Hello and welcome to The Female Health Company, Second Quarter Fiscal Year 2015 Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. The statements made on this conference call that are not historical in nature are forward-looking statements based upon the Company’s current plans and strategies. Such forward-looking statements reflect the Company’s current assessment of the risks and uncertainties related to its business. The Company’s actual results and future developments could differ materially from the results or developments in such forward-looking statements. Factors that may cause actual results or developments to differ materially include such things as product demand and market acceptance, the timing of receipt and shipment of large orders, competition, the economic and business environment, and the impact of government pressures, currency risks, capacity, efficiency and supply constraints, also the ability to execute on new business strategies and other risks detailed in the Company’s press releases, shareholder communications and Securities and Exchange Commission filings. For additional information regarding such risks, the Company urges you to review its 10-Q and 10-K SEC filings. I would now like to turn the conference over to Karen King. Please go ahead.

Thank you, Robert. Good morning everyone. This is Karen King, President and CEO of The Female Health Company, and I would like to welcome you all to The Female Health Company’s fiscal 2015 second quarter conference call. Joining me on the call today are the Company’s Chairman, OB Parrish and our CFO, Michele Greco. I will ask, Michele to review the financial results for the second quarter and six months ended March 31, 2015. Then I will discuss the progress we have achieved in implementing our strategic initiatives and comment on key factors that may impact future results. Afterwards, Michele and I will take your questions. Please note that when we refer to years, such references are FHC’s fiscal year, which ends September 30 unless otherwise noted. I’ll turn the call over to Michele now.

Thanks Karen and hello everyone. First, for the second quarter results. During the second quarter of 2015, the Company recorded the highest level of unit volumes and corresponding net revenues, for a single in the company’s history. Unit sales totaled 20.8 million up 71% from 12.2 million units in the previous quarter, and up 184% from the second quarter of 2014. Net revenues for the quarter totaled $11 million, an increase of 153% from $4.3 million in the prior year’s second quarter. Gross profit increased 168% to $6.4 million, which represented 58% of net revenues compared with $2.4 million or 55% of net revenues in the prior year quarter. Operating expenses totaled $3.4 million, compared with $1.6 million for the prior year quarter. Approximately, 60% of the increased operating expenditures related to payments to our Brazilian distributor for ongoing programming related to the 2012 tender and for marketing and management fees for the 2014 tender. Approximately, 30% of the increased spending related to an accrual for fiscal year-end incentive compensation, as compared with a reduction in the accrual for incentive compensation in the prior year period when it was determined that fiscal 2014 performance goals would not be achieved. The remaining 10% of the operating cost increase is due to modest product development cost associated with the FC2 strategy and business development consulting costs associated with the portfolio diversification strategy. Such costs not incurred in the prior-year period. We also want to discuss another expense related to the Brazilian Ministry of Health tender. A tax reduction that had been in place for many years in Brazil for both male and female condoms was unexpectedly removed as of April 1, 2015. Units that shipped in our second fiscal year quarter and were therefore booked as revenue has been arriving in Brazil…

Thank you, Michele. Our second quarter and first half results were very strong in all aspects including revenues and operating profits. A significant portion of the volume in the second quarter was from the orders we have received from the Ministry of Health in Brazil against the tender we announced in October, 2014. FHC is able to very quickly ramp up operations and deliver high quantities of products in a short timeframe. We are unique in that ability as a female condom supplier. We will continue to produce and deliver to Brazil against their outstanding order in the third quarter. We also anticipate the outcome of a new South African tender sometime in the third quarter. We typically do not mention tenders until they are awarded, primarily at the request as a country involved. However, so many of you have seen this tender and commented on it to us, I felt I should point it out to everyone. Both Brazil and South Africa have demonstrated growth of their female condom programs at every subsequent tender issued has been for a higher number of units relative to previous tenders. As we executed on delivering these first half year results, we did not lose focus on our critical growth strategy which also continues to move forward. The first element of our strategy is driving FC2 growth. I have previously explained that in our existing global public sector markets, we shifted our approach from primarily training and education, to include the addition of more traditional sales and marketing activities. And this includes relationship building and calling directly on ministries of health to assure they know the full humanitarian and economic value proposition for incorporating FC2 into their public health program. It also has meant reviewing our distributor relationships and making changes or additions…

Okay, we will now begin the question-and-answer session. [Operator Instructions] The first question comes from Mark Robins of Catalyst Research.

Thank you. First of all I’ve got, I think, it’s two-and-a-half question. So forgive me. First one is, is there going to be a predator published transcript of this presentation. I got in late and I’d like to make sure I have the details down.

Yes, absolutely, Mark and the operator Robert will give the details on that at the end of the questions session.

Okay, great. The second thing is, is there either any other major country markets, other than Brazil and South Africa that we have sold to in the past or there is a good likelihood that we might sell to in the near future?

Oh yes, there is quite a number of countries that come directly to us through the tender process we have in the past served and we continue to in the future. We always highlight Brazil and South Africa, because they are largest countries in terms of usage and their tender procurements.

And that was the reason for my question. I mean, could there be an opportunity for – and this is a stupid kind of example that China or India or something of that nature where the size of the tender could be as large or larger than the South Africa and Brazilian tenders?

Yes, so interesting question, Mark. These are things we are always evaluating countries all around the world. And I’ll tell you, in particularly we are focused on China and what our opportunity might be there and at this moment, we think that the opportunity might be more on the consumer approach as opposed to a public sector approach. So we are continuing to follow-up on that. I don’t have anything specific to say, but, we are always looking for those opportunities.

All right, then again, forgive me for being a male, but that’s what I am. I am not familiar with how one markets female reproductive products, but, I am working with couple of other companies that have – these were discovered that the major drug retailers and even the major grocery stores now have essentially consulting studios or rooms where minor procedures, shots injections that kind of thing, or consultations could occur. Is there a possibility that a female health company could use this advisory position, it seems to be being created in the retailers to help promote the product? Is that’s something that is feasible? Is the gross margin to the stores significant enough that it could be used as a way to market your product?

Yes, absolutely, I think this type of product would be an excellent candidate for that type of service. This area is obviously well studied and research has shown that, when a woman is in a retail pharmacy store, she is willing only spend about eight seconds looking at the product category related to products – to condoms or closely related products, because it’s such an uncomfortable feeling to be doing that. And that’s why online is actually a very significant outreach to this area because women are more comfortable going online for information or ordering the product online. However, we do know that the pharmacy is an important channel and so, if there is something being done like this with the privacy center, I think this would be an ideal product for us.

That’s just now what I expected. That’s very interesting. I didn’t think that women only would spend an average of eight seconds. I would have thought they would be more thoughtful about it compared to men. Okay, well, that’s great. So you’ve answered the question and maybe that’s an opportunity that you could really take advantage region-by-region or city-by-city. Thanks, so much. I’ll get in line.

Thank you, Mark.

The next question comes from Rashid

Hi, so you guys have mentioned quite a few times being the need to diversify the products by acquiring companies in the [Indiscernible] female reproductive [Indiscernible] space. So what deal size are you guys looking at with regard to potential acquisitions? And will those acquisitions be financed with operating cash flows or outside debt or equity financing?

Excellent question, Rishabh, a question that we get quite often and what I generally indicate in this, and all I can indicate at this time is that we are open to all possibilities depending on the ultimate acquisition that we do. We do have some cash reserves that we would be able to employ if we need to go beyond those cash reserves. We will look at all the options available to us and select the one that makes the most sense at the time.

Can you give us a ballpark estimate of the deal sizes though?

So, I also can’t give that estimate at this time. We are not being bound by particular deal size. We are looking more at the strategic significance of what it can do and as soon as we are able to announce that, we will come with the full information.

Okay and – are you in correction about the tax rate on the pre-tax income, so I noticed that it’s usually higher than 45% the tax rate. So is that because you guys pay higher taxes because you are paying taxes in multiple to fixing or because it’s higher than the Q3 tax rate of 40% in the United States. So I am assuming it was about 54% and FY 2014 and 45% in quarter 1 2015. So just wanted to know why it’s higher than the usual or the Q3 tax rate? Is that because of taxation in marketable through existing including the United States?

Regarding the tax rate and the reason that our effective rate is higher than the statutory rate is really due to some of the AMT tax that we pay in the US, which is added on top of that. But, there is a few other items that are not allowed in permanent items. But one of the things I want to point out is, even though the effective tax rate that we note in the notes there, we really don’t pay that high of a tax. As you can see from the cash flow, because of our NOLs, we actually only pay the AMT tax and tax on income in Malaysia which is a small percentage of our income and that tax rate is 25%. That’s why you see the difference between the tax expense and the actual tax in the cash flow and what we pay the $155,000.

Okay, sounds good. And, my last question is, I know that, you guys have some time to Brazil, as Brazil have accounted as your biggest customers now. In the past, you guys also sold quite a bit to UNFPA. So, how the demand at governmental and global agencies like UNFPA as the demand picking up, how is the feedback from such organizations are they placing huge orders just like Brazil? Or are they slowing down a little bit when it comes to procuring female condoms?

So our four largest customers are Brazil, South Africa and then UNFPA, the United Nations Population Fund and also the AID branch of the US government, USAID. And in the case of USAID and UNFPA, what we’ve seen over the years is a little bit more consistency in terms of the overall volume purchased and procured, but also still this volatility and the timing on when it occurs, but certainly in the last several years, we have seen increasing or very similar type purchase patterns from both USAID and UNFPA.

All right. Actually, I have a few more questions, I guess, I’ll just take a break and give others a chance. I guess, just come back in five minutes later.

Okay, thank you.

Yes.

[Operator Instructions] The next question will come from George Whiteside of SWS Financial. Go ahead.

Good morning. Certainly, you had good growth and improvement in your financials. However, in the cash for stimulation area has the terminated dividend program been used for current operations to any extent?

So, George, thank you for your question. We are, as we announced, we - our intention is to use the accumulated cash from our operations to support our growth strategy which will be the diversification and then also growth of FC2 in existing markets and in the consumer markets. At this point, we have not had to spend any appreciable amounts against those, but we are progressing with both and of course, when announce an acquisition, then you would see utilization of that cash and when you see a launch of our rebranded FC2, you would see a utilization of that cash. So, to this stage, we have not utilized a significant amount in our new strategy but that is the intention.

My second question is related in terminating the dividend program. I am sure you are acutely aware of the fact that the stock has been crushed in terms of price. What efforts do you anticipate can be put in place to build confidence on the part of existing shareholders and hopefully additional shareholders?

Yes, thank you. We definitely believe that and this is a decision by the full Board as well as I, that the right thing to do for everyone including our shareholders was to invest in our growth. And that’s what’s our approach is, and our strategy that we are working to implement here. We think that that will create greater long-term value for our investors in the future. So, I think the key thing that we can do is to continue to progress that strategy to show that we are making progress in implementation and continue with announcements on the progress.

Thank you, very much.

Thank you.

The next question comes from Mr. Peter Mcmullin of IPC Global. Go ahead.

Hey good morning, Karen.

Good morning.

Under the second quarter results, second paragraph, I read the two lines and we just ask you to extend on the – with respect to January 1, 2015 FC2 unit prices and reduced for all major public sector purchases to replace the previous 5% no cost for product policy. The company’s volume purchasing incentive program that FC2 average sales price per unit decreased 11.2% compared with the same period last year due to changes in sales mix and the public sector price adjustment. I guess, the first thing is, it doesn’t say who initiated this, was this Brazil or just, your company and what does it mean that this just seems like a large reduction in average sale price? And does that mean that every other order gets the same thing? Could you just, could you tie then as to what the previous 5% no cost product policy is? I just don’t understand that those two senses.

Sure, thanks for your question Peter. So, the company had a policy of providing 5% free goods based on the number of units purchased within the calendar year for our public sector clients. So, we would look at the total number of units that they purchase during a year and then shortly after the beginning in the next year, we would let them know the number of units that they could get, which represented 5% of their total purchase. Now what we’ve heard for many years from customers is that basically, this is a real challenge for them. It’s more of a hassle than anything else to deal with the free goods, just based on how their systems are. And some of our customers flat out can’t handle free goods at all. So, while we identified it as a very nice benefit for our customers, it really wasn’t working out that way. So, this was at our own initiation, we said, okay, we hear you, we are listening to the issues that you have and we are going to make a change and we’ll eliminate the 5% free goods and instead just make it a 5% reduction in price across the board. So, to us, it has very minimal impact in doing that and listening to our customers and giving them a better solution for how to handle this.

So, how this 5% equate with an increase of 11.2%? I guess, that’s where I am confused in my knowledge of the unit price.

And that’s just related to our product mix. So, Michele, can you comment?

Right, again, we had a significant change in the product mix for this quarter versus last quarter in this half versus last half. Our units are significantly skewed to the significant units with Brazil which is public sector pricing versus non-public sector pricing which we get a higher cost per unit.

Okay. Thank you.

Thank you.

The next question comes again from Rishabh Jain of Singular Research.

Well, yes, so I also noticed that, in the past few quarters, a lot of folks creating expenses composed of a bit percentage of the operating expense is that we comment on the commissions paid to the Brazilian distributors, insulation tools, the Brazilian tender offer. So, is this distribution fee basically a percentage of the total order? Or is that a fixed distribution fee that’s paid to the Brazilian distributors?

So, it’s a fixed fee for the management and marketing of female condom in the country and it’s paid based on the number of units achieved.

Okay, okay. And I also understand that the initial tender offer with Brazil was for procuring female condoms and they have placed an order for 25 million condoms so far. Is there any indication of potential orders for the next 25 million condoms as well?

We really have no way of knowing. The way a tender works is a country puts out a request for bids related to a certain number. We bid against that and we won the tender. But they have a discretion to order as much or as little as they like. They can order no product against it. They can order the full amounts. So we have no way of knowing exactly what Brazil will order.

Okay, thanks a lot.

This concludes our question and answer session. I would like to turn the conference back over to Mrs. King for any closing remarks.

So, I’ll just say, thank you all for joining us today. We know that many of you like to talk individually with Michele and I. So please just contact Michele and we are happy to set up sessions for further private discussions. And, we look forward to speaking to you again at the end of next quarter.

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