment No. 3 to the Company's Form SB-2
                  Registration Statement filed on March 18, 2002.(31)
              Incorporated
                  herein by reference to the Company's March 31, 2002 Form 10-QSB.(32)
              Incorporated
                  by reference herein to the Company's Form SB-2 Registration Statement
                  filed on September 6, 2002.(33)
              Incorporated
                  herein by reference to the Company's March 31, 2003 Form
                  10-QSB.(34)
              Incorporated
                  herein by reference to the Company's September 30, 2003 Form
                  10-KSB.(35)
              Incorporated
                  herein by reference to the Company's March 31, 2004 Form
                  10-QSB.




44
 
 
 (36)
              Incorporated
                  herein by reference to the Company's September 30, 2005 Form
                  10-KSB.(37)
              Incorporated
                  herein by reference to the Company's Form 8-K dated February 8,
                  2006 and
                  filed on February 8, 2006.(38)
              Incorporated
                  hereby by reference to the Company's Form 8-K/A dated February
                  20, 2006
                  and filed on February 21, 2006.(39)
              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.
  Item
        14. Principal
        Accountant Feesand
        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 2006 and 2005:





**Service
                Type**
            
            
            **Fiscal
                2006**
            
            
            **Fiscal
                2005**Audit
                Fees (1)
            
            $
            226,311
            
            $
            189,101Audit-Related
                Fees (2)
            
            
            17,365
            
            
            205,094Tax
                Fees (3)
            
            
            26,066
            
            
            20,723All
                Other Fees
            
            
            --
            
            
            --Total
                Fees Billed
            
            $
            269,742
            
            $
            414,918


________________





(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, 2006 and September 30, 2005; 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 activities in support of the Company's Sarbanes-Oxley Section 404
      implementation project and costs incurred for consultation on various accounting
      matters in support of the Company's financial statements.





45


(3)
            For
                the fiscal years ended September 30, 2005 and September 30, 2006
                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.





46


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 28, 2006


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
            
            Chairman
                of the Board, Chief Executive Officer and Director (Principal
                Executive Officer)
            December
                28, 2006O.B.
                Parrish/s/
                Mary Ann Leeper
            
            Director
            December
                28, 2006Mary
              Ann Leeper, Ph.D.


47





/s/
                Donna Felch
            
            Vice
                President and Chief Financial Officer (Principal Accountingand
                Financial Officer)
            December
                28, 2006Donna
                Felch/s/
                William R. Gargiulo
            
            Secretary
                and Director
            December
                27, 2006William
                R. Gargiulo/s/
                David R. Bethune
            
            Director
            December
                27, 2006David
                R. BethuneDirector
            December
                ___, 2006Stephen
                M. DearholtDirector
            December
                ___, 2006Michael
                R. Walton/s/
                James R. Kerber
            
            Director
            December
                27, 2006James
                R. KerberDirector
            December
                ___, 2006Richard
                E. Wenninger/s/
                Mary Margaret Frank
            
            Director
            December
                27, 2006Mary
                Margaret Frank








48





**The
      Female Health Company and Subsidiaries**


**Index
      to Consolidated Financial Statements**




Page
              No.Audited
                Consolidated Financial Statements.Report
                of McGladrey & Pullen, LLP,
                Independent Registered Public Accounting Firm.
            F-1Consolidated
                Balance Sheet as of September 30,
                2006.
            F-2Consolidated
                Statements of Operations for
                the years ended
              September
                30, 2006 and
                2005.
            F-3Consolidated
                Statements of Stockholders’
                Equity
              for
                the years ended September 30, 2006 and
                2005.
            F-4
                and F-5Consolidated
                Statements of Cash Flows for the
                years ended
              September
                30, 2006 and 2005.
            F-6
                and F-7Notes
                to Consolidated Financial
                Statements.
            F-8
                through F-21













**Report
      of IndependentRegistered Public Accounting
      Firm**








To
      the
      Board of Directors and Stockholders


The
      Female Health Company and Subsidiaries


Chicago,
      Illinois





We
      have
      audited the accompanying consolidated balance sheet of The Female Health Company
      and Subsidiaries, as of September 30, 2006, and the related consolidated
      statements of operations, stockholders' equity, and cash flows for the years
      ended September 30, 2006 and 2005. 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, 2006, and the results of their operations
      and their cash flows for the years ended September 30, 2006 and 2005, in
      conformity with U.S. generally accepted accounting principles.






/s/
      McGladrey & Pullen, LLP




Schaumburg,
      Illinois


December
      27, 2006







F-1




**The
                  Female Health Company and Subsidiaries****Consolidated
                  Balance Sheet****September
                  30, 2006****Assets**Current
                  AssetsCash
              
              **$**
              **1,827,393**Restricted
                  cash
              
              
              **237,741**Accounts
                  receivable, net of allowance for doubtful accounts****of
                  $45,000
              
              
              **3,160,801**Inventories
              
              
              **1,011,672**Prepaid
                  expenses and other current assets
              
              
              **413,532****Total
                  current assets**
              
              
              **6,651,139**Other
                  Assets****
              
              
              **187,940**Equipment,
                  Furniture and FixturesEquipment
                  not yet in service
              
              
              **205,837**Equipment,
                  furniture and fixtures
              
              
              **4,920,483****5,126,320**Less
                  accumulated depreciation
              
              
              **4,519,627****606,693****$**
              **7,445,772****Liabilities
                  and Stockholders' Equity**Current
                  Liabilities****Accounts
                  payable
              
              **$**
              **599,023**Accrued
                  expenses and other current liabilities
              
              
              **970,439**Preferred
                  dividends payable
              
              
              **11,210****Total
                  current liabilities**
              
              
              **1,580,672**Deferred
                  Gain on Sale of Facility
              
              
              **1,092,775**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 24,316,363 shares
              
              
              **243,164**Additional
                  paid-in capital
              
              
              **64,291,244**Unearned
                  consulting fees
              
              
              **(61,000**
              **)**Deferred
                  compensation
              
              
              **(449,325**
              **)**Accumulated
                  other comprehensive income
              
              
              **598,474**Accumulated
                  deficit
              
              
              **(59,823,450**
              **)****4,804,401**Treasury
                  stock, at cost, 20,000 shares of common stock
              
              
              **(32,076**
              **)****4,772,325****$**
              **7,445,772**See
                  Notes to Consolidated Financial Statements.




F-2


**The
                    Female Health Company and Subsidiaries****Consolidated
                    Statements of
                    Operations****Years
                    Ended September 30, 2006 and 2005****2006**
                
                
                2005Net
                    revenues
                
                **$**
                **14,824,242**
                
                $
                11,161,555Cost
                    of products sold
                
                
                **9,334,832**
                
                
                7,117,722**Gross
                    profit**
                
                
                **5,489,410**
                
                
                4,043,833Operating
                    expenses:Advertising
                    and promotion
                
                
                **218,500**
                
                
                123,103Selling,
                    general and administrative
                
                
                **4,819,679**
                
                
                4,958,208Research
                    and development costs
                
                
                **210,876**
                
                
                273,776Total
                    operating expenses
                
                
                **5,249,055**
                
                
                5,355,087**Operating
                    income (loss)**
                
                
                **240,355**
                
                
                (1,311,254
                )Nonoperating
                    income (expense):Interest
                    expense
                
                
                **(11,250**
                **)**
                
                (53,752
                )Interest
                    income
                
                
                **65,267**
                
                
                23,453Foreign
                    currency transaction loss
                
                
                **(12,346**
                **)**
                
                (14,103
                )**41,671**
                
                
                (44,402
                )**Net
                    income (loss)**
                
                
                **282,026**
                
                
                (1,355,656
                )Preferred
                    dividends, Class A Series 1
                
                
                **11,201**
                
                
                11,201Preferred
                    dividends, Class A Series 3
                
                
                **150,047**
                
                
                150,006Net
                    income (loss) attributable to common stockholders
                
                **$**
                **120,778**
                
                $
                (1,516,863
                )Net
                    income (loss) per basic common share outstanding
                
                **$**
                **0.01**
                
                $
                (0.07
                )Basic
                    weighted average common shares outstanding
                
                
                **23,801,167**
                
                
                23,094,868Net
                    income (loss) per diluted common share outstanding
                
                **$**
                **0.01**
                
                $
                (0.07
                )Diluted
                    weighted average common shares outstanding
                
                
                **26,494,568**
                
                
                25,967,085See
                    Notes to Consolidated Financial Statements.
   F-3
 **The
                    Female Health Company and Subsidiaries****Consolidated
                    Statements of Stockholders'
                    Equity****Years
                    Ended September 30, 2006 and 2005**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
                    (Loss)
                
                
                Deficit
                
                
                Stock
                
                
                TotalBalance
                    at September 30, 2004
                
                $
                560
                
                $
                4,734
                
                $
                -
                
                $
                207,152
                
                $
                59,700,265
                
                $
                (69,547
                )
                $
                -
                
                $
                441,634
                
                $
                (58,427,365
                )
                $
                (32,076
                )
                $
                1,825,357Issuance
                    of 275,000 shares of CommonStock
                    for consulting services
                
                
                -
                
                
                -
                
                
                -
                
                
                2,750
                
                
                421,000
                
                
                (423,750
                )
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -Issuance
                    of 3,000 shares of CommonStock
                    upon exercise of stock
                  options
                
                
                -
                
                
                -
                
                
                -
                
                
                30
                
                
                4,170
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                4,200Issuance
                    of 113,500 restricted shares of
                  Common
                    Stock
                -
                
                
                -
                
                
                -
                
                
                1,135
                
                
                197,672
                
                
                -
                
                
                (198,807
                )
                
                -
                
                
                -
                
                
                -
                
                
                -Issuance
                    of 2,200,000 shares of Common
                    Stockupon
                    exercise of stock warrants
                
                
                -
                
                
                -
                
                
                -
                
                
                22,000
                
                
                2,023,000
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                2,045,000Issuance
                    of 90,647 shares of Common Stock aspayment
                    of preferred stock
                  dividends
                
                
                -
                
                
                -
                
                
                -
                
                
                906
                
                
                149,053
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                149,959Issuance
                    of 100,000 shares of Common Stock asincentive
                    for exercise of stock
                  warrants
                
                
                -
                
                
                -
                
                
                -
                
                
                1,000
                
                
                171,400
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                172,400Issuance
                    of 240,000 Common Stock warrants asincentive
                    for exercise of stock
                  warrants
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                169,676
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                169,676Preferred
                    Stock dividends
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (161,207
                )
                
                -
                
                
                (161,207
                )Amortization
                    of deferred compensation
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                198,807
                
                
                -
                
                
                -
                
                
                -
                
                
                198,807Amortization
                    of unearned consulting
                  fees
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                387,848
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                387,848Comprehensive
                    loss:Net
                    loss
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (1,355,656
                )
                
                -
                
                
                (1,355,656
                )Foreign
                    currency translation
                  adjustment
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (126,559
                )
                
                -
                
                
                -
                
                
                (126,559
                )Comprehensive
                    loss
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (1,482,215
                )Balance
                    at September 30, 2005
                
                $
                560
                
                $
                4,734
                
                $
                -
                
                $
                234,973
                
                $
                62,836,236
                
                $
                (105,449
                )
                $
                -
                
                $
                315,075
                
                $
                (59,944,228
                )
                $
                (32,076
                )
                $
                3,309,825See
                    Notes to Consolidated Financial Statements.
   F-4
  **The
                    Female Health Company and Subsidiaries****Consolidated
                    Statements of Stockholders' Equity****Years
                    Ended September 30, 2006 and 2005**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 170,000 shares of Common Stockfor
                    consulting services
                
                
                -
                
                
                -
                
                
                -
                
                
                1,700
                
                
                283,300
                
                
                (285,000
                )
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -Issuance
                    of 1,000 shares of Commonstock
                    upon exercise of stock
                  options
                
                
                -
                
                
                -
                
                
                -
                
                
                10
                
                
                1,390
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                1,400Issuance
                    of 462,875 restricted shares
                  of
                    Common Stock
                -
                
                
                -
                
                
                -
                
                
                4,629
                
                
                704,259
                
                
                -
                
                
                (839,800
                )
                
                -
                
                
                -
                
                
                -
                
                
                (130,912
                )Issuance
                    of 75,000 shares of Common Stock
                  as
                    bonuses
                -
                
                
                -
                
                
                -
                
                
                750
                
                
                123,100
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                123,850Issuance
                    of 110,154 shares of Common Stock
                  as
                    payment of preferred stockdividends
                
                
                -
                
                
                -
                
                
                -
                
                
                1,102
                
                
                148,924
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                150,026Issuance
                    of 200,000 Common Stockwarrants
                    for consulting
                  services
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                194,035
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                194,035Preferred
                    Stock dividends
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (161,248
                )
                
                -
                
                
                (161,248
                )Amortization
                    of deferred compensation
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                390,475
                
                
                -
                
                
                -
                
                
                -
                
                
                390,475Amortization
                    of unearned consulting fees
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                329,449
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                329,449Comprehensive
                    income:Net
                    income
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                282,026
                
                
                -
                
                
                282,026Foreign
                    currency translation
                  adjustment
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                283,399
                
                
                -
                
                
                -
                
                
                283,399Comprehensive
                    income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                565,425Balance
                    at September 30, 2006
                
                $
                560
                
                $
                4,734
                
                $
                -
                
                $
                243,164
                
                $
                64,291,244
                
                $
                (61,000
                )
                $
                (449,325
                )
                $
                598,474
                
                $
                (59,823,450
                )
                $
                (32,076
                )
                $
                4,772,325See
                    Notes to Consolidated Financial Statements.
  F-5
  **The
                    Female Health Company and Subsidiaries****Consolidated
                    Statements of Cash
                    Flows****Years
                    Ended September 30, 2006 and 2005****2006**
                
                
                2005Operating
                    ActivitiesNet
                    income (loss)
                
                **$**
                **282,026**
                
                $
                (1,355,656
                )Adjustments
                    to reconcile net income (loss) to net cashprovided
                    by (used in) operating activities:Depreciation
                
                
                **63,004**
                
                
                56,950Amortization
                    of patents
                
                
                **43,809**
                
                
                136,818Increase
                    in (recovery of) inventory obsolescence
                
                
                **26,245**
                
                
                (3,356
                )(Recovery
                    of) increase in allowance for doubtful accounts, returns and
                    discounts
                
                
                **(15,568**
                **)**
                
                47,561Interest
                    added to certificate of deposit
                
                
                **(2,347**
                **)**
                
                (2,802
                )Amortization
                    of unearned consulting fees
                
                
                **329,449**
                
                
                387,848Amortization
                    of discounts on notes payable
                
                
                **-**
                
                
                46,252Common
                    stock warrants issued for investor relation services
                
                
                **194,035**
                
                
                -Amortization
                    of deferred gain on sale and leasebackof
                    building
                
                
                **(102,629**
                **)**
                
                (105,071
                )Stock
                    compensation
                
                
                **429,325**
                
                
                540,883Changes
                    in operating assets and liabilities:Accounts
                    receivable
                
                
                **(949,869**
                **)**
                
                (705,118
                )Inventories
                
                
                **(100,407**
                **)**
                
                523,406Prepaid
                    expenses and other assets
                
                
                **(158,128**
                **)**
                
                (93,258
                )Accounts
                    payable
                
                
                **16,729**
                
                
                169,539Accrued
                    expenses and other current liabilities
                
                
                **212,261**
                
                
                156,746**Net
                    cash provided by (used in) operating activities**
                
                
                **267,935**
                
                
                (199,258
                )Investing
                    ActivitiesIncrease
                    in restricted cash
                
                
                **(237,741**
                **)**
                
                -Proceeds
                    from maturity of certificate of deposit
                
                
                **-**
                
                
                27,062Capital
                    expenditures
                
                
                **(124,190**
                **)**
                
                (251,687
                )**Net
                    cash used in investing activities**
                
                
                **(361,931**
                **)**
                
                (224,625
                )Financing
                    ActivitiesProceeds
                    from exercise of stock options
                
                
                **1,400**
                
                
                4,200Proceeds
                    from exercise of common stock warrants
                
                
                **-**
                
                
                2,045,000Payments
                    on note payable, bank
                
                
                **-**
                
                
                (500,000
                )Dividend
                    paid on preferred stock
                
                
                **(15,200**
                **)**
                
                (7,206
                )Payments
                    on capital lease obligations
                
                
                **-**
                
                
                (21,980
                )**Net
                    cash (used in) provided by financing activities**
                
                
                **(13,800**
                **)**
                
                1,520,014(continued)
 
 F-6


**The
                    Female Health Company and Subsidiaries****Consolidated
                    Statements of Cash Flows****Years
                    Ended September 30, 2006 and 2005
                    (continued)**
  **2006**
                
                2005Effect
                    of exchange rate changes on cash
                
                **$**
                **160,123**
                
                $
                (76,547
                )Net
                    increase in cash
                
                
                **52,327**
                
                
                1,019,584Cash
                    at beginning of year
                
                
                **1,775,066**
                
                
                755,482Cash
                    at end of year
                
                **$**
                **1,827,393**
                
                $
                1,775,066Supplemental
                    Cash Flow Disclosures:Interest
                    paid
                
                **$**
                **-**
                
                $
                7,500Supplemental
                    Schedules of Noncash Investing and Financing Activities:Common
                    stock issued for payment of preferred stock dividends
                
                **$**
                **150,026**
                
                $
                149,959Preferred
                    dividends declared
                
                
                **11,201**
                
                
                11,201Issuance
                    of restricted stock to employees
                
                
                **839,800**
                
                
                131,625Accrued
                    expense incurred for restricted common stock granted to
                    employeesand
                    consultants
                
                
                **130,912**
                
                
                -See
                    Notes to Consolidated Financial
                    Statements.
  F-7
  **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.





The
      product is currently sold or available in either or both commercial (private
      sector) and public sector markets in 108 countries. The product is marketed
      in
      10 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 :
      Substantially all of the Company’s cash is maintained in one financial
      institution located in London, England.





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.





A
      significant portion of the Company’s product is being sold to developing
      countries and the stability of the political environment within these countries
      could have a material effect on the operations of the Company.





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-8


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


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




Foreign
      currency translation :
      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.





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


Furniture
      and fixtures 3
      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, 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, 2006.





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, 2006 and 2005, was approximately
      $211,000 and $274,000, respectively.





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





Revenue
      recognition :
      The
      Company recognizes revenue from product sales when each of the following
      conditions has been met: an arrangement exists, delivery has occurred, there
      is
      a fixed price, and collectibility is reasonably assured.






F-9


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


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




Stock-based
      compensation :
      The
      value of stock options awarded to employees is measured using the intrinsic
      value method prescribed by Accounting Principles Board Opinion No. 25 (APB
      25), *Accounting
      for Stock Issued to Employees,* and
      related interpretations *.* Accordingly, no stock-based compensation cost has been recognized, as all
      options granted under the Company’s stock option plans had an exercise price
      equal to or greater than the market value of the underlying common stock on
      the
      date of grant. The following table illustrates the effect on net losses and
      losses per share had compensation cost for all of the stock-based compensation
      plans been determined based on the grant date fair values of awards (the method
      prescribed by Financial Accounting Standard No. 123, *Accounting
      for Stock-Based Compensation):*




Year
                  Ended September 30,2006
              
              
              2005Net
                  income (loss) attributable to common stockholders, as
                  reported
              
              $
              120,778
              
              $
              (1,516,863
              )Deduct:
                  Total stock-based employee compensation expensedetermined
                  under fair-value-based method for all awards
              
              
              (492,086
              )
              
              (824,930
              )Pro
                  forma net loss
              
              $
              (371,308
              )
              $
              (2,341,793
              )Basic
                  and diluted income (loss) per common share:As
                  reported
              
              $
              0.01
              
              $
              (0.07
              )Pro
                  forma
              
              $
              (0.02
              )
              $
              (0.10
              )




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.





F-10


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


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




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





Over
      the
      years, the 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.”





New
      accounting pronouncements :
      The
      Financial Accounting Standards Board has issued Statement of Financial
      Accounting Standards No. 123 (revised), *Share-Based
      Payment* .
      SFAS
      123(R) is a replacement of SFAS 123, *Accounting
      for Stock-Based Compensation,* and
      supersedes APB Opinion No. 25, *Accounting
      for Stock Issued to Employees* ,
      and its
      related interpretive guidance.





SFAS
      123(R) requires that the compensation cost relating to share-based payment
      transactions be recognized in financial statements. That cost will be measured
      based on the fair value of the equity or liability instruments issued. The
      effect of the standard will be to require entities to measure the cost of
      employee services received in exchange for stock options based on the grant-date
      fair value of the award, and to recognize the cost over the period the employee
      is required to provide services for the award.





The
      Company will be required to apply Statement 123(R) as of the beginning of its
      interim reporting period that begins October 1, 2006.





SFAS
      123(R) allows two methods for determining the effects of the transition: the
      modified prospective transition method and the modified retrospective method
      of
      transition. Under the modified prospective transition method, an entity would
      use the fair-value-based accounting method for all employee awards granted,
      modified, or settled after the effective date. As of the effective date,
      compensation cost related to the nonvested portion of awards outstanding as
      of
      that date would be based on the grant-date fair value of those awards as
      calculated under the original provisions of Statement No. 123; that is, an
      entity would not remeasure the grant-date fair value estimate of the unvested
      portion of awards granted prior to the effective date of the final Statement.
      Under the modified retrospective method of transition, an entity would recognize
      employee compensation cost for prior periods presented in accordance with the
      original provisions of Statement No. 123; that is, an entity would recognize
      employee compensation cost in the amounts reported in the pro forma disclosures
      provided in accordance with Statement No. 123.





The
      Company will elect the modified prospective transition method. Under this
      method, the Company estimates that the adoption of SFAS 123(R) will require
      the
      Company to record approximately $125,000 of stock compensation expense in the
      year ending September 30, 2007, related to employee options issued and
      outstanding at September 30, 2006, and those issued by the Company
      subsequent to year-end.





F-11


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


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




In
      June
      2006, the FASB issued Interpretation No. 48 (FIN 48), *Accounting
      for Uncertainty in Income Taxes -* an
      interpretation of SFAS 109 *,*  *Accounting
      for 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 fiscal
      years beginning after December 15, 2006.  Management has not yet determined
      the impact that adoption will have on the Company's 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
      September 2006, the SEC staff issued Staff Accounting Bulletin
      (SAB) No. 108. The intent of SAB 108 is to reduce diversity in
      practice for the method companies use to quantify financial statement
      misstatements, including the effect of prior year uncorrected errors.
      SAB 108 establishes an approach that requires quantification of financial
      statement errors using both an income statement and cumulative balance sheet
      approach. The
      requirements of SAB No. 108 are effective for fiscal years ending after November
      15, 2006. The Company does not believe the adoption of SAB 108 will have a
      material effect on its consolidated financial statements.





Reclassifications :
      Certain
      items in the 2005 financial statements have been reclassified to conform to
      the
      2006 presentation. The reclassifications have had no effect on the net income
      (loss) for the years then ended.




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




The
      components of inventory consist of the following at September 30,
      2006:




Raw
                  materials
              
              $
              738,166Work
                  in process
              
              
              171,886Finished
                  goods
              
              
              154,620Less
                  allowance for obsolescence
              
              
              (53,000
              )$
              1,011,672






F-12




**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,
        2006:
 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 and
        $136,818 for the years ended September 30, 2006 and 2005,
        respectively.
 
 As
        a
        result of the patents becoming fully amortized as of March 31, 2006, no
        additional amortization expense will be incurred in the future.




**Note
                4.**
            **Notes
                Payable and Long-Term Debt**




As
      of
      September 30, 2004, the Company had $500,000 remaining due under a credit
      facility with Heartland Bank. The credit facility was recorded at September
      30,
      2004, net of unamortized discount of $46,252. The remaining due amount of
      $500,000 was paid off as part of the warrant exercise program discussed in
      detail in Note 7, Common Stock Purchase Warrants.





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, 2007. The two notes total
      $1,500,000 and bear interest payable at a rate of prime plus 1% (prime rate
      was
      8.25% at September 30, 2006). 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 are outstanding under the revolving notes
      at September 30, 2006.





Interest
      expense to related parties for the year ended September 30, 2005, was $53,752.
      There was no interest expense to related parties for the year ended September
      30, 2006, due to the retirement of the related notes payable in the prior fiscal
      year.




**Note
                5.**
            **Operating
                Leases and Rental Expense**




The
      Company renewed and expanded its lease agreement to 5,100 square feet of office
      space with an unrelated third party which expires October 31, 2011. The lease
      requires monthly payments of $6,297 plus real estate taxes, utilities, and
      maintenance expenses. The Company is no longer required to make a security
      deposit related to the office space or maintain a certificate of deposit and
      letter of credit as collateral for said deposit.




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-13


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




**Note
                5.**
            **Operating
                Leases and Rental Expense
                (Continued)**




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 $483,168 (£268,125) 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 $182,481 (£97,500) and is included in other
      assets in the balance sheet at September 30, 2006. 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, 2006, was $1,092,775 (£583,873).




On
      June
      1, 2005, the Company entered into a lease agreement to utilize 1,900 square
      feet
      of a facility located in Selangor D.E., Malaysia, for warehousing and
      manufacturing FC2. The lease expired May 31, 2006, and has since been renewed
      for two additional six-month periods currently expiring May 31, 2007. The lease
      requires an annual payment of $7,233. The lease shall automatically renew for
      an
      additional six-month period unless either party gives written notice of
      termination. The Company was not required to make an initial security deposit.





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
      $1,559 at September 30, 2006.





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




September
                  30,2006
              
              2005Operating
                  lease expense:Factory
                  and office leases
              
              $
              832,547
              
              $
              856,525Other
              
              
              18,718
              
              
              11,314$
              851,265
              
              $
              867,839
 
 Future
        minimum payments under operating leases consisted of the following at September
        30, 2006:
 
 Operating
                Leases2007
              
              $
              571,2112008
              
              
              568,6642009
              
              
              566,3102010
              
              
              567,1452011
              
              
              568,570Thereafter
              
              
              2,401,954Total
                  minimum payments
              
              $
              5,243,854






F-14


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




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




A
      reconciliation of income tax expense (credit) and the amount computed by
      applying the statutory Federal income tax rate to loss before income taxes
      as of
      September 30, 2006 and 2005, is as follows:


September
                  30,2006
              
              
              2005Income
                  tax expense (credit) at statutory rates
              
              $
              96,000
              
              $
              (461,000
              )Nondeductible
                  expenses
              
              
              142,000
              
              
              66,000State
                  income tax, net of federal benefits
              
              
              (13,000
              )
              
              (64,000
              )Utilization
                  of NOL carryforwards
              
              
              (225,000
              )
              
              -Benefit
                  of net operating loss not recognized, increase invaluation
                  allowance
              
              
              -
              
              
              459,000$
              -
              
              $
              -




As
      of
      September 30, 2006, the Company had federal and state net operating loss
      carryforwards of approximately $47,211,000 and $25,570,000, respectively, for
      income tax purposes expiring in years 2007 to 2026. 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 also has investment tax and research and development credit
      carryforwards for income tax purposes aggregating approximately $16,000 at
      September 30, 2006, which expires in the year 2007. The Company's UK subsidiary,
      The Female Health Company - UK, plc has UK net operating loss carryforwards
      of
      approximately $81,560,000 as of September 30, 2006. 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, 2006:


Deferred
                  tax assets:Federal
                  net operating loss carryforwards
              
              $
              16,566,000State
                  net operating loss carryforwards
              
              
              1,278,000Foreign
                  net operating loss carryforwards
              
              
              27,731,000Foreign
                  capital allowances
              
              
              2,028,000Tax
                  credit carryforwards
              
              
              15,000Other
              
              
              (30,000
              )Total
                  gross deferred tax assets
              
              
              47,588,000


Valuation
                  allowance for deferred tax assets
              
              
              47,588,000Net
                  deferred tax assets
              
              $
              -


The
      valuation allowance increased by $1,089,000 and $5,942,000 for the years ended
      September 30, 2006 and 2005, respectively.


F-15


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


**Note
                7.**
            **Common
                Stock**




Stock
      Option Plans





The
      Company has various stock option plans that authorize the granting of options
      to
      officers, key employees and directors to purchase the Company's common stock
      at
      prices generally equal to the market value of the stock at the date of grant.
      Under these plans, the Company has 190,528 shares available for future grants
      as
      of September 30, 2006. The Company has also granted options to one of its
      legal counsel and consultants. Certain options are vested and exercisable upon
      issuance and others vest over periods up to three years.





Summarized
      information regarding all of the Company's stock options is as
      follows:


Number
                  of Shares
              
              
              Weighted
                  Average Exercise PriceOutstanding
                  at September 30, 2004
              
              
              2,577,730
              
              $
              1.38Granted
              
              
              195,000
              
              
              1.72Exercised
              
              
              (3,000
              )
              
              1.40Expired
              
              
              (108,750
              )
              
              1.90Outstanding
                  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
              
              $
              1.38







F-16


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


**Note
                7.**
            **Common
                Stock (Continued)**




Option
      shares exercisable at September 30, 2006 and 2005, are 2,579,162 and 2,070,051,
      respectively, at weighted average exercise prices of $1.37 and $1.36,
      respectively.





Options
      Outstanding and Exercisable




Exercise
                Price
              
              Number
                  Outstanding
                at
                  9/30/06
              Wghted.
                  Avg.
                Remaining
                  Life
              Wghted.
                  Avg.
                Exercise
                  Price
              Number
                  Exercisable
                at
                  9/30/06
              Wghted.
                  Avg.
                Exercise
                  Price$0.66
              
              
              150,000
              5.25
              $0.66
              150,000
              $0.661.40
              
              
              2,304,980
              6.58
              1.40
              2,304,980
              1.401.66
              
              
              180,000
              8.06
              1.66
              116,219
              1.662.70
              
              
              10,000
              7.61
              2.70
              7,963
              2.702,644,980
              6.61
              $1.38
              2,579,162
              $1.37




The
      Company granted 195,000 options in 2005 to employees and outside directors
      with
      exercise prices equal to fair market value of the Company’s stock at the date of
      grant. Therefore, no compensation expense was recognized related to these
      options under APB 25 at the date of grant. No options were issued in
      2006.





The
      weighted average fair value of employee options granted for the year ended
      September 30, 2005, was $1.16. The fair value of options was estimated at
      the date of grant using the Black-Scholes option pricing model using the
      following weighted average assumptions: expected volatility of 52.83 percent,
      risk-free interest rate of 4.02 percent, expected life of ten years and no
      dividend yield.





The
      Black-Scholes option valuation model was developed for use in estimating the
      fair value of traded options which have no vesting restrictions and are fully
      transferable. Because the Company's employee stock options have characteristics
      different from those of traded options, and because changes in the input
      assumptions can materially affect the fair value estimate, the model may not
      provide a reliable single measure of the fair value of its employee stock
      options.





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, although none were issued
      in
      2005. 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.





F-17


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


**Note
                7.**
            **Common
                Stock (Continued)**




In
      an
      effort to generate funds for operating needs and to retire outstanding debt,
      between September 2004 and January 2005, the Company conducted a program to
      induce the holders of the Company’s outstanding common stock purchase warrants
      to exercise their warrants. Pursuant to this program, the Company offered an
      incentive to such holders providing for issuance of (1) shares of the Company’s
      common stock equal to 10% of the aggregate number of common stock purchase
      warrants exercised or (2) new common stock purchase warrants equal to 20% of
      the
      aggregate number of outstanding warrants exercised containing an exercise price
      per share equal to the closing price of the Company’s common stock as reported
      on the OTC Bulletin Board on the date the holder committed to exercise the
      outstanding warrants.





Between
      October 2004 and January 2005, four investors opted to exercise 1,000,000
      warrants and receive 1,100,000 shares of common stock which includes 100,000
      incentive shares and two investors opted to exercise 1,200,000 warrants and
      received 1,200,000 shares of common stock and 240,000 incentive warrants with
      an
      exercise price in each case of $1.50 per share and an expiration date of
      November 23, 2007. Among the persons participating in this program were three
      of
      the Company’s directors. The Company received aggregate proceeds of $2.5 million
      from the exercise of the outstanding warrants. The incentive shares and warrants
      were valued at $342,076 and recorded by the Company in selling, general and
      administrative expense.





As
      a
      result of the inducement program, during 2005, 2,200,000 warrants were
      exercised. No such program was utilized in 2006.





At
      September 30, 2006, the following warrants were outstanding and
      exercisable:




Number
                  OutstandingWarrants
                  issued in connection with:Convertible
                  debentures
              
              
              2,150,000Investor
                  relations
              
              
              200,000Note
                  payable, bank
              
              
              340,000Notes
                  payable, related party
              
              
              1,599,000Outstanding
                  at September 30, 2006
              
              
              4,289,000


Warrants
      Outstanding and Exercisable


Range
                  of Exercise Prices
              
              Number
                  Outstandingand
                Exercisableat
                  9/30/06
              
              Wghted.
                  Avg. Remaining Life
              
              Wghted.
                  Avg. Exercise Price$0.40
                  to $0.50
              
              364,000
              
              3.48
              
              $
                  0.400.51
                  to 1.00
              
              2,575,000
              
              1.42
              
              0.961.01
                  to 3.00
              
              1,350,000
              
              4.71
              
              1.314,289,000
              
              2.63
              
              $
                  1.03




F-18


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


**Note
                7.**
            **Common
                Stock (Continued)**




Issuance
      of Stock





The
      Company has issued common stock to consultants for providing investor relation
      services. In 2005, the Company issued 275,000 shares of common stock with a
      market value of $423,750 which was recorded as unearned consulting fees and
      is
      being recognized over the terms of the agreement. In 2006, the Company issued
      170,000 shares of common stock with a market value of $285,000 which was
      recorded as unearned consulting fees and is being recognized over the terms
      of
      the agreement.





Stock-Based
      Compensation Expense





The
      Company has issued common stock or common stock purchase warrants to outside
      consultants, employees, and certain warrant holders and restrictive common
      stock
      to employees. Total stock-based compensation was $952,809 and $928,731 for
      the
      years ended September 30, 2006 and 2005, respectively, and is included in
      selling, general and administrative expenses in the consolidated statements
      of
      operations.




**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 original issuance
      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-19


**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 $12,500
      annual compensation to the plan. The Company has elected to match 100 percent
      of
      employee contributions to the plan up to a maximum of 3 percent of employee
      compensation for the years ended September 30, 2006 and 2005. Annual
      company contributions were approximately $23,000 for 2005 and 2006.





Bonus
      and retention program :





During
      2004, the Company implemented a management compensation and employee retention
      program.


The
      Board
      of Director’s Company’s Compensation Committee is responsible for determining
      the number of shares annually awarded to senior management in the management
      compensation program. Under the employee retention program, key employees are
      eligible for shares based on years of service. Shares awarded under either
      program are issued with restrictions on transfer and vest over either a one-
      or
      two-year period.




During
      2005, the program provided for the issuance of 80,000 shares of restricted
      common stock as a bonus to senior management with a market value of $120,000.
      As
      of September 30, 2005, the restricted legend was removed. Under the terms of
      the
      retention program, employees were granted 13,500 shares of common stock as
      a
      retention bonus with a market value of $29,307.





In
      addition, the Company issued 20,000 shares to new employees during the year
      ended September 30, 2005. Total expense for these awards was approximately
      $49,500.





Total
      expense for all 2005 awards was $198,807 and is included in selling, general
      and
      administrative expenses in the consolidated statement of operations for the
      year
      ended September 30, 2005.





During
      2006, the program provided for the issuance of 447,500 shares of restricted
      common stock as a retention bonus to senior management with a market value
      of
      approximately $814,000. In addition, employees were granted 15,375 shares of
      common stock as a retention bonus with a market value of approximately $26,000.
      As of September 30, 2006, the restricted legend was removed on 13,250 of these
      shares.





In
      addition, the Company issued 25,000 shares to new employees during the year
      ended September 30, 2006. Total expense for these awards was approximately
      $39,000 in 2006. The Company also issued 50,000 bonus shares to employees in
      2006 as compensation for special projects. This award was for services rendered
      in the year ended September 30, 2005. Accordingly, the Company recognized
      approximately $85,000 of stock compensation expense related to these shares
      in
      2005.





Total
      expense for all 2006 awards was approximately $429,000 and is included in
      selling, general and administrative expenses in the consolidated statement
      of
      operations for the year ended September 30, 2006.




F-20


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


**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:




(Amounts
                  in Thousands)
              
              Net
                  Sales to External Customers September 30,
              
              Long-Term
                  Assets September 30,2006
              
              
              2005
              
              
              2006
              
              
              2005United
                  States
              
              $
              2,074
              
              $
              2,280
              
              $
              107
              
              $
              95Brazil
              
              
              2,718
              (1)
              
              *
              
              
              -
              
              
              -South
                  Africa
              
              
              1,161
              
              
              2,140
              (1)
              
              -
              
              
              -Botswana
              
              
              *
              
              
              1,050
              
              
              -
              
              
              -France
              
              
              *
              
              
              849
              
              
              -
              
              
              -Zimbabwe
              
              
              1,065
              
              
              697
              
              
              -
              
              
              -Tanzania
              
              
              754
              
              
              *
              
              
              -
              
              
              -India
              
              
              *
              
              
              *
              
              
              112
              
              
              -Malaysia
              
              
              *
              
              
              *
              
              
              307
              
              
              208United
                  Kingdom
              
              
              *
              
              
              *
              
              
              269
              
              
              333Other
              
              
              7,052
              
              
              4,146
              
              
              -
              
              
              -$
              14,824
              
              $
              11,162
              
              $
              795
              
              $
              636




*
                  Less than 5 percent of total net sales(1)
                  Comprised of a single customer considered to be a major customer
                  (exceeds
                  10% of net sales).
  **Note
                  11.**
              **Contingent
                  Liabilities**


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








F-21