UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~December 31, 2017~~June 30, 2021

☐
¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period fromto

Commission ~~file number~~File Number 1-13602

Veru Inc.

(Exact Name of ~~registrant~~Registrant as ~~specified~~Specified in its ~~charter)~~Charter)



Wisconsin		39-1144397
(State of Incorporation)		(I.R.S. Employer Identification No.)

~~4400 Biscayne Boulevard,~~48 NW 25^th Street, Suite ~~888~~ 102, Miami, FL		~~33137~~33127
(Address of ~~principal executive offices)~~Principal Executive Offices)		(Zip Code)

305-509-6897

(Registrant’s ~~telephone number, including area code)~~Telephone Number, Including Area Code)

N/A

(Former Name, or Former Address and Former Fiscal Year, if Changed Since Last Report)

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value per share	VERU	NASDAQ Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒x No ☐¨

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ☒x No ☐¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ☐¨		Accelerated filer ☐¨
Non-accelerated filer ☐x		Smaller reporting ~~company☒~~companyx
~~(Do not check if smaller reporting company)~~		Emerging growth ~~company☐~~company¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐¨

Indicate by check mark whether the registrant is a shell company (as determined by Rule 12b-2 of the Exchange Act). Yes ☐¨ No ☒x

As of ~~February 13, 2018,~~August 9, 2021, the registrant had ~~53,512,946~~79,853,748 shares of $0.01 par value common stock outstanding.

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VERU INC.

INDEX



	PAGE

Forward Looking Statements	3


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements	4
	5

Unaudited Condensed Consolidated Balance Sheets -	5
~~December 31, 2017 and September 30, 2017~~	4

Unaudited Condensed Consolidated Statements of Operations -	6
~~Three Months Ended December 31, 2017 and 2016~~	5

Unaudited Condensed Consolidated ~~Statement~~Statements of Stockholders’ Equity -	7
~~Three Months Ended December 31, 2017~~	6

Unaudited Condensed Consolidated Statements of Cash Flows -	9
~~Three Months Ended December 31, 2017 and 2016~~	7

Notes to Unaudited Condensed Consolidated Financial Statements	8
	10

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	25
	27

Item 3. Quantitative and Qualitative Disclosures About Market Risk	31
	41

Item 4. Controls and Procedures	31
	42

PART II. OTHER INFORMATION

Item 1. Legal Proceedings	32
	43

Item 1A. Risk Factors	32
	44

Item 6. Exhibits	33 45

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FORWARD LOOKING STATEMENTS

Certain statements included in this quarterly report on Form 10-Q 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. Such statements include, but are not limited to, statements about the anticipated or potential impact of COVID-19 and the global response thereto on our financial condition or business, future financial and operating results, plans, objectives, expectations and intentions, costs and expenses, debt repayments, outcome of contingencies, financial condition, results of operations, liquidity, cost savings, objectives of management, business strategies, clinical trial timing, plans and ~~plans,~~results, the achievement of clinical and commercial milestones, the advancement of our technologies and our products and drug candidates, and other statements that are not historical facts. Forward-looking statements can be identified by the use of forward-looking words or phrases such as "anticipate," "believe," "could," "expect," "intend," "may," "opportunity," "plan," "predict," "potential," "estimate," "should," "will," "would" or the negative of these terms or other words of similar meaning. These statements are based upon the Company's current plans and strategies and reflect the Company's current assessment of the risks and uncertainties related to its business and are made as of the date of this report. ~~The Company cautions readers that forward-looking~~These statements ~~involve~~are inherently subject to known and unknown risks and uncertainties. You should read these statements carefully because they discuss our future expectations or state other “forward-looking” information. There may be events in the future that we are not able to accurately predict or control and our actual results may differ materially from the expectations we describe in our forward-looking statements. Factors that could cause actual results to differ materially from those currently anticipated include the following:

potential delays in the timing of and results from clinical trials and studies, including potential delays in the recruitment of patients and their ability to effectively participate in such trials and studies due to COVID-19 or other reasons, and the risk that such results will not support marketing approval and commercialization;

potential delays in the timing of any submission to the U.S. Food and Drug Administration (the “FDA”) and potential delays in, or failure to obtain, regulatory approval of products under development, including the risk of a delay or failure in reaching agreement with the FDA on the design of a clinical trial or in obtaining authorization to commence a clinical trial or commercialize a product candidate in the U.S.;

clinical results or early data from clinical trials may not be replicated or continue to occur in additional trials or may not otherwise support further development in the specified product candidate or at all;

risks related to our ability to obtain sufficient financing on acceptable terms when needed to fund product development and our operations, including our ability to secure timely grant or other funding to develop sabizabulin as a potential COVID-19 treatment;

risks related to the development of our product portfolio, including clinical trials, regulatory approvals and time and cost to bring to market;

risks related to the impact of the COVID-19 pandemic on our business, the nature and extent of which is highly uncertain and unpredictable;

our pursuit of a COVID-19 treatment candidate is still in development and we may be unable to develop a drug that successfully treats the virus in a timely manner, if at all;

risks related to our commitment of financial resources and personnel to the development of a COVID-19 treatment which may cause delays in or otherwise negatively impact our other development programs, despite uncertainties about the longevity and extent of COVID-19 as a global health concern and the possibility that as vaccines become widely distributed the need for new COVID-19 treatment candidates may be reduced or eliminated;

government entities may take actions that directly or indirectly have the effect of limiting opportunities for sabizabulin as a COVID-19 treatment, including favoring other treatment alternatives or imposing price controls on COVID-19 treatments;

product demand and market acceptance of any of our products, if approved;

some of our products are in development and we may fail to successfully commercialize such products;

risks related to intellectual property, including the uncertainty of obtaining intellectual property protections and in enforcing them, the possibility of infringing a third party’s intellectual property, and licensing risks;

competition from existing and new competitors including the potential for reduced sales, pressure on pricing and increased spending on marketing;

risks related to compliance and regulatory matters, including costs and delays resulting from extensive government regulation and reimbursement and coverage under healthcare insurance and regulation as well as potential healthcare reform measures;

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the risk that we will be affected by regulatory and legal developments, including a reclassification of products or repeal or modification of part or all of the Patient Protection and Affordable Care Act (the “ACA”);

risks inherent in doing business on an international level, including currency risks, regulatory requirements, political risks, export restrictions and other trade barriers;

the disruption of production at our manufacturing facilities or facilities of third parties on which we rely and/or of our ability to supply product due to raw material shortages, labor shortages, physical damage to our or third parties’ facilities, COVID-19 (including the impact of COVID-19 on suppliers of key raw materials), product testing, transportation delays or regulatory actions, and the duration and impact of any such disruptions;

our reliance on major customers and risks related to delays in payment of accounts receivable by major customers;

risks from rising costs of raw materials and our ability to pass along increased costs to our customers;

risks related to our growth strategy;

our 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;

government contracting risks, including the appropriations process and funding priorities, potential bureaucratic delays in awarding contracts, process errors, politics or other pressures, and the risk that government tenders and contracts may be subject to cancellation, delay, restructuring or substantial delayed payments;

a governmental tender award indicates acceptance of the bidder’s price rather than an order or guarantee of the purchase of any minimum number of units, and as a result government ministries or other public health sector customers may order and purchase fewer units than the full maximum tender amount;

our ability to identify, successfully negotiate and complete suitable acquisitions or other strategic initiatives; and

our ability to successfully integrate acquired businesses, technologies or products.

All forward-looking statements in this report should be considered in the context of the risks 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 achievement expressed or implied by such forward-looking statements. Such factors include, among others, the following:

~~the Company's ability to secure adequate capital to fund product development, working capital requirements, advertising~~described above and ~~promotional expenditures and strategic initiatives;~~

~~risks related to the development of the Company's product portfolio, including clinical trials, regulatory approvals and time and cost to bring to market;~~

~~product demand and market acceptance;~~

~~many of the Company's products are at an early stage of development and the Company may fail to successfully commercialize such products;~~

~~risks related to intellectual property, including licensing risks;~~

~~increased competition from existing and new competitors including the potential for reduced sales, pressure on pricing and increased spending on marketing;~~

~~risk inherent in doing business on an international level;~~

~~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 reliance on its major customers and risks relating to delays in payment of accounts receivable by major customers;~~

~~the Company's growth strategy;~~

~~the costs and other effects of litigation, governmental investigations, legal and administrative cases and proceedings, settlements and investigations;~~

~~government contracting risks;~~

~~the Company’s ability to identify, successfully negotiate and complete suitable acquisitions or other strategic initiatives; and~~

~~the Company’s ability to successfully integrate acquired businesses, technologies or products.~~

~~Such uncertainties and other risks that may affect the Company's performance are discussed further~~ in Part I, Item 1A, "Risk Factors," in the ~~Company's~~Company’s Annual Report on Form 10-K for the fiscal year ended September 30, ~~2017 and Part II, Item 1A of this Form 10-Q.~~2020. The Company undertakes no obligation to make any revisions to the forward-looking statements contained in this report or to update them to reflect events or circumstances occurring after the date of this ~~report.~~report except as required by applicable law.
‎

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PART I.FINANCIAL INFORMATION

Item 1. Financial Statements

VERU INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

December 31, 2017

September 30, 2017
ASSETS

Current Assets:

Cash
$
3,572,350

$
3,277,602
Accounts receivable, net

3,000,308

3,555,350
Inventory, net

3,067,036

2,767,924
Prepaid expenses and other current assets

625,497

697,097
TOTAL CURRENT ASSETS

10,265,191

10,297,973

LONG-TERM ASSETS

PLANT AND EQUIPMENT

Equipment, furniture and fixtures

4,069,810

4,067,896
Leasehold improvements

287,686

287,686
Less: accumulated depreciation and amortization

(3,844,272)

(3,800,043)
Plant and equipment, net

513,224

555,539
Other trade receivables  (Note 5)

—

7,837,500
Other assets

159,662

156,431
Deferred assets

423,001

—
Deferred income taxes

12,124,000

8,827,000
Intangible assets, net

20,684,175

20,752,991
Goodwill

6,878,932

6,878,932
TOTAL ASSETS
$
51,048,185

$
55,306,366

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:

Accounts payable
$
2,517,371

$
2,685,718
Accrued expenses and other current liabilities

2,383,628

1,441,359
Unearned revenue

990,016

1,014,517
Accrued compensation

338,136

345,987
TOTAL CURRENT LIABILITIES

6,229,151

5,487,581

LONG-TERM LIABILITIES

Other liabilities  (Note 5)

—

1,233,750
Deferred rent

68,446

131,830
TOTAL LIABILITIES

6,297,597

6,853,161

Commitments and contingencies  (Note 10)

STOCKHOLDERS' EQUITY

Preferred stock

—

—
Common stock

556,967

553,922
Additional paid-in-capital

91,102,159

90,550,669
Accumulated other comprehensive loss

(581,519)

(581,519)
Accumulated deficit

(38,520,414)

(34,263,262)
Treasury stock, at cost

(7,806,605)

(7,806,605)
TOTAL STOCKHOLDERS' EQUITY

44,750,588

48,453,205
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$
51,048,185

$
55,306,366

See notes to unaudited condensed consolidated financial statements.


	June 30,		September 30,
	2021		2020
Assets
Current assets:
Cash and cash equivalents	$	123,155,968	$	13,588,778
Accounts receivable, net		8,313,543		5,227,237
Notes receivable		5,000,000		—
Inventory, net		6,945,916		6,704,134
Prepaid research and development costs		9,546,026		613,274
Prepaid expenses and other current assets		1,444,081		881,267
Total current assets		154,405,534		27,014,690
Plant and equipment, net		392,012		312,691
Operating lease right-of-use assets		1,069,472		1,352,315
Deferred income taxes		12,379,578		9,466,800
Intangible assets, net		4,066,667		5,752,127
Goodwill		6,878,932		6,878,932
Other assets		880,888		766,120
Total assets	$	180,073,083	$	51,543,675

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	4,927,680	$	2,812,673
Accrued research and development costs		2,327,323		934,110
Accrued compensation		2,760,029		2,274,396
Accrued expenses and other current liabilities		2,095,688		1,177,126
Credit agreement liability		884,917		5,841,874
Residual royalty agreement liability, short-term portion		3,679,871		1,100,193
Operating lease liability, short-term portion		536,449		586,769
Total current liabilities		17,211,957		14,727,141
Residual royalty agreement liability, long-term portion		7,100,145		5,617,494
Operating lease liability, long-term portion		702,993		990,020
Deferred income taxes		74,724		74,724
Other liabilities		14,986		22,980
Total liabilities		25,104,805		21,432,359

Commitments and contingencies (Note 12)

Stockholders' equity:
Preferred stock; 0 shares issued and outstanding at June 30, 2021 and September 30, 2020		—		—
Common stock, par value $0.01 per share; 154,000,000 shares authorized, 82,037,452 and 72,047,385 shares issued and 79,853,748 and 69,863,681 shares outstanding at June 30, 2021 and September 30, 2020, respectively		820,375		720,474
Additional paid-in-capital		240,039,725		126,971,518
Accumulated other comprehensive loss		(581,519)		(581,519)
Accumulated deficit		(77,503,698)		(89,192,552)
Treasury stock, 2,183,704 shares, at cost		(7,806,605)		(7,806,605)
Total stockholders' equity		154,968,278		30,111,316
Total liabilities and stockholders' equity	$	180,073,083	$	51,543,675

See notes to unaudited condensed consolidated financial statements.

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VERU INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


	Three Months Ended				Nine Months Ended
	June 30,				June 30,
	2021		2020		2021		2020

Net revenues	$	17,655,592	$	10,321,754	$	45,613,068	$	30,842,874

Cost of sales		3,782,480		3,802,636		9,995,023		9,618,163

Gross profit		13,873,112		6,519,118		35,618,045		21,224,711

Operating expenses:
Research and development		11,188,246		4,436,496		24,438,813		13,666,730
Selling, general and administrative		5,556,730		3,475,474		14,745,507		11,034,904
Total operating expenses		16,744,976		7,911,970		39,184,320		24,701,634

Gain on sale of PREBOOST® business		—		—		18,410,158		—

Operating (loss) income		(2,871,864)		(1,392,852)		14,843,883		(3,476,923)

Non-operating expenses:
Interest expense		(1,287,525)		(1,169,692)		(3,728,259)		(3,476,079)
Change in fair value of derivative liabilities		(1,372,000)		(169,000)		(2,029,000)		(94,000)
Other expense, net		(34,540)		(53,334)		(170,841)		(63,369)
Total non-operating expenses		(2,694,065)		(1,392,026)		(5,928,100)		(3,633,448)

(Loss) income before income taxes		(5,565,929)		(2,784,878)		8,915,783		(7,110,371)

Income tax (benefit) expense		(2,873,063)		240,502		(2,773,071)		30,619

Net (loss) income	$	(2,692,866)	$	(3,025,380)	$	11,688,854	$	(7,140,990)

Net (loss) income per basic common share outstanding	$	(0.03)	$	(0.05)	$	0.16	$	(0.11)

Basic weighted average common shares outstanding		79,729,370		66,728,782		75,054,871		65,709,139

Net (loss) income per diluted common share outstanding	$	(0.03)	$	(0.05)	$	0.14	$	(0.11)

Diluted weighted average common shares outstanding		79,729,370		66,728,782		82,807,156		65,709,139

See notes to unaudited condensed consolidated financial statements.

Three Months Ended

December 31,

2017

2016

Net revenues
$
2,586,613

$
3,243,599

Cost of sales

1,272,574

1,591,315

Gross profit

1,314,039

1,652,284

Operating expenses:

Research and development

2,038,786

171,100
Selling, general and administrative

2,947,697

2,529,504
Loss on settlement of accounts receivable

3,764,137

—
Business acquisition

—

826,370
Total operating expenses

8,750,620

3,526,974

Operating loss

(7,436,581)

(1,874,690)

Non-operating expenses:

Interest and other expense, net

(13,169)

(9,621)
Foreign currency transaction loss

(53,455)

(11,939)
Total non-operating expenses

(66,624)

(21,560)

Loss before income taxes

(7,503,205)

(1,896,250)

Income tax benefit

(3,246,053)

(530,069)

Net loss
$
(4,257,152)

$
(1,366,181)

Net loss per basic and diluted common share outstanding
$
(0.08)

$
(0.04)

Basic and diluted weighted average common shares outstanding

53,154,076

30,976,140

See notes to unaudited condensed consolidated financial statements.

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VERU INC.

UNAUDITED CONDENSED CONSOLIDATED ~~STATEMENT~~STATEMENTS OF STOCKHOLDERS’ EQUITY


						Accumulated
				Additional		Other				Treasury
	Common Stock			Paid-in		Comprehensive		Accumulated		Stock,
	Shares	Amount		Capital		Loss		Deficit		at Cost		Total

Balance at September 30, 2020	72,047,385	$	720,474	$	126,971,518	$	(581,519)	$	(89,192,552)	$	(7,806,605)	$	30,111,316
Share-based compensation	—		—		785,297		—		—		—		785,297
Issuance of shares pursuant to share-based awards	468,611		4,686		619,133		—		—		—		623,819
Issuance of shares pursuant to common stock purchase warrants	1,574,611		15,746		(15,746)		—		—		—		—
Net income	—		—		—		—		17,227,701		—		17,227,701
Balance at December 31, 2020	74,090,607		740,906		128,360,202		(581,519)		(71,964,851)		(7,806,605)		48,748,133
Share-based compensation	—		—		1,002,281		—		—		—		1,002,281
Issuance of shares pursuant to share-based awards	357,297		3,573		645,702		—		—		—		649,275
Shares issued in connection with public offering of common stock, net of fees and costs	7,419,354		74,194		107,868,104		—		—		—		107,942,298
Net loss	—		—		—		—		(2,845,981)		—		(2,845,981)
Balance at March 31, 2021	81,867,258		818,673		237,876,289		(581,519)		(74,810,832)		(7,806,605)		155,496,006
Share-based compensation	—		—		1,900,085		—		—		—		1,900,085
Issuance of shares pursuant to share-based awards	170,194		1,702		263,351		—		—		—		265,053
Net loss	—		—		—		—		(2,692,866)		—		(2,692,866)
Balance at June 30, 2021	82,037,452	$	820,375	$	240,039,725	$	(581,519)	$	(77,503,698)	$	(7,806,605)	$	154,968,278

See notes to unaudited condensed consolidated financial statements.

Accumulated

Additional

Other

Treasury

Preferred

Common Stock

Paid-in

Comprehensive

Accumulated

Stock,

Stock

Shares

Amount

Capital

Loss

Deficit

at Cost

Total

Balance at September 30, 2017
$
—

55,392,193

$
553,922

$
90,550,669

$
(581,519)

$
(34,263,262)

$
(7,806,605)

$
48,453,205

Share-based compensation

—

—

—

207,454

—

—

—

207,454
Shares issued in connection with common stock purchase agreement

—

304,457

3,045

344,036

—

—

—

347,081
Net loss

—

—

—

—

—

(4,257,152)

—

(4,257,152)
Balance at December 31, 2017
$
—

55,696,650

$
556,967

$
91,102,159

$
(581,519)

$
(38,520,414)

$
(7,806,605)

$
44,750,588

See notes to unaudited condensed consolidated financial statements.

‎

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VERU INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (CONTINUED)


						Accumulated
				Additional		Other				Treasury
	Common Stock			Paid-in		Comprehensive		Accumulated		Stock,
	Shares	Amount		Capital		Loss		Deficit		at Cost		Total

Balance at September 30, 2019	67,221,951	$	672,220	$	110,268,057	$	(581,519)	$	(70,219,017)	$	(7,806,605)	$	32,333,136
Share-based compensation	—		—		614,498		—		—		—		614,498
Issuance of shares pursuant to share-based awards	867		8		(8)		—		—		—		—
Net loss	—		—		—		—		(3,305,101)		—		(3,305,101)
Balance at December 31, 2019	67,222,818		672,228		110,882,547		(581,519)		(73,524,118)		(7,806,605)		29,642,533
Share-based compensation	—		—		681,680		—		—		—		681,680
Issuance of shares pursuant to share-based awards	356,424		3,564		405,068		—		—		—		408,632
Sale of shares under common stock purchase agreement	300,000		3,000		1,224,000		—		—		—		1,227,000
Amortization of deferred costs	—		—		(34,759)		—		—		—		(34,759)
Net loss	—		—		—		—		(810,509)		—		(810,509)
Balance at March 31, 2020	67,879,242		678,792		113,158,536		(581,519)		(74,334,627)		(7,806,605)		31,114,577
Share-based compensation	—		—		685,314		—		—		—		685,314
Shares issued in connection with common stock purchase agreement	212,130		2,121		678,816		—		—		—		680,937
Sale of shares under common stock purchase agreement	3,842,070		38,421		12,134,578		—		—		—		12,172,999
Amortization of deferred costs	—		—		(356,172)		—		—		—		(356,172)
Issuance of shares pursuant to common stock purchase warrants	109,143		1,092		(1,092)		—		—		—		—
Issuance of shares pursuant to share-based awards	4,800		48		6,784		—		—		—		6,832
Net loss	—		—		—		—		(3,025,380)		—		(3,025,380)
Balance at June 30, 2020	72,047,385	$	720,474	$	126,306,764	$	(581,519)	$	(77,360,007)	$	(7,806,605)	$	41,279,107

See notes to unaudited condensed consolidated financial statements.

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VERU INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended

December 31,

2017

2016

OPERATING ACTIVITIES

Net loss
$
(4,257,152)

$
(1,366,181)
Adjustments to reconcile net loss to net cash provided by operating activities:

Depreciation and amortization

44,229

89,284
Amortization of intangible assets

68,816

26,729
Share-based compensation

207,454

317,311
Warrants issued

—

542,930
Deferred income taxes

(3,297,000)

(591,573)
Loss on settlement of accounts receivable

3,764,137

—
Other

(5,000)

4,469
Changes in current assets and liabilities, net of effects of acquisition of a business:
Decrease in accounts receivable

3,226,930

2,391,226
Decrease in income tax receivable

—

191
(Increase) decrease in inventory

(299,112)

111,404
Decrease (increase) in prepaid expenses and other assets

68,369

(75,378)
Decrease in accounts payable

(168,347)

(522,125)
Decrease in unearned revenue

(24,501)

—
Increase in accrued expenses and other current liabilities

967,839

237,678
Net cash provided by operating activities

296,662

1,165,965

INVESTING ACTIVITIES

Capital expenditures

(1,914)

(65,623)
Net cash used in investing activities

(1,914)

(65,623)

Net increase in cash

294,748

1,100,342
CASH AT BEGINNING OF PERIOD

3,277,602

2,385,082
CASH AT END OF PERIOD
$
3,572,350

$
3,485,424

Schedule of noncash investing and financing activities:

Issuance of common stock in connection with the APP Acquisition
$
—

$
1,826,097
Issuance of Series 4 Preferred Stock in connection with the APP Acquisition
$
—

$
17,981,883
Reduction of accrued expense upon issuance of shares
$
—

$
22,176
Shares issued in connection with common stock purchase agreement
$
347,081

$
—
Increase in deferred assets from accrued expenses
$
75,920

$
—

See notes to unaudited condensed consolidated financial statements.


	Nine Months Ended
	June 30,
	2021		2020
OPERATING ACTIVITIES
Net income (loss)	$	11,688,854	$	(7,140,990)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization		170,713		347,159
Noncash change in right-of-use assets		282,843		240,282
Noncash interest expense, net of interest paid		(2,923,628)		3,476,079
Share-based compensation		3,687,663		1,981,492
Gain on sale of PREBOOST® business		(18,410,158)		—
Deferred income taxes		(2,912,778)		(198,202)
Provision for obsolete inventory		175,085		227,982
Change in fair value of derivative liabilities		2,029,000		94,000
Other		(3,000)		7,500
Changes in current assets and liabilities:
(Increase) decrease in accounts receivable		(3,083,306)		194,471
Increase in inventory		(416,867)		(1,775,018)
Increase in prepaid expenses and other assets		(9,610,334)		(4,794)
Increase in accounts payable		2,115,007		648,239
Increase in accrued expenses and other current liabilities		2,783,696		556,330
Decrease in operating lease liabilities		(337,346)		(243,514)
Net cash used in operating activities		(14,764,556)		(1,588,984)

INVESTING ACTIVITIES
Cash proceeds from sale of PREBOOST® business		15,000,000		—
Capital expenditures		(154,416)		(73,444)
Net cash provided by (used in) investing activities		14,845,584		(73,444)

FINANCING ACTIVITIES
Proceeds from sale of shares in public offering, net of fees		108,099,988		—
Payment of costs related to public offering		(137,690)		—
Installment payments on SWK credit agreement		—		(3,325,180)
Proceeds from stock option exercises		1,538,147		415,464
Proceeds from premium finance agreement		1,061,442		836,780
Installment payments on premium finance agreement		(1,061,442)		(555,920)
Proceeds from sale of shares under common stock purchase agreement		—		13,399,999
Cash paid for debt portion of finance lease		(14,283)		(9,444)
Net cash provided by financing activities		109,486,162		10,761,699

Net increase in cash		109,567,190		9,099,271
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		13,588,778		6,295,152
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	123,155,968	$	15,394,423

Supplemental disclosure of cash flow information:
Cash paid for interest	$	6,651,887	$	—
Schedule of non-cash investing and financing activities:
Right-of-use assets recorded in exchange for lease liabilities	$	—	$	1,253,233
Notes receivable for sale of PREBOOST® business	$	5,000,000	$	—
Amortization of deferred costs related to common stock purchase agreement	$	—	$	390,931
Shares issued in connection with common stock purchase agreement	$	—	$	680,937
Increase in other assets from accrued expenses	$	—	$	50,284
Costs related to public offering in accrued expenses and other current liabilities	$	20,000	$	—

See notes to unaudited condensed consolidated financial statements.

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VERU INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 -– Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements for Veru Inc. (“we,” “our,” “us,” “Veru” or the “Company”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ~~(“SEC”)~~(SEC) for reporting of interim financial information. Pursuant to these rules and regulations, certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States ~~(“U.S. GAAP”)~~(U.S. GAAP) have been condensed or omitted, although the Company believes that the disclosures made are adequate to make the information not misleading. Accordingly, these statements do not include all the disclosures normally required by U.S. GAAP for annual financial statements and should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in this report and the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2017.~~2020. The accompanying condensed consolidated balance sheet as of September 30, ~~2017~~2020 has been derived from our audited financial statements. The unaudited condensed consolidated statements of operations for the three and nine months ended June 30, 2021 and cash flows for the ~~three~~nine months ended ~~December 31, 2017~~June 30, 2021 are not necessarily indicative of the results to be expected for any future period or for the fiscal year ending September 30, ~~2018.~~2021.

The preparation of our unaudited interim condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates.

In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements contain all adjustments (consisting of only normally recurring adjustments) necessary to present fairly the financial position and results of operations as of the dates and for the periods presented.

Principles of ~~Consolidation~~consolidation and ~~Nature~~nature of ~~Operations~~

operations: Veru Inc. is referred to in these notes collectively with its subsidiaries as “we,” “our,” “us,” “Veru” or the “Company.” The consolidated financial statements include the accounts of Veru and its wholly owned subsidiaries, Aspen Park Pharmaceuticals, Inc. (APP) and The Female Health Company Limited, and The Female Health Company Limited’s wholly owned ~~subsidiaries,~~subsidiary, The Female Health Company (UK) plc (The Female Health Company Limited and The Female Health Company (UK) plc, collectively, the “U.K. subsidiary”), and The Female Health Company (UK) plc’s wholly owned subsidiary, The Female Health Company (M) ~~SDN.BHD.~~SDN.BHD (the “Malaysia subsidiary”). All significant intercompany transactions and accounts have been eliminated in consolidation. ~~Prior to the completion of the acquisition (the APP Acquisition) of APP through the merger of a wholly owned subsidiary of the~~The Company into APP, the Company had been a single product company engaged in marketing, manufacturing and distributing a consumer health care product, the FC2 female condom. The completion of the APP Acquisition transitioned the Company into ais an oncology biopharmaceutical company with a focus on developing novel medicines for the management of prostate and breast cancers. The Company has multiple drug products under clinical ~~development and commercialization focused in urology and oncology. Nearly all~~development. During fiscal 2020, the Sexual Health Business segment also included PREBOOST® 4% benzocaine medicated individual wipe for the treatment of premature ejaculation. The PREBOOST® business was sold on December 8, 2020. See Note 2 for additional information. Most of the Company’s net revenues during the three and nine months ended ~~December 31, 2017~~June 30, 2021 and ~~2016~~2020 were derived from sales of ~~FC2. The~~the FC2 Female ~~Health Company Limited is~~Condom/FC2 Internal Condom® (FC2), an FDA-approved product for the ~~holding company~~dual protection against unplanned pregnancy and the transmission of The Female Health Company (UK) plc, which is located in London, England (collectively the U.K. subsidiary). The Female Health Company (M) SDN.BHD leases a manufacturing facility located in Selangor D.E., Malaysia (the Malaysia subsidiary). The Company headquarters is located in Miami, Florida in a leased office facility.sexually transmitted infections.

FC2 has been distributed in either or both commercial (private sector) and public health sector markets in 144 countries. It is marketed to consumers in 25 countries through distributors, public health programs, and/or retailers and in the U.S. by prescription.

~~Cash concentration~~Reclassifications: ~~The Company’s cash is maintained primarily in three financial institutions, located in Chicago, Illinois, London, England and Kuala Lumpur, Malaysia, respectively.~~

~~Accounts receivable and concentration of credit risk: Accounts receivable are carried at original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding~~Certain prior period amounts on ~~a periodic basis.~~

The Company's standard credit terms vary from 30 to 120 days, depending on the class of trade and customary terms within a territory, so accounts receivable is affected by the mix of purchasers within the period. As is typical in the

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Company's business, extended credit terms may occasionally be offered as a sales promotion or for certain sales. The Company has agreed to credit terms of up to 150 days with our distributor in the Republic of South Africa. For the most recent order of 15 million units under the Brazil tender, the Company has agreed to up to 360 day credit terms with our distributor in Brazil subject to earlier payment upon receipt of payment by the distributor from the Brazilian Government. See discussion of receivables from our distributor in Brazil in Note 5. For the past twelve months, the Company's average days’ sales outstanding was approximately 303 days.

~~Inventory~~: Inventories are valued at the lower of cost or net realizable value. 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 net realizable value of inventories or changes in estimated obsolescence.

~~Foreign currency translation and operations~~: Effective October 1, 2009, the Company determined that there were significant changes in facts and circumstances, triggering an evaluation of its subsidiaries’ functional currency. The evaluation indicated that the U.S. dollar is the currency with the most significant influence upon the subsidiaries. Because all of the U.K. subsidiary's future sales and cash flows would be denominated in U.S. dollars following the October 2009 cessation of production of the Company’s first generation product, FC1, the U.K. subsidiary adopted the U.S. dollar as its functional currency effective October 1, 2009. As the Malaysia subsidiary is a direct and integral component of the U.K. parent’s operations, it, too, adopted the U.S. dollar as its functional currency as of October 1, 2009. The consistent use of the U.S. dollar as the functional currency across the Company reduces its foreign currency risk and stabilizes its operating results. The cumulative foreign currency translation loss included in accumulated other comprehensive loss was $581,519 as of December 31, 2017 and September 30, 2017. Assets located outside of the U.S. totaled approximately $4,640,000 and $5,600,000 at December 31, 2017 and September 30, 2017, respectively.

~~Equipment, furniture and fixtures~~: Depreciation and amortization are computed using primarily the straight-line method. Depreciation and amortization are computed over the estimated useful lives of the respective assets which range as follows:



~~Manufacturing equipment~~	~~5 – 10 years~~
~~Office equipment~~	~~3 – 5 years~~
~~Furniture and fixtures~~	~~7 – 10 years~~

Depreciation on leased assets is computed over the lesser of the remaining lease term or the estimated useful lives of the assets. Depreciation on leased assets is included with depreciation on owned assets.

~~Patents and trademarks: The costs for patents and trademarks are expensed when incurred.~~

~~Financial instruments: Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820 –~~ ~~Fair Value Measurements and Disclosures,~~ defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC Topic 820 requires disclosures about the fair value of all financial instruments, whether or not recognized, for financial statement purposes. Disclosures about the fair value of financial instruments are based on pertinent information available to us as of the reporting dates. Accordingly, the estimates presented in the accompanying unaudited interim condensed consolidated financial statements ~~are not necessarily indicative of the amounts that could be realized on disposition of the financial instruments.~~

~~FASB ASC Topic 820 specifies a hierarchy of valuation techniques based on whether the inputs~~have been reclassified to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).

The Company currently does not have any assets or liabilities measured at fair value on a recurring basis as of December 31, 2017. Substantially all of the Company’s cash, as well as restricted cash, are held in demand deposits with three financial institutions. The Company has no financial instruments for which the carrying value is materially different than fair value.

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Non-financial assets such as intangible assets, goodwill and property, plant, and equipment are evaluated for impairment annually or when indicators of impairment exist and are measured at fair value only if an impairment charge is recorded. Non-financial assets such as identified intangible assets acquired in connectionconform with the APP Acquisition are measured at fair value using Level 3 inputs, which include discounted cash flow methodologies, or similar techniques, when there is limited market activity and the determination of fair value requires significant judgment or estimation.

~~Research and development costs: Research and development expenses include salaries and benefits, clinical trials costs and contract services. Research and development expenses are charged to operations as they are incurred.~~

The Company records estimated costs of research and development activities conducted by third-party service providers, which include the conduct of preclinical studies and clinical trials and contract manufacturing activities.current period presentation. These costs are a significant component of the Company’s research and development expenses. The Company accrues for these costs based on factors such as estimates of the work completed and in accordance with agreements established with its third-party service providers under the service agreements. The Company makes significant judgments and estimates in determining the accrued liabilities balance in each reporting period. As actual costs become known, the Company adjusts its accrued liabilities. The Company has not experienced any material differences between accrued costs and actual costs incurred. However, the status and timing of actual services performed, number of patients enrolled and the rate of patient enrollments may vary from the Company’s estimates, resulting in adjustments to expense in future periods. Changes in these estimates that result in material changes to the Company’s accruals could materially affect the Company’s results of operations. Research and development costs are expensed as incurred.

The Company follows the provisions of FASB ASC Topic 730, Research and Development, which requires the Company to defer and capitalize nonrefundable advance payments made for goods or services to be used in research and development activities until the goods have been delivered or the related services have been performed. If the goods are no longer expected to be delivered or the services are no longer expected to be performed, the Company would be required to expense the related capitalized advance payments. The Companyreclassifications had no ~~capitalized nonrefundable advance payments as of December 31, 2017 or September 30, 2017, and had no refundable advance payments as of December 31, 2017 and September 30, 2017.~~

~~Restricted cash~~: Restricted cash relates to security provided to one of the Company’s U.K. banks for performance bonds issued in favor of customers. The Company has a facility of $250,000 for such performance bonds. Such security has been extended infrequently and onlyeffect on occasions where it has been a contract term expressly stipulated as an absolute requirement by the customer or its provider of funds. The expiration of the bond is defined by the completion of the event such as, but not limited to, a period of time after the product has been distributed or expiration of the product shelf life. Restricted cash was approximately $140,000 at December 31, 2017 and September 30, 2017, and is included in cash on the accompanying unaudited condensed consolidated balance sheets.

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

~~Unearned revenue~~: FC2 is distributed in the U.S. prescription channel principally through the retail pharmacy, which initiates through large pharmaceutical wholesalers in the U.S. Unearned revenue as of December 31, 2017 and September 30, 2017 was $990,016 and $~~1,014,517, respectively,~~ and was comprised mainly of sales made to wholesalers. We lack the experiential data which would allow us to estimate returns; therefore, as of December 31, 2017 and September 30, 2017, we determined that we do not yet meet the criteria for the recognition of revenue at the time of shipment to certain wholesalers as allowances for returns cannot be reasonably estimated. Accordingly, the Company deferred recognition of revenue on prescription products sold to wholesale distributors until the right of return no longer exists, which occurs at the earlier of the time the prescription products were dispensed through patient prescriptions or expiration of the right of return.

~~Intangible Assets: Our~~ ~~intangible assets arose from the APP Acquisition on October 31, 2016.~~ T~~hese intangible assets are carried at cost less accumulated amortization and~~ ~~are tested for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable~~.

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Assets acquired and liabilities assumed in business combinations, licensing and other transactions are generally recognized at the date of acquisition at their respective fair values. Any excess of the purchase price over the estimated fair values of the net assets acquired is recognized as goodwill. We determined the fair value of intangible assets, including in-process research and development ("IPR&D”), using the “income method.” This method starts with a forecast of net cash flows, risk adjusted for estimated probabilities of technical and regulatory success and adjusted to present value using an appropriate discount rate that reflects the risk associated with the cash flow streams. All assets are valued from a market participant view which might be different than our specific views. The valuation process is very complex and requires significant input and judgment using internal and external sources. Although a valuation is required to be finalized within a one-year period, it must consider all and only those facts and evidence which existed at the acquisition date. The most complex and judgmental matters applicable to the valuation process are summarized below:

Unit of account – Most intangible assets are valued as single global assets rather than multiple assets for each jurisdiction or indication after considering the development stage, expected levels of incremental costs to obtain additional approvals, risks associated with further development, amount and timing of benefits expected to be derived in the future, expected patent lives in various jurisdictions and the intention to promote the asset as a global brand.

Estimated useful life – The asset life expected to contribute meaningful cash flows is determined after considering all pertinent matters associated with the asset, including expected regulatory approval dates (if unapproved), exclusivity periods and other legal, regulatory or contractual provisions as well as the effects of any obsolescence, demand, competition, and other economic factors, including barriers to entry.

Probability of Technical and Regulatory Success (“PTRS”) Rate – PTRS rates are determined based upon industry averages considering the respective program’s development stage and disease indication and adjusted for specific information or data known at the acquisition date. Subsequent clinical results or other internal or external data obtained could alter the PTRS rate and materially impact the estimated fair value of the intangible asset in subsequent periods leading to impairment charges.

Projections – Future revenues are estimated after considering many factors such as initial market opportunity, pricing, sales trajectories to peak sales levels, competitive environment and product evolution. Future costs and expenses are estimated after considering historical market trends, market participant synergies and the timing and level of additional development costs to obtain the initial or additional regulatory approvals, maintain or further enhance the product. We generally assume initial positive cash flows to commence shortly after the receipt of expected regulatory approvals which typically may not occur for a number of years. Actual cash flows attributed to the project are likely to be different than those assumed since projections are subjected to multiple factors including trial results and regulatory matters which could materially change the ultimate commercial success of the asset as well as significantly alter the costs to develop the respective asset into commercially viable products.

Tax rates – The expected future income is tax effected using a market participant tax rate. In determining the tax rate, we consider the jurisdiction in which the intellectual property is held and location of research and manufacturing infrastructure. We also consider that any repatriation of earnings would likely have U.S. tax consequences.

Discount rate – Discount rates are selected after considering the risks inherent in the future cash flows; the assessment of the asset’s life cycle and the competitive trends impacting the asset, including consideration of any technical, legal, regulatory, or economic barriers to entry, as well as expected changes in standards of practice for indications addressed by the asset.

Intangible assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable, although IPR&D is required to be tested at least annually until the project is completed or abandoned. Upon obtaining regulatory approval, the IPR&D asset is then accounted for as a finite-lived intangible asset and amortized on a straight-line basis over its estimated useful life. If the project is abandoned, the IPR&D asset is charged to expense.

Intangible assets are highly vulnerable to impairment charges, particularly newly acquired assets for recently launched products. These assets are initially measured at fair value and therefore any reduction in expectations used in the valuations could potentially lead to impairment. Some of the more common potential risks leading to impairment include competition, earlier than expected loss of exclusivity, pricing pressures, adverse regulatory changes or clinical trial results, delay or failure to obtain regulatory approval and additional development costs,

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inability to achieve expected synergies, higher operating costs, changes in tax laws and other macro-economic changes. The complexity in estimating the fair value of intangible assets in connection with an impairment test is similar to the initial valuation.

Considering the high risk nature of research and development and the industry’s success rate of bringing developmental compounds to market, IPR&D impairment charges are likely to occur in future periods. IPR&D is closely monitored and assessed each period for impairment.

~~Goodwill~~: Goodwill represents the difference between the purchase price and the estimated fair value of the net assets acquired in connection with the APP Acquisition. All goodwill resides in the Company’s Research and Development reporting unit.

Goodwill is tested at least annually for impairment or when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable, by assessing qualitative factors or performing a quantitative analysis in determining whether it is more likely than not that its fair value exceeds the carrying value. Examples of qualitative factors include our share price, our financial performance compared to budgets, long-term financial plans, macroeconomic, industry and market conditions as well as the substantial excess of fair value over the carrying value of net assets from the annual impairment test previously performed.

The estimated fair value of a reporting unit is highly sensitive to changes in projections and assumptions; therefore, in some instances changes in these assumptions could potentially lead to impairment. We perform sensitivity analyses around our assumptions in order to assess the reasonableness of the assumptions and the results of our testing. Ultimately, future potential changes in these assumptions may impact the estimated fair value of a reporting unit and cause the fair value of the reporting unit to be below its carrying value. We believe that our estimates are consistent with assumptions that marketplace participants would use in their estimates of fair value; however, if actual results are not consistent with our estimates and assumptions, we may be exposed to an impairment charge that could be material.operations or financial position for any period presented.

~~Share-based compensation~~: The Company accounts for share-based compensation expense for equity awards exchanged for services over the vesting period based on the grant-date fair value. In many instances, the equity awards are issued upon the grant date subject to vesting periods. In certain instances, the equity awards provide for future issuance contingent on future continued employment or performance of services as of the issuance date.

~~Advertising: The Company's policy is to expense advertising costs as incurred. Advertising costs were $23,640 and $17,941 for the three months ended December 31, 2017 and 2016, respectively.~~

~~Income taxes~~: The Company files separate income tax returns for its foreign subsidiaries. FASB ASC Topic 740 requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are also provided for carryforwards for income tax purposes. In addition, the amount of any future tax benefits is reduced by a valuation allowance to the extent such benefits are not expected to be realized.

Other comprehensive ~~loss~~income (loss): Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net ~~loss.~~income (loss). Although certain changes in assets and liabilities, such as foreign currency translation adjustments, are reported as a separate component of the equity section of the accompanying unaudited condensed consolidated balance sheets, these items, along with net ~~loss,~~income (loss), are components of other comprehensive loss.

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The U.S. parent company and its U.K. subsidiary routinely purchase inventory produced by its Malaysia subsidiary for sale to their respective customers. These intercompany trade accounts are eliminated in consolidation. The Company’s policy and intent is to settle the intercompany trade account on a current basis. Since the U.K. and Malaysia subsidiaries adopted the U.S. dollar as their functional currencies effective October 1, 2009, no foreign currency gains or losses from intercompany trade are recognized. In For the three and nine months ended ~~December 31, 2017~~June 30, 2021 and ~~2016,~~2020, comprehensive ~~loss~~income (loss) is equivalent to the reported net ~~loss.~~ income (loss).

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Recently ~~Issued~~adopted accounting pronouncements: In June 2016, the Financial Accounting ~~Pronouncements~~

~~In May 2014, the FASB~~Standards Board (FASB) issued Accounting Standards Update ~~(“ASU”) 2014-09~~ ~~Revenue from Contracts with Customers~~(ASU) 2016-13, Financial Instruments—Credit Losses (Topic ~~606)~~326). This ASU introduces a new accounting ~~guidance on revenue~~model, the Current Expected Credit Losses model (CECL), which could result in earlier recognition ~~provides~~of credit losses and additional disclosures related to credit risk. The CECL model requires the Company to use a forward-looking expected credit loss impairment methodology for the recognition of credit losses for financial instruments at the time the financial asset is originated or acquired. The expected credit losses are adjusted each period for changes in expected lifetime credit losses. This model replaces the multiple existing impairment models in current U.S. GAAP, which generally require that a ~~single five-step model to~~loss be ~~applied to all revenue contracts with customers.~~incurred before it is recognized. The new standard also ~~requires additional financial statement disclosures that will enable users~~applies to ~~understand the nature, amount, timing and uncertainty of~~receivables arising from revenue ~~and cash flows relating to customer contracts.~~transactions such as accounts receivable. The Company adopted ASU ~~2014-09 will be~~2016-13 on a modified-retrospective basis effective ~~for the Company beginning on~~ October 1, ~~2018.~~2020. The adoption of ASU ~~2014-09 allows for either full retrospective or modified retrospective adoption. We have~~2016-13 did not ~~yet selected a transition method, and we are currently evaluating the effect that ASU 2014-09 will have on~~impact our consolidated financial statements and related disclosures.

~~In July 2015, the FASB issued ASU 2015-11,~~ ~~Inventory (Topic 330)~~: Simplifying the Measurement of Inventory. This new accounting guidance more clearly articulates the requirements for the measurement and disclosure of inventory. Topic 330, Inventory, currently requires an entity to measure inventory at the lower of cost or market. Market could be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin. This new accounting guidance requires the measurement of inventory at the lower of cost or net realizable value. ASU 2015-11 was effective for the Company beginning on October 1, 2017, and the adoption did not have a material effect on our consolidated financial statements.

~~In February 2016, the FASB issued ASU 2016-02,~~ ~~Leases (Topic 842)~~. The amendments in this Update increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. ASU 2016-02 will be effective for the Company beginning on October 1, 2019. Early adoption is permitted. We are currently evaluating the effect of the new guidance on our consolidated financial statements and related disclosures.

~~In March 2016, the FASB issued ASU 2016-09,~~ ~~Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting~~. The amendments in this Update simplify the income tax effects, minimum statutory tax withholding requirements and impact of forfeitures related to how share-based payments are accounted for and presented in the financial statements. ASU 2016-09 was effective for the Company beginning on October 1, 2017, and the adoption did not have a material effect on our consolidated financial statements.

~~In November 2016, the FASB issued ASU 2016-18,~~ ~~Statement of Cash Flows~~ ~~(Topic 230):~~ ~~Restricted Cash~~. The purpose of ASU 2016-18 is to clarify guidance and presentation related to restricted cash in the statements of cash flows as well as increased disclosure requirements. It requires beginning-of-period and end-of-period total amounts shown on the statements of cash flows to include cash and cash equivalents as well as restricted cash and restricted cash equivalents. ASU 2016-18 will be effective for annual periods beginning after December 15, 2017, including interim reporting periods within those annual periods. Early adoption is permitted. We are in the process of determining the effect the adoption will have on our consolidated statements of cash flows.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other Topics (Topic 350): Simplifying the Test for Goodwill ~~Impairment~~.Impairment. The purpose of ASU 2017-04 is to reduce the cost and complexity of evaluating goodwill for impairment. It eliminates the need for entities to calculate the ~~impaired~~implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. Under this amendment, an entity will perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge is recognized for the amount by which the carrying value exceeds the reporting ~~unit's~~unit’s fair value. The Company adopted ASU 2017-04 ison a prospective basis effective ~~for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early~~October 1, 2020. The adoption ~~is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We do~~of ASU 2017-04 did not ~~expect Update No. 2017-04 to have a material effect on~~impact our consolidated financial ~~position or results of operations.~~statements and related disclosures.

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In ~~January 2017,~~August 2018, the FASB issued ASU ~~2017-01,~~ ~~Business Combinations~~ ~~(Topic 805)~~2018-13, Fair Value Measurement (Topic 820): ~~Clarifying~~Disclosure Framework – Change to the ~~Definition of a Business. The purpose of~~Disclosure Requirements for Fair Value Measurement. ASU ~~2017-01 is to change~~2018-13 modifies the ~~definition of a business to assist entities with evaluating when a set of transferred~~disclosure requirements by adding, removing, and modifying certain required disclosures for fair value measurements for assets and ~~activities is~~liabilities disclosed within the fair value hierarchy. The Company adopted ASU 2018-13 on a ~~business. Update No. 2017-01 will be~~retrospective basis effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. Early adoption is permitted as of the beginning of an annual or interim period for which financial statements have not been issued or made available for issuance.October 1, 2020. The adoption of ASU ~~2017-01 is~~2018-13 did not ~~expected to have a material effect on~~impact our financial position, or results of ~~operations.~~operations, or cash flows as it modified disclosure requirements only.

~~In May 2017,~~Note 2 – Sale of PREBOOST® Business

On December 8, 2020, the ~~FASB issued ASU 2017-09,~~ ~~Compensation - Stock Compensation (Topic 718): Scope~~Company entered into an Asset Purchase Agreement, pursuant to which the Company sold substantially all of ~~Modification Accounting. The purpose of ASU 2017-09 is to provide guidance about which changes~~the assets related to the ~~terms~~Company's PREBOOST® business. PREBOOST® is a 4% benzocaine medicated individual wipe for the treatment of premature ejaculation and was a commercial product in the Company’s Sexual Health Division until the date of the sale. The transaction closed on December 8, 2020. The purchase price for the transaction was $20.0 million, consisting of $15.0 million paid at closing, a $2.5 million note receivable due 12 months after closing and a $2.5 million note receivable due 18 months after closing. Total assets sold, consisting of intangible assets, had a net book value of approximately $1.6 million, resulting in a pre-tax gain on sale of approximately $18.4 million. The Company had income before income taxes of $327,000 during the nine months ended June 30, 2021 related to the PREBOOST® business before the sale. The Company had income before income taxes of $450,000 and $729,000 during the three and nine months ended June 30, 2020, respectively, related to the PREBOOST® business.

Note 3 – Fair Value Measurements

FASB Accounting Standards Codification (ASC) Topic 820 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or ~~conditions~~unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).

The three levels of the fair value hierarchy are as follows:

Level 1 – Quoted prices for identical instruments in active markets.

Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

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Level 3 – Instruments with primarily unobservable value drivers.

As of June 30, 2021 and September 30, 2020, the Company’s financial liabilities measured at fair value on a ~~share-based payment award require an entity to apply modification accounting. ASU 2017-09 will be effective for annual periods beginning after December 15, 2017, including interim periods~~recurring basis, which consisted of embedded derivatives, were classified within ~~those annual periods. Early adoption is permitted as~~Level 3 of the fair value hierarchy.

The following table provides a reconciliation of the beginning and ending liability balance associated with embedded derivatives measured at fair value using significant unobservable inputs (Level 3) as of ~~an annual or interim period for which financial statements have not been issued or made available for issuance.~~ June 30, 2021 and 2020:


	Nine Months Ended
	June 30,
	2021		2020

Beginning balance	$	4,182,000	$	3,625,000
Change in fair value of derivative liabilities		2,029,000		94,000
Ending balance	$	6,211,000	$	3,719,000

The ~~adoption of ASU 2017-09 is not expected to have a material effect on our financial position or results of operations.~~

~~Note 2 - APP Acquisition~~

~~On October 31, 2016, as part~~expense associated with the change in fair value of the Company's strategy to diversify its product line to mitigate the risks of being a single product company, the Company completed the APP Acquisition through the merger of a wholly owned subsidiary of the Company into APP. The completion of the APP Acquisition transitioned us from a single product company selling only the FC2 Female Condom® to a biopharmaceutical company with multiple drug products under clinical development and commercialization.

~~The Company incurred $826,370 in acquisition-related costs in the three months ended December 31, 2016, which are presented on~~embedded derivatives is included as a separate line item inon the accompanying unaudited condensed consolidated ~~statement~~statements of operations.

AsThe liabilities associated with embedded derivatives represent the fair value of the ~~date~~change of control provisions in the Credit Agreement and Residual Royalty Agreement. See Note 8 for additional information. There is no current observable market for these types of derivatives. The Company determined the fair value of the ~~APP Acquisition, APP had developed technology consisting~~embedded derivatives using a Monte Carlo simulation model to value the financial liabilities at inception and on subsequent valuation dates. This valuation model incorporates the contractual terms of ~~PREBOOST~~®the instruments and assumptions including projected FC2 revenues, expected cash outflows, expected repayment dates, probability and estimated dates of a change of control, expected volatility, and risk-free interest rates and applicable credit risk. A significant increase in projected FC2 revenues or a significant increase in the probability or acceleration of the timing of a change of control event, in isolation, would result in a significantly higher fair value measurement of the liabilities associated with the embedded derivatives.

The following table presents quantitative information about the inputs and valuation methodologies used to determine the fair value of the embedded derivatives classified in Level 3 of the fair value hierarchy as of June 30, 2021 and September 30, 2020:


		Weighted Average (range, if applicable)
Valuation Methodology	Significant Unobservable Input	June 30, 2021	September 30, 2020

Monte Carlo Simulation	Estimated change of control dates	September 2022 to September 2025	December 2021 to June 2022
	Discount rate	4.6% to 7.9%	14.1% to 16.0%
	Probability of change of control	20% to 90%	20% to 90%

Note 4 – Revenue from Contracts with Customers

The Company generates nearly all its revenue from direct product sales. Revenue from direct product sales is generally recognized when the customer obtains control of the product, which occurs at a point in time, and may be upon shipment or upon delivery based on the contractual shipping terms of a contract. Sales taxes and other similar taxes that the Company collects concurrent with revenue-producing activities are excluded from revenue.

The amount of consideration the Company ultimately receives varies depending upon sales discounts, and other incentives that the Company may offer, which are accounted for as variable consideration when estimating the amount of revenue to recognize. The estimate of variable consideration requires significant judgment. The Company includes estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. The estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely upon an assessment of current contract sales terms and historical payment experience.

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Product returns are typically not significant because returns are generally not allowed unless the product is damaged at time of receipt.

The Company’s revenue is from sales of FC2 in the U.S. prescription channel and direct sales of FC2 in the global public health sector, and also included sales of PREBOOST® medicated wipes for prevention of premature ~~ejaculation. IPR&D represents incomplete research and development projects at APP as~~ejaculation before the sale of the ~~date~~PREBOOST® business. The following table presents net revenues from these three categories:


	Three Months Ended				Nine Months Ended
	June 30,				June 30,
	2021		2020		2021		2020
FC2
U.S. prescription channel	$	13,501,862	$	5,391,523	$	32,916,343	$	18,395,280
Global public health sector		4,153,730		4,254,197		11,833,894		11,197,635
Total FC2		17,655,592		9,645,720		44,750,237		29,592,915
PREBOOST®		-		676,034		862,831		1,249,959
Net revenues	$	17,655,592	$	10,321,754	$	45,613,068	$	30,842,874

The following table presents net revenue by geographic area:


	Three Months Ended				Nine Months Ended
	June 30,				June 30,
	2021		2020		2021		2020

United States	$	14,080,810	$	6,396,762	$	35,049,646	$	20,575,515
South Africa		*		1,182,225		*		*
Other		3,574,782		2,742,767		10,563,422		10,267,359
Net revenues	$	17,655,592	$	10,321,754	$	45,613,068	$	30,842,874

*Less than 10% of total net revenues and included in Other

The Company’s performance obligations consist mainly of transferring control of products identified in the contracts which occurs either when: i) the product is made available to the customer for shipment; ii) the product is shipped via common carrier; or iii) the product is delivered to the customer or distributor, in accordance with the terms of the ~~APP Acquisition. The fair value~~agreement. Some of the ~~developed technology and IPR&D were determined using~~Company’s contracts require the ~~income approach, which was prepared based on forecasts by management.~~

~~Purchase price in excess of assets acquired and liabilities assumed was recorded as goodwill. Goodwill from the APP Acquisition principally relates~~customer to ~~intangible assets that do not qualify for separate recognition, our expectation~~make advanced payments prior to ~~develop and market new products, and the deferred tax liability generated as a result~~transferring control of the ~~transaction. Goodwill is not tax deductible for income tax purposes and was assigned to the Research and Development reporting segment.~~

~~In connection with the APP Acquisition,~~products. These advanced payments create a consolidated complaint has been filed against the Company and its directors alleging breach of fiduciary duty. The Company intends to vigorously defend this lawsuit. See Note 10 for additional detail.

~~Note 3 - Earnings per Share~~

~~Basic net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding~~contract liability for the period. Diluted net loss per share is computed by dividing net income by the weighted average number of common shares outstanding during the period after giving effect to all dilutive potential common shares that were outstanding during the period. Dilutive potential common shares consistCompany. The balances of the ~~incremental common shares issuable upon~~Company’s contract liability, included in accrued expenses and other current liabilities on the ~~exercise of stock options, stock appreciation rights~~accompanying unaudited condensed consolidated balance sheets, were approximately $699,000 and warrants, and the vesting of unvested restricted stock and restricted stock units. Due to our net loss for the periods presented, all potentially dilutive instruments were excluded because their inclusion would have been anti-dilutive. See Notes 7 and 8 for a discussion of our dilutive potential common shares.

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~~Note 4 - Inventory~~

~~Inventory consists of the following components~~$6,000 at ~~December 31, 2017~~June 30, 2021 and September 30, ~~2017:~~ 2020, respectively.

December 31, 2017

September 30, 2017
FC2

Raw material
$
554,737

$
530,384
Work in process

121,137

90,164
Finished goods

2,631,155

2,427,386
Inventory, gross

3,307,029

3,047,934
Less: inventory reserves

(272,980)

(312,997)
FC2, net

3,034,049

2,734,937
PREBOOST®

Finished goods

32,987

32,987
Inventory, net
$
3,067,036

$
2,767,924

Note 5 -– Accounts Receivable and Concentration of Credit Risk

The Company's standard credit terms vary from 30 to 120 days, depending on the class of trade and customary terms within a territory, so accounts receivable are affected by the mix of purchasers within the period. As is typical in the Company's business, extended credit terms may occasionally be offered as a sales promotion or for certain sales. For sales to the Company’s distributor in Brazil, the Company has agreed to credit terms of up to 90 days subsequent to clearance of the product by the Ministry of Health in Brazil.

The components of accounts receivable consist of the following at ~~December 31, 2017~~June 30, 2021 and September 30, ~~2017:~~ 2020:


	June 30,		September 30,
	2021		2020

Trade receivables, gross	$	8,441,224	$	5,332,786
Less: allowance for doubtful accounts		(22,643)		(25,643)
Less: allowance for sales returns and payment term discounts		(105,038)		(79,906)
Accounts receivable, net	$	8,313,543	$	5,227,237

December 31, 2017

September 30, 2017

Trade receivables

$
2,905,094

$
11,330,814
Other receivables

128,317

100,139
Accounts receivable, gross

3,033,411

11,430,953
Less: allowance for doubtful accounts

(33,103)

(38,103)
Accounts receivable, net

3,000,308

11,392,850
Less: long-term trade receivables

—

(7,837,500)
Current accounts receivable, net

$
3,000,308

$
3,555,350

~~On December 27, 2017, we entered into a settlement agreement with Semina, our distributor in Brazil, pursuant to which Semina has made a payment of $2.25 million~~At June 30, 2021 and is obligated to make a second payment of $1.5 million by February 28, 2018, to settle net amounts due to us totaling $7.5 million. The amounts owed to us relate to outstanding accounts receivable for sales to Semina for the 2014 Brazil Tender totaling $8.9 million, $7.8 million of which was classified as a long term trade receivable and $1.1 million asat September 30, 2020, 0 customers had a current account receivable on the accompanying condensed consolidated balance sheet as of September 30, 2017. These receivables were net of payables owed to Semina by us totaling $1.4 million, $1.2 million of which was classified as a long term liability and $0.2 million classified as a current liability on the accompanying condensed consolidated balance sheet as of September 30, 2017. The settlement was not related to our belief in the ultimate collectability of the receivables or in the creditworthiness of Semina. The result of the settlement was a net loss of approximately $3.76 million, which is presented as a separate line item in the accompanying unaudited condensed consolidated statement of operations for the three months ended December 31, 2017.

~~At December 31, 2017 and September 30, 2017, Semina’s~~ accounts receivable balance that represented ~~15 percent and 11 percent~~greater than 10% of current ~~assets, respectively. No other single customer’s~~assets.

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At June 30, 2021, 3 customers had an accounts receivable balance ~~accounted for more~~greater than ~~10 percent~~10% of ~~current assets at~~net accounts receivable, representing 90% of net accounts receivable in the ~~end of those periods.~~aggregate. At ~~December 31, 2017, Semina’s~~September 30, 2020, 3 customers had an accounts receivable balance ~~represented 50 percent~~greater than 10% of ~~the Company’s~~net accounts receivable, ~~balance. At September 30, 2017, Semina’s~~representing 89% of net accounts receivable ~~and long-term other receivables balance represented 78 percent of~~in the ~~Company’s accounts receivable and long-term other receivables balance.~~ aggregate.

For the three months ended ~~December 31, 2017 and 2016,~~June 30, 2021, there were ~~four and three~~2 customers ~~who each~~whose individual net revenue to the Company exceeded ~~10 percent~~10% of the Company’s net revenues, ~~respectively.~~representing 75% of the Company’s net revenues in the aggregate. For the three months ended June 30, 2020, there were 3 customers whose individual net revenue to the Company exceeded 10% of the Company’s net revenues, representing 72% of the Company’s net revenues in the aggregate.

For the nine months ended June 30, 2021, there were 2 customers whose individual net revenue to the Company exceeded 10% of the Company’s net revenues, representing 71% of the Company’s net revenues in the aggregate. For the nine months ended June 30, 2020, there were 3 customers whose individual net revenue to the Company exceeded 10% of the Company’s net revenues, representing 74% of the Company’s net revenues in the aggregate.

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The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments on accounts receivable. Management determines the allowance for doubtful accounts by identifying troubled accounts and by using historical experience applied to an aging of accounts. Management also periodically evaluates individual customer receivables and considers a customer’s financial condition, credit history, and the current economic conditions. Accounts receivable are ~~written-off~~charged-off when deemed uncollectible. ~~The table below sets forth the components of~~There was 0 material change in the allowance for doubtful accounts ~~at December 31, 2017~~for the nine months ended June 30, 2021 and ~~2016:~~2020.

Fiscal
Balance at

Provision Charges

Write offs/

Balance at
Year
October 1

to Expenses

Recoveries

December 31
2017
$
38,103

$
—

$
—

$
38,103
2018
$
38,103

$
—

$
(5,000)

$
33,103

Recoveries of accounts receivable previously ~~written-off~~charged off are recorded when received. ~~The~~In the global public health sector, the Company’s customers are primarily large global agencies, non-government organizations, ministries of health and other governmental agencies, which purchase and distribute ~~the female condom~~FC2 for use in HIV/AIDS prevention and family planning programs. In the U.S., the Company’s customers include telemedicine providers who sell into the prescription channel.

Note 6 ~~- Revolving Line~~– Balance Sheet Information

Inventory

Inventories are valued at the lower of cost or net realizable value. 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 net realizable value of inventories or changes in estimated obsolescence.

Inventory consisted of the following at June 30, 2021 and September 30, 2020:


	June 30,		September 30,
	2021		2020
FC2:
Raw material	$	1,317,901	$	962,860
Work in process		90,583		106,272
Finished goods		5,679,518		5,634,612
FC2, gross		7,088,002		6,703,744
Less: inventory reserves		(142,086)		(29,331)
FC2, net		6,945,916		6,674,413
PREBOOST®
Finished goods		—		29,721
Inventory, net	$	6,945,916	$	6,704,134

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Fixed Assets

We record equipment, furniture and fixtures, and leasehold improvements at historical cost. Expenditures for maintenance and repairs are recorded to expense. Depreciation and amortization are primarily computed using the straight-line method. Depreciation and amortization are computed over the estimated useful lives of the respective assets. Leasehold improvements are depreciated on a straight-line basis over the lesser of the remaining lease term or the estimated useful lives of the improvements.

Plant and equipment consisted of the following at June 30, 2021 and September 30, 2020:


	Estimated	June 30,		September 30,
	Useful Life	2021		2020
Plant and equipment:
Manufacturing equipment	5 - 8 years	$	2,770,149	$	2,752,854
Office equipment, furniture and fixtures	3 - 10 years		903,400		803,484
Leasehold improvements	3 - 8 years		298,886		298,886
Total plant and equipment			3,972,435		3,855,224
Less: accumulated depreciation and amortization			(3,580,423)		(3,542,533)
Plant and equipment, net		$	392,012	$	312,691

Note 7 – Intangible Assets and Goodwill

Intangible Assets

The gross carrying amounts and net book value of intangible assets were as follows at June 30, 2021:


	Gross Carrying		Accumulated		Net Book
	Amount		Amortization		Value
Intangible asset with finite life:
Covenants not-to-compete	$	500,000	$	333,333	$	166,667
Indefinite-lived intangible assets:
Acquired in-process research and development assets		3,900,000		—		3,900,000
Total intangible assets	$	4,400,000	$	333,333	$	4,066,667

The gross carrying amounts and net book value of intangible assets were as follows at September 30, 2020:


	Gross Carrying		Accumulated		Net Book
	Amount		Amortization		Value
Intangible assets with finite lives:
Developed technology - PREBOOST®	$	2,400,000	$	768,111	$	1,631,889
Covenants not-to-compete		500,000		279,762		220,238
Total intangible assets with finite lives		2,900,000		1,047,873		1,852,127
Acquired in-process research and development assets		3,900,000		—		3,900,000
Total intangible assets	$	6,800,000	$	1,047,873	$	5,752,127

As discussed in Note 2, the Company sold its intangible assets related to PREBOOST® as part of the sale of the PREBOOST® business on December 8, 2020. The remaining net book value of the PREBOOST® developed technology, acquired in the acquisition of APP, was $1.6 million on the date of the sale. Amortization expense was approximately $18,000 and $79,000 for the three months ended June 30, 2021 and 2020,respectively, and approximately $96,000 and $237,000 for the nine months ended June 30, 2021 and 2020, respectively.

Goodwill

The carrying amount of goodwill at June 30, 2021 and September 30, 2020 was $6.9 million. There was 0 change in the balance during the nine months ended June 30, 2021 and 2020.

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Note 8 – Debt

SWK Credit Agreement

~~The Company’s~~On March 5, 2018, the Company entered into a Credit Agreement (as amended, the “Credit Agreement”) with ~~BMO Harris Bank N.A. expired~~ the financial institutions party thereto from time to time (the “Lenders”) and SWK Funding LLC, as agent for the Lenders (the “Agent”), for a synthetic royalty financing transaction. On and subject to the terms of the Credit Agreement, the Lenders provided the Company with a term loan of $10.0 million, which was advanced to the Company on ~~December 29, 2017.~~ N~~o amounts were outstanding~~the date of the Credit Agreement. After payment by the Company of certain fees and expenses of the Agent and the Lenders as required in the Credit Agreement, the Company received net proceeds of approximately $9.9 million from the $10.0 million loan under the Credit Agreement.

The Lenders are entitled to receive quarterly payments on the term loan based on the Company’s product revenue from net sales of FC2 as provided in the Credit Agreement until the Company has paid 176.5% of the aggregate amount advanced to the Company under the Credit Agreement. If product revenue from net sales of FC2 for the 12-month period ended as of the last day of the respective quarterly payment period is less than $10.0 million, the quarterly payments will be 32.5% of product revenue from net sales of FC2 during the quarterly period. If product revenue from net sales of FC2 for the 12-month period ended as of the last day of the respective quarterly payment period is equal to or greater than $10.0 million, the quarterly payments are calculated as follows: (i) as it relates to each quarter during the 2019 calendar year, the sum of 12.5% of product revenue from net sales of FC2 up to and including $12.5 million in the Elapsed Period (as defined in the Credit Agreement), plus 5% of product revenue from net sales of FC2 greater than $12.5 million in the Elapsed Period, (ii) as it relates to each quarter during the 2020 calendar year, the sum of 25% of product revenue from net sales of FC2 up to and including $12.5 million in the Elapsed Period, plus 10% of product revenue from net sales of FC2 greater than $12.5 million in the Elapsed Period, and (iii) as it relates to each quarter during the 2021 calendar year and thereafter, the sum of 30% of product revenue from net sales of FC2 up to and including $12.5 million in the Elapsed Period, plus 20% of product revenue from net sales of FC2 greater than $12.5 million in the Elapsed Period. Upon the Credit Agreement’s termination date of March 5, 2025, the Company must pay 176.5% of the aggregate amount advanced to the Company under the Credit Agreement less the amounts previously paid by the Company from product revenue. The payment requirements described above reflect an amendment to the Credit Agreement dated May 13, 2019 (the “Second Amendment”) which included a reduction to the percentages to be used to calculate the quarterly revenue-based payments due on product revenue from net sales of FC2 during calendar year 2019, a return to the original percentages to calculate the quarterly revenue-based payments due on product revenue from net sales of FC2 during calendar year 2020 and an increase to the percentages to be used to calculate the quarterly revenue-based payments due on product revenue from net sales of FC2 during calendar year 2021 and thereafter until the loan has been repaid.

Upon a change of control of the Company or sale of the FC2 business, the Company must pay off the loan by making a payment to the Lenders equal to (i) 176.5% of the aggregate amount advanced to the Company under the Credit Agreement less the amounts previously paid by the Company from product revenue from net sales of FC2, plus (ii) the greater of (A) $2.0 million or (B) the product of (x) 5% of the product revenue from net sales of FC2 for the most recently completed 12-month period multiplied by (y) 5. A “change of control” under the Credit Agreement includes (i) an acquisition by any person of direct or indirect ownership of more than 50% of the Company’s issued and outstanding voting equity, (ii) a change of control or similar event in the Company’s articles of incorporation or bylaws, (iii) certain Key Persons as defined in the Credit Agreement cease to serve in their current executive capacities unless replaced within 90 days by a person reasonably acceptable to the Agent, which acceptance not to be unreasonably withheld, or (iv) the sale of all or substantially all of the Company’s assets.

The Credit Agreement contains customary representations and warranties in favor of the Agent and the Lenders and certain covenants, including financial covenants addressing minimum quarterly marketing and distribution expenses for FC2 and a requirement to maintain minimum unencumbered liquid assets of $1.0 million. The Credit Agreement also restricts the payment of dividends and share repurchases. The recourse of the Lenders and the Agent for obligations under the Credit Agreement is limited to assets relating to FC2.

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In connection with the Credit Agreement, the Company and the Agent also entered into a Residual Royalty Agreement, dated as of March 5, 2018 (as amended, the “Residual Royalty Agreement”), which provides for an ongoing royalty payment of 5% of product revenue from net sales of FC2 commencing after the Company would have paid 175% of the aggregate amount advanced to the Company under the Credit Agreement based on a calculation of revenue-based payments under the Credit Agreement without taking into account the amendments to the payment requirements under the Credit Agreement effected by the Second Amendment. The Residual Royalty Agreement will terminate upon (i) a change of control or sale of the FC2 business and the payment by the Company of the amount due in connection therewith pursuant to the Credit Agreement, or (ii) mutual agreement of the parties. If a change of control or sale of the FC2 business occurs prior to payment in full of the Credit Agreement, there will be no further payment due with respect to the Residual Royalty Agreement. If a change of control or sale of the FC2 business occurs after payment in full of the Credit Agreement, the Agent will receive a payment that is the greater of (A) $2.0 million or (B) the product of (x) 5% of the product revenue from net sales of FC2 for the most recently completed 12-month period multiplied by (y) 5.

Pursuant to a Guarantee and Collateral Agreement dated as of March 5, 2018 (the “Collateral Agreement”) and an Intellectual Property Security Agreement dated as of March 5, 2018 (the “IP Security Agreement”), the Company’s obligations under the Credit Agreement are secured by a lien against substantially all of the assets of the Company that relate to or arise from FC2. In addition, pursuant to a Pledge Agreement dated as of March 5, 2018 (the “Pledge Agreement”), the Company’s obligations under the Credit Agreement are secured by a pledge of up to 65% of the outstanding shares of The Female Health Company Limited, a wholly owned U.K. subsidiary.

For accounting purposes, the $10.0 million advance under the Credit Agreement was allocated between the Credit Agreement and the Residual Royalty Agreement on a relative fair value basis. A portion of the amount allocated to the Credit Agreement and a portion of the amount allocated to the Residual Royalty Agreement, in both cases equal to the fair value of the respective change of control provisions, was allocated to the embedded derivative liabilities. The derivative liabilities are adjusted to fair market value at each reporting period. For financial statement presentation, the embedded derivative liabilities have been included with their respective host instruments as noted in the following tables. The debt discounts are being amortized to interest expense over the expected term of the loan using the effective interest method. Additionally, the Company recorded deferred loan issuance costs of approximately $267,000 for legal fees incurred in connection with the Credit Agreement. The deferred loan issuance costs are presented as a reduction of the Credit Agreement obligation and are being amortized to interest expense over the expected term of the loan using the effective interest method. The Second Amendment was accounted for as a debt modification, which resulted in prospective adjustment to the effective interest rate.

At June 30, 2021 and September 30, ~~2017~~ ~~or when it expired~~2020, the Credit Agreement liability consisted of the following:


	June 30,		September 30,
	2021		2020

Aggregate repayment obligation	$	17,650,000	$	17,650,000
Less: cumulative payments		(16,704,398)		(10,314,495)
Remaining repayment obligation		945,602		7,335,505
Less: unamortized discounts		(59,291)		(1,459,330)
Less: unamortized deferred issuance costs		(1,394)		(34,301)
Credit agreement liability	$	884,917	$	5,841,874

The Company made its final payment to repay the original principal of $10.0 million during the quarter ended September 30, 2020. Remaining quarterly payments under the Credit Agreement will be classified as interest payments, consistent with the terms of the Credit Agreement. The Company currently estimates the remaining repayment obligation under the Credit Agreement will be paid during the 12-month period subsequent to June 30, 2021.

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At June 30, 2021 and September 30, 2020, the Residual Royalty Agreement liability consisted of the following:


	June 30,		September 30,
	2021		2020

Residual royalty agreement liability, fair value at inception	$	346,000	$	346,000
Add: accretion of liability using effective interest rate		4,485,000		2,189,687
Less: cumulative payments		(261,984)		—
Residual royalty agreement liability, excluding embedded derivative liability		4,569,016		2,535,687
Add: embedded derivative liability at fair value (see Note 3)		6,211,000		4,182,000
Total residual royalty agreement liability		10,780,016		6,717,687
Residual royalty agreement liability, short-term portion		(3,679,871)		(1,100,193)
Residual royalty agreement liability, long-term portion	$	7,100,145	$	5,617,494

The short-term portion of the Residual Royalty Agreement liability represents the aggregate of the estimated quarterly payments on ~~December 29, 2017.~~the Residual Royalty Agreement payable during the 12-month period subsequent to the balance sheet date.

Interest expense related to the Credit Agreement and the Residual Royalty Agreement consisted of amortization of the discounts, accretion of the liability for the Residual Royalty Agreement and amortization of the deferred issuance costs. For the three and nine months ended June 30, 2021 and 2020, interest expense related to the Credit Agreement and Residual Royalty Agreement was as follows:


	Three Months Ended				Nine Months Ended
	June 30,				June 30,
	2021		2020		2021		2020

Amortization of discounts	$	327,550	$	782,169	$	1,400,039	$	2,488,747
Accretion of residual royalty agreement		952,276		369,138		2,295,313		928,835
Amortization of deferred issuance costs		7,699		18,385		32,907		58,497
Interest expense	$	1,287,525	$	1,169,692	$	3,728,259	$	3,476,079

Premium Finance Agreement

On November 1, 2020, the Company entered into a Premium Finance Agreement to finance $1.1 million of its directors and officers liability insurance premium at an annual percentage rate of 3.94%. The financing was payable in 3 quarterly installments of principal and interest, beginning on January 1, 2021. The last payment was made in June 2021 and there was 0 balance outstanding as of June 30, 2021.

On November 1, 2019, the Company entered into a Premium Finance Agreement to finance $837,000 of its directors and officers liability insurance premium at an annual percentage rate of 4.18%. The financing was payable in 3 quarterly installments of principal and interest, which began on January 1, 2020. The last payment was made on July 1, 2020 and there was 0 balance outstanding as of September 30, 2020.

Note ~~7 -~~9 – Stockholders’ Equity

Preferred Stock

The Company has 5,000,000 authorized shares designated as Class A Preferred Stock with a par value of ~~$.01~~$0.01 per share. There are 1,040,000 shares of Class A Preferred Stock -– Series 1 authorized; 1,500,000 shares of Class A Preferred ~~Stock-~~Stock – Series 2 authorized; 700,000 shares of Class A Preferred Stock -– Series 3 authorized; and 548,000 shares of Class A Preferred ~~Stock-~~Stock – Series 4 (the ~~Series~~“Series 4 Preferred ~~Stock)~~Stock”) authorized. In connection with the completion of the APP Acquisition (see Note 2), a total of 546,756 shares of Series 4 Preferred Stock were issued to the former APP stockholders as of October 31, 2016, and all of the outstanding shares of Series 4 Preferred automatically converted into shares of the Company’s common stock effective July 31, 2017. There were ~~no other~~0 shares of Class A Preferred Stock of any series issued and outstanding at ~~December 31, 2017 or~~June 30, 2021 and September 30, ~~2017.~~2020. The Company has 15,000 authorized shares designated as Class B Preferred Stock with a par value of $0.50 per share. There were no0 shares of Class B Preferred Stock issued and outstanding at ~~December 31, 2017 or~~June 30, 2021 and September 30, ~~2017.~~2020, and there was no activity during the nine-month periods then ended.

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Common Stock Offering

On February 22, 2021, we completed an underwritten public offering of 7,419,354 shares of our common stock, which included the exercise in full of the underwriters’ option to purchase additional shares, at a public offering price of $15.50 per share. Net proceeds to the Company from this offering were $107.9 million after deducting underwriting discounts and commissions and costs incurred by the Company through June 30, 2021. All of the shares sold in the offering were by the Company. The offering was made pursuant to the Company’s shelf registration statement on Form S-3 (File No. 333-239493).

Common Stock Purchase Warrants

In connection with the closing of the acquisition of APP ~~Acquisition,~~(the “APP Acquisition”) on October 31, 2016, the Company issued ~~a warrant~~warrants to purchase up to 2,585,379 shares of the Company's common stock to Torreya Capital, the ~~Company's~~Company’s then financial advisor (the ~~Financial~~“Financial Advisor ~~Warrant)~~Warrants”). The Financial Advisor ~~Warrant has~~Warrants had a ~~five-year~~five-year term expiring October 31, 2021, a cashless exercise feature and a strike price equal to $1.93 per ~~share, the average price~~share. The Financial Advisor Warrants vested upon issuance. As of ~~the Company's~~September 30, 2020, an aggregate of 2,326,841 shares of common stock remained available for ~~the ten-day period preceding the original announcement of the APP Acquisition on April 6, 2016. The fair value of~~purchase under the Financial Advisor ~~Warrant~~Warrants. During the first quarter of ~~$542,930 was estimated at~~fiscal 2021, the ~~October 31, 2016 date~~remaining Financial Advisor Warrants to purchase 2,326,841 shares of ~~grant~~the Company’s common stock were exercised using the ~~Black-Scholes option pricing model assuming expected volatility~~cashless exercise feature, resulting in the issuance of ~~47.2 percent, a risk-free interest rate~~1,574,611 shares of ~~1.31 percent, an expected life~~common stock. As of ~~five years, no dividend yield, and the closing price of the Company's~~June 30, 2021, there were 0 outstanding common stock on October 31, 2016 of $0.95. The Financial Advisor Warrant vested upon issuance. Half of the shares subject to the Financial Advisor Warrant, or 1,292,690 shares, are locked-up for a period of 18 months from the issuance date. The Financial Advisor Warrant is recorded as a component of additional paid-in-capital and the related expense is included in business acquisition expenses in the accompanying unaudited condensed consolidated statement of operations for the three months ended December 31, 2016.purchase warrants.

~~Table of Contents~~

Aspire Capital Purchase Agreement

On ~~December 29, 2017,~~June 26, 2020, the Company entered into a common stock purchase agreement (the “2020 Purchase ~~Agreement)~~Agreement”) with Aspire Capital Fund, LLC (Aspire Capital) which provides that, upon the terms and subject to the conditions and limitations set forth therein, the Company has the right, from time to time in its sole discretion during the 36-month term of the 2020 Purchase Agreement, to direct Aspire Capital to purchase up to ~~$15.0~~$23.9 million of the Company’s common stock in the aggregate. Concurrently with entering into the 2020 Purchase Agreement, the Company also entered into a registration rights agreement with Aspire Capital (the ~~Registration~~“Registration Rights ~~Agreement)~~Agreement”), in which the Company agreed to prepare and file under the Securities Act ~~and under its current registration statement on Form S-3 (File No. 333-221120), a~~of 1933 one or more prospectus supplement for the sale or potential sale of the shares of the Company’s common stock that have been and may be issued to Aspire Capital under the 2020 Purchase Agreement.

Under the 2020 Purchase Agreement, on any trading day selected by the Company, the Company has the right, in its sole discretion, to present Aspire Capital with a purchase notice (each, a ~~Purchase Notice)~~“Purchase Notice”), directing Aspire Capital (as principal) to purchase up to 200,000 shares of the Company’s common stock per business day ~~up to $15.0 million of the Company’s common stock in the aggregate~~ at a per share price (the ~~"Purchase Price"~~“Purchase Price”) equal to the lesser of the lowest sale price of the Company’s common stock on the purchase date or the average of the three lowest closing sale prices for the Company’s common stock during the ten consecutive trading days ending on the trading day immediately preceding the purchase date.

In addition, on any date on which the Company submits a Purchase Notice to Aspire Capital in an amount equal to 200,000 shares and the closing sale price of our common stock is equal to or greater than $0.50 per share, the Company also has the right, in its sole discretion, to present Aspire Capital with a volume-weighted average price purchase notice (each, a ~~VWAP~~“VWAP Purchase ~~Notice)~~Notice”) directing Aspire Capital to purchase an amount of common stock equal to up to 30% of the aggregate shares of the common stock traded on its principal market on the next trading day (the ~~VWAP~~“VWAP Purchase ~~Date)~~Date”), subject to a maximum number of shares the Company may determine. The purchase price per share pursuant to such VWAP Purchase Notice is generally 97% of the volume-weighted average price for the Company’s common stock traded on its principal market on the VWAP Purchase Date.

Since inception of the 2020 Purchase Agreement, we have sold 1,644,737 shares of common stock to Aspire Capital resulting in proceeds to the Company of $5.0 million. As of June 30, 2021, the amount remaining under the 2020 Purchase Agreement was $18.9 million, which is registered under the Company’s shelf registration statement on Form S-3 (File No. 333-239493).

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In consideration for entering into the 2020 Purchase Agreement and concurrently with the execution of the 2020 Purchase Agreement, the Company issued to Aspire Capital ~~304,457~~212,130 shares of the Company’s common stock. The shares of common stock issued as consideration were valued at ~~$347,081.~~$681,000, based on the closing price per share of the Company’s common stock on the date the shares were issued. This amount and related expenses of ~~$75,920 have been~~$50,000, which total approximately $731,000, were recorded as deferred costs. The unamortized amount of deferred costs related to the 2020 Purchase Agreement of $578,000 at June 30, 2021 and September 30, 2020 is included in ~~deferred~~other assets on the accompanying unaudited condensed consolidated balance ~~sheet at December 31, 2017. As of the date of filing this Quarterly Report with the SEC, no shares of the Company’s common stock have been sold to Aspire Capital under the Purchase Agreement.~~sheets.

Note 810 – Share-based Compensation

We allocate share-based compensation expense to cost of sales, selling, general and administrative expense, and research and development expense based on the award holder’s employment function. For the three and nine months ended ~~December 31, 2017~~June 30, 2021 and ~~2016,~~2020, we recorded share-based compensation expenses as follows:


	Three Months Ended				Nine Months Ended
	June 30,				June 30,
	2021		2020		2021		2020

Cost of sales	$	15,921	$	7,743	$	50,548	$	38,713
Selling, general and administrative		1,444,145		490,647		2,719,232		1,442,970
Research and development		440,019		186,924		917,883		499,809
Share-based compensation	$	1,900,085	$	685,314	$	3,687,663	$	1,981,492

We have issued share-based awards to employees and non-executive directors under the Company’s approved equity plans. Upon the exercise of share-based awards, new shares are issued from authorized common stock.

2017

2016

Cost of sales

$
2,373

$
—
Selling, general and administrative

176,229

317,311
Research and development

28,852

—

$
207,454

$
317,311

Equity Plans

In March 2018, the Company’s stockholders approved the Company's 2018 Equity Incentive Plan (as amended, the “2018 Plan”). A total of 11.0 million shares are authorized for issuance under the 2018 Plan. As of June 30, 2021, 2,848,780 shares remain available for issuance under the 2018 Plan.

In July 2017, the Company’s stockholders approved the Company's 2017 Equity Incentive ~~Plan.~~Plan (the “2017 Plan”). A total of 4.7 million shares are authorized for issuance under the 2017 Plan. As of June 30, 2021, 18,433 shares remain available for issuance under the 2017 ~~Equity Incentive~~ Plan. As of December 31, 2017, a total of 4,096,356 shares had been granted under the 2017 Equity Incentive Plan and not forfeited or are subject to outstanding commitments to issue shares under the 2017 Equity Incentive Plan, of which 3,716,356 shares were in the form of stock options, 190,000 shares were in the form of stock appreciation rights and 190,000 shares were in the form of restricted stock units. The 2017 ~~Equity Incentive~~ Plan replaced the Company's 2008 Stock Incentive Plan (the “2008 Plan”), and no0 further awards will be made under the 2008 ~~Stock Incentive~~ Plan.

~~Table of Contents~~

Stock Options

Each option grants the holder the right to purchase from us 1 share of our common stock at a specified price, which is generally the closing price per share of our common stock on the date the option is issued. Options generally vest on a pro-rata basis on each anniversary of the issuance date within three years of the date the option is issued. Options may be exercised after they have vested and prior to the specified expiry date provided applicable exercise conditions are met, if any. The expiry date can be for periods of up to ten years from the date the option is issued. The fair value of each option is estimated on the date of grant using the Black-Scholes option pricing model based on the assumptions established at that time. The Company accounts for forfeitures as they occur and does not estimate forfeitures as of the option grant date.

The following table outlines the weighted average assumptions for options granted during the three and nine months ended ~~December 31, 2017~~June 30, 2021 and ~~2016:~~2020:


	Three Months Ended				Nine Months Ended
	June 30,				June 30,
	2021		2020		2021		2020
Weighted Average Assumptions:
Expected volatility		78.53%		—		68.88%		63.13%
Expected dividend yield		0.00%		—		0.00%		0.00%
Risk-free interest rate		1.10%		—		0.64%		1.63%
Expected term (in years)		6.0		—		5.9		5.9
Fair value of options granted	$	5.98	$	—	$	3.46	$	1.14

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Weighted Average Assumptions:

2017

2016
Expected Volatility

60.60%

43.76%
Expected Dividend Yield

0.00%

0.00%
Risk-free Interest Rate

2.24%

1.62%
Expected Term (in years)

5.7

6.0
Fair Value of Options Granted

$
0.65

$
0.41

During the three and nine months ended ~~December 31, 2017~~June 30, 2021 and ~~2016,~~2020, the Company used historical volatility of our common stock over a period equal to the expected life of the options to estimate their fair value. The dividend yield assumption is based on the Company’s recent history and expectation of future dividend payouts on the common stock. The risk-free interest rate is based on the implied yield available on U.S. treasury zero-coupon issues with an equivalent remaining term.

The expected term of the options represents the estimated period of time until exercise and is based on the simplified method. To value options granted for actual share-based compensation, the Company used the Black-Scholes option valuation model. When the measurement date is certain, the fair value of each option grant is estimated on the date of grant and is based on the assumptions used for the expected stock price volatility, expected term, risk-free interest rates and future dividend payments.

The following table summarizes the stock options outstanding and exercisable at ~~December 31, 2017:~~ June 30, 2021:


		Weighted Average
				Remaining	Aggregate
	Number of	Exercise Price		Contractual Term	Intrinsic
	Shares	Per Share		(years)	Value

Outstanding at September 30, 2020	8,599,000	$	1.67
Granted	3,228,625	$	5.47
Exercised	(996,102)	$	1.54
Forfeited and expired	(91,269)	$	1.74
Outstanding at June 30, 2021	10,740,254	$	2.83	7.91	$	60,768,816
Exercisable at June 30, 2021	5,933,601	$	1.66	7.01	$	38,057,411

Weighted Average

Remaining

Aggregate

Number of

Exercise Price

Contractual Term

Intrinsic

Shares

Per Share

(years)

Value
Outstanding at September 30, 2017
2,830,805

$
1.27

Granted
1,183,051

1.15

Exercised
—

—

Forfeited
—

—

Outstanding at December 31, 2017
4,013,856

$
1.24

9.46

$
76,680
Exercisable at December 31, 2017
288,750

$
1.90

6.50

$
36,100

The aggregate intrinsic ~~value~~values in the table above isare before income taxes ~~based on~~and represent the number of in-the-money options outstanding or exercisable multiplied by the closing price per share of the Company’s ~~closing~~common stock ~~price of $1.14~~ on the last trading day of ~~business for~~ the ~~three~~quarter ended June 30, 2021 of $8.07, less the respective weighted average exercise price per share at period end.

The total intrinsic value of options exercised during the nine months ended ~~December 31, 2017.~~ June 30, 2021 and 2020 was approximately $8.3 million and $1.1 million, respectively. Cash received from options exercised during the nine months ended June 30, 2021 and 2020 was approximately $1.5 million and $415,000, respectively. During the nine months ended June 30, 2020, 223,415 options were exercised using the cashless exercise feature available under the 2017 Plan and 2018 Plan, which resulted in the issuance of 143,958 shares of common stock. There were 0 options exercised using the cashless exercise feature during the nine months ended June 30, 2021.

As of ~~December 31, 2017,~~June 30, 2021, the Company had unrecognized compensation expense of approximately ~~$2.0~~$10.6 million related to unvested stock options. This expense is expected to be recognized over ~~approximately 3~~a weighted average period of 1.8 years.

~~Restricted Stock~~

~~The~~During the quarter ended June 30, 2021, the Company ~~has issued restricted~~modified stock options held by an optionee upon resignation from the board of directors. As permitted under the 2018 Plan and with the approval of the Compensation Committee of the Board of Directors, the stock options were modified to ~~employees, directors and consultants. Such issuances may have~~accelerate vesting ~~periods that range from one to three years. All such shares of restricted stock vest and all such shares must be issued pursuant~~ to the ~~vesting period noted, provided~~date of resignation. The aggregate amount of expense recognized in connection with the ~~grantee has not voluntarily terminated service or been terminated for cause prior to the vesting date.~~

~~Table~~modification of ~~Contents~~

~~A summary of the non-vested~~ stock ~~activity~~options for the three and nine months ended ~~December 31, 2017 is presented in the table below:~~

Weighted Average

Grant Date

Shares

Fair Value

Vesting Period
Outstanding at September 30, 2017
198,750

$
0.99

Granted
—

Vested
(190,000)

Forfeited
—

Outstanding at December 31, 2017
8,750

$
1.82

April 2018

~~As of December 31, 2017, there~~June 30, 2021 was approximately ~~$4,000~~$536,000 and is included in selling, general and administrative expenses on the accompanying unaudited condensed consolidated statements of ~~total unrecognized compensation cost related to non-vested restricted stock, which is expected to be recognized over the next 0.3 years.~~operations.

~~Restricted Stock Units~~

In connection with the closing of the APP Acquisition, the Company issued 50,000 and 140,000 restricted stock units to an employee and an outside director, respectively, that vest on October 31, 2018. The restricted stock units will be settled in common stock issued under the 2017 Equity Incentive Plan. As of December 31, 2017, there was approximately $100,000 of unrecognized compensation cost related to non-vested restricted stock units, which is expected to be recognized over the next 0.8 years.

Stock Appreciation Rights

In connection with the closing of the APP Acquisition, the Company issued stock appreciation rights based on 50,000 and 140,000 shares of the Company’s common stock to an employee and an outside director, respectively, that ~~vest~~vested on October 31, 2018. The stock appreciation rights have a ten-year term and an exercise price per share of $0.95, which was the closing price ~~of a~~per share of the Company’s common stock as quoted on NASDAQ on the trading day immediately preceding the date of the completion of the APP Acquisition. ~~The~~Upon exercise, the stock appreciation rights will be settled in common stock issued under the 2017 ~~Equity Incentive~~ Plan. As of ~~December 31, 2017, there was approximately $54,000 of unrecognized compensation cost related to non-vested~~June 30, 2021, vested stock appreciation rights ~~which is expected to be recognized over the next 0.8 years.~~based on 50,000 shares of common stock remain outstanding.

1921

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Note ~~9 - Industry Segments and Financial Information about Foreign and Domestic Operations~~11 – Leases

The Company ~~currently operates in two reporting segments: Commercial~~has operating leases for its office, manufacturing and ~~Research~~warehouse space, and ~~Development. There are no significant inter-segment sales. We evaluate~~office equipment. The Company has a finance lease for office equipment, furniture, and fixtures. The Company’s leases have remaining lease terms of less than one year to five years, which include the ~~performance~~option to extend a lease when the Company is reasonably certain to exercise that option. Certain of ~~each segment~~our lease agreements include variable lease payments for common area maintenance, real estate taxes, and insurance or based on usage for certain equipment leases. For one of our office space leases, the Company entered into a sublease, for which it receives sublease income. Sublease income is recognized as a reduction to operating ~~profit~~lease costs as the sublease is outside of the Company’s normal business operations. This is consistent with the Company’s recognition of sublease income prior to the adoption of FASB ASC Topic 842.

In June 2021, the Company executed a lease for its new corporate headquarters in Miami, Florida. The Company will be leasing approximately 12,000 square feet of office space for an eight year term commencing on the later of March 1, 2022 or ~~loss. There~~the date the landlord substantially completes tenant improvements. The space will replace the Company’s current corporate headquarters in Miami, Florida when the existing lease terminates at the end of February 2022. Annual base rent payments will be $58.00 per square foot and are subject to a 3% annual escalation. Based on the terms of the lease agreement, the Company paid a security deposit of approximately $117,000, which is ~~no inter-segment allocation~~included in other assets on the accompanying unaudited condensed consolidated balance sheet as of ~~interest expense and income taxes. Our chief operating decision-maker (CODM) is Mitchell Steiner, M.D., our President and Chief Executive Officer.~~ June 30, 2021. The Company does not have any other leases that have not yet commenced as of June 30, 2021.

~~Information about~~The components of the ~~Company's operations by segment and geographic area is~~Company’s lease cost were as follows ~~(in thousands):~~for the three and nine months ended June 30, 2021 and 2020:


	Three Months Ended				Nine Months Ended
	June 30,				June 30,
	2021		2020		2021		2020
Finance lease cost:
Amortization of right-of-use assets	$	2,178	$	2,178	$	6,535	$	6,535
Interest on lease liabilities		611		1,238		2,327		4,097
Operating lease cost		136,140		124,326		408,079		378,006
Short-term lease cost		1,863		1,863		5,589		5,589
Variable lease cost		48,061		24,213		124,283		91,349
Sublease income		(44,844)		(45,382)		(134,533)		(135,071)
Total lease cost	$	144,009	$	108,436	$	412,280	$	350,505

The Company paid cash of $497,000 and $350,000 for amounts included in the measurement of operating lease liabilities during the nine months ended June 30, 2021 and 2020, respectively.

For the three months ended December 31,

2017

2016
Operating (loss) income:
(In thousands)
Commercial
$
143

$
948
Research and Development

(2,032)

(159)
Corporate

(5,548)

(2,664)

$
(7,437)

$
(1,875)

Revenues:

United States
$
994

$
358
South Africa

318

636
Zimbabwe

300

516
Peru

282

—
Cameroon

—

891
Other

693

843

$
2,587

$
3,244

~~All~~The Company’s operating lease right-of-use assets and the related lease liabilities are presented as separate line items on the accompanying unaudited condensed consolidated balance sheets as of ~~our revenues are attributed to our Commercial reporting segment. Amounts~~June 30, 2021 and September 30, 2020.

Other information related to ~~long-lived assets, depreciation~~the Company’s leases as of June 30, 2021 and ~~amortization, and income taxes are~~September 30, 2020 was as follows:


	June 30,	September 30,
	2021	2020
Operating Leases
Weighted-average remaining lease term	3.1	3.6
Weighted-average discount rate	11.5%	11.5%
Finance Leases
Weighted-average remaining lease term	0.7	1.4
Weighted-average discount rate	13.9%	13.9%

The Company’s lease agreements do not ~~reported as part~~provide a readily determinable implicit rate. Therefore, the Company estimates its incremental borrowing rate based on information available at lease commencement in order to discount lease payments to present value.

Table of ~~the reporting segments or reviewed by the CODM. These amounts are included in Corporate in the reconciliations above.~~Contents

Note ~~10 -~~12 – Contingent Liabilities

The testing, manufacturing and marketing of consumer products by the Company and the clinical testing of our product candidates 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 ~~$10~~$20.0 million.

Litigation

~~In connection with the APP Acquisition, two purported derivative and class action lawsuits were filed against the Company~~From time to time we may be involved in litigation or other contingencies arising in the ~~Circuit Court~~ordinary course of ~~Cook County, Illinois,~~business. Based on the information presently available, management believes there are no contingencies, claims or actions, pending or threatened, the ultimate resolution of which ~~were captioned Glotzer v. The Female Health Company, et al., Case No. 2016-CH-13815,~~will have a material adverse effect on our financial position, liquidity or results of operations.

In accordance with FASB ASC 450, Contingencies, we accrue loss contingencies including costs of settlement, damages and Schartz v. Parrish, et al., Case No. 2016-CH-14488. On January 9, 2017 these two lawsuits were consolidated. On March 31, 2017, the plaintiffs filed a consolidated complaint. The consolidated complaint named as defendants Veru, the members of our board of directors priordefense related to litigation to the closing of the APP Acquisition and the members of our board of directors after the closing of the APP Acquisition. The consolidated complaint alleges, among other things, that our directors breached their fiduciary duties, or aided and abetted such breaches, by consummating the APP Acquisition in violation of the Wisconsin Business Corporation Law and NASDAQ voting requirements and by causing us to issue the shares of our common stock and Series 4 Preferred Stock to the former stockholders of APP pursuant to the APP Acquisition in order to evade the voting requirements of the Wisconsin Business Corporation Law. The consolidated complaint also alleges that Mitchell S. Steiner, a director and the President and Chief Executive Officer of Veru and a co-founder of APP, and Harry Fisch, a director of Veru and a co-founder of APP, were unjustly enriched in receiving shares of our common stock and Series 4 Preferred Stock in the APP Acquisition. Based on these allegations, the consolidated complaint seeks equitable relief, including rescission of the APP Acquisition, money damages, disgorgement of the shares of our common stock and Series 4 Preferred Stock issued to Dr. Steiner and Dr. Fisch, and costs and expenses of the litigation, including attorneys' fees. On May 5, 2017, the defendants filed a motion to dismiss the consolidated

~~Table of Contents~~

complaint. On August 15, 2017, the court entered an order dismissing without prejudice the claims that the post-acquisition directors aided and abetted the alleged breaches of fiduciary duties by the pre-acquisition directors and that Dr. Steiner and Dr. Fisch were unjustly enriched. The court did not dismiss the claims that the pre-acquisition directors breached their fiduciary duties and the claims that Veru consummated the APP Acquisition in violation of the Wisconsin Business Corporation Law and NASDAQ voting requirements, and the action is continuing as to those claims. Veru believes that this action is without merit and is vigorously defending itself. No amount has been accrued for possible losses relating to this litigation as any such lossesextent they are ~~not both~~ probable and reasonably estimable. Otherwise, we expense these costs as incurred. If the estimate of a probable loss is a range and no amount within the range is more likely, we accrue the minimum amount of the range.

License and Purchase Agreements

From time to time, we license or purchase rights to technology or intellectual property from third parties. These licenses and purchase agreements require us to pay upfront payments as well as development or other payments upon successful completion of preclinical, clinical, regulatory or revenue milestones. In addition, these agreements may require us to pay royalties on sales of products arising from the licensed or acquired technology or intellectual property. Because the achievement of ~~these~~future milestones is not reasonably estimable, we have not recorded a liability inon the accompanying unaudited condensed consolidated financial statements for any of these contingencies.

In connection with the Company's acquisition of intellectual property rights associated with Solifenacin DRG and Tadalafil/Finasteride combination capsules in December 2017, the Company will be obligated to make upfront payments totaling $500,000 by March 2018, as well as future installment payments and milestone payments. The $500,000 is included in accrued expenses on the accompanying condensed consolidated balance sheet as of December 31, 2017.

Note ~~11 -~~13 – Income Taxes

The Company accounts for income taxes using the liability method, which requires the recognition of deferred tax assets or liabilities for the tax-effected temporary differences between the financial reporting and tax bases of its assets and liabilities, and for net operating loss (NOL) and tax credit carryforwards.

On December 22, 2017, the SEC issued guidance under Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”), directing registrants to consider the impact of the Tax Act as “provisional” when it does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete its accounting for the change in tax law.

In accordance with SAB 118, the Company’s income tax provision as of December 31, 2017 reflects (i) the current year impacts of the Tax Act on the estimated annual effective tax rate and (ii) the following discreet items resulting directly from the enactment of the Tax Act based on the information available, prepared or analyzed (including computations) in reasonable detail.

~~(i)~~

The Tax Act reduces the federal corporate tax rate from 35% to 21%. The impact from the permanent reduction to the U.S. federal corporate income tax rate from 35% to 21% is effective January 1, 2018 (the “Effective Date”). When a U.S. federal tax rate change occurs during a fiscal year, tax payers are required to compute a weighted daily average rate for the fiscal year of enactment. However, as the Company is in a net loss carry forward position, it is using the U.S. federal statutory income tax rate of 21% that will be in effect when the net loss is utilized.

~~(ii)~~

The Company determined the impact of the U.S. federal corporate income tax rate change, net of the related state income tax impact on the U.S. deferred tax assets and liabilities, to be a benefit of $1,162,000 as of October 1, 2017.

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The Tax Act imposes a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign-sourced earnings. The one-time transition tax is based on total post-1986 foreign earnings and profits (“E&P”) which a tax payer has previously deferred from U.S. income taxes. The Company has no post-1986 foreign E&P which it has previously deferred.

Within the calculation of the Company’s annual effective tax rate the Company has used assumptions and estimates that may change as a result of future guidance, interpretations, and rule-making from the Internal Revenue Service, the SEC, the FASB and/or various other taxing jurisdictions. For example, the Company anticipates that state jurisdictions will continue to determine and announce their conformity to the Tax Act which would have an impact on the annual effective tax rate.

The Company completes a detailed analysis of its deferred income tax valuation allowances on an annual basis or more frequently if information comes to our attention that would indicate that a revision to our estimates is necessary. In evaluating the Company’s ability to realize its deferred tax assets, management considers all available positive and negative evidence on a country-by-country basis, including past operating results, forecast of future taxable income, and the potential Section 382 limitation on the net operating loss carryforwards due to a change in control. In determining future taxable income, management makes assumptions to forecast U.S. federal and state, U.K. and Malaysia operating income, the reversal of temporary differences, and the implementation of any feasible and prudent tax planning strategies. These assumptions require significant judgment regarding the forecasts of the future taxable income in each tax jurisdiction, and are consistent with the forecasts used to manage the Company’s business. It should be noted that the Company realized significant losses through 2005 on a consolidated basis. From fiscal year 2006 through fiscal year 2016, the Company has annually generated taxable income on a consolidated basis. In management’s analysis to determine the amount of the deferred tax asset to recognize, management projected future taxable income for each tax jurisdiction.

As of ~~December 31, 2017,~~September 30, 2020, the Company had U.S. federal and state ~~net operating loss~~NOL carryforwards of ~~approximately $12,100,000~~$42.0 million and ~~$15,351,000,~~$25.6 million, respectively, for income tax purposes with $13.8 million and $19.8 million, respectively, expiring in years 2022 to ~~2037.~~2040 and $28.2 million and $5.8 million, respectively, which can be carried forward indefinitely. As of September 30, 2020, the Company also had U.S. federal research and development tax credit carryforwards of $0.9 million, expiring in 2040. The Company’s U.K. subsidiary has U.K. ~~net operating loss~~NOL carryforwards of ~~approximately $62,223,000~~$61.3 million as of ~~December 31, 2017,~~September 30, 2020, which can be carried forward indefinitely to be used to offset future U.K. taxable income.

On June 10, 2021 the U.K. Finance Act 2021 was enacted increasing the U.K. tax rate from 19% to 25% effective April 1, 2023. The increase in the tax rate increased the value of the deferred tax assets in the U.K. by $3.7 million with a corresponding valuation allowance of $0.8 million, which resulted in a net income tax benefit of $3.0 million for the three and nine months ended June 30, 2021.

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A reconciliation of income tax (benefit) expense and the amount computed by applying the U.S. statutory ~~federal income tax~~ rate of 21% to (loss) income before income taxes is as follows:


	Three Months Ended				Nine Months Ended
	June 30,				June 30,
	2021		2020		2021		2020

Income tax (benefit) expense at U.S. federal statutory rates	$	(1,168,845)	$	(584,825)	$	1,872,314	$	(1,493,179)
State income tax (benefit) expense, net of federal (benefit) expense		(90,502)		(45,268)		144,971		(115,615)
Non-deductible expenses		(2,807)		332,230		(2,807)		335,869
Effect of stock options exercised		53,011		—		—		—
Effect of common stock purchase warrants exercised		—		—		(2,038,919)		—
Effect of Paycheck Protection Program funds		8,784		—		(113,442)		—
U.S. research and development tax credit		(919,415)		—		(919,415)		—
Effect of foreign income tax rates		(3,716,935)		(16,478)		(3,744,512)		49,908
Effect of global intangible low taxed income		78,626		85,522		148,383		101,642
Change in valuation allowance		2,834,482		415,449		1,828,730		1,097,900
Other, net		50,538		53,872		51,626		54,094
Income tax (benefit) expense	$	(2,873,063)	$	240,502	$	(2,773,071)	$	30,619

Three Months Ended

December 31,

2017

2016
Income tax benefit at statutory rates
$
(2,551,000)

$
(645,000)
Effect of change in U.S. tax rate

(187,000)

—
State income tax benefit, net of federal benefits

(563,000)

(96,000)
Non-deductible business acquisition expenses

—

111,000
Non-deductible expenses - other

4,000

1,000
Effect of lower foreign income tax rates

29,405

81,736
Other

21,542

17,195
Income tax benefit
$
(3,246,053)

$
(530,069)

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Significant components of the Company’s deferred tax assets and liabilities are as follows:


	June 30,		September 30,
	2021		2020
Deferred tax assets:
Federal net operating loss carryforwards	$	8,269,223	$	8,759,589
State net operating loss carryforwards		1,647,082		1,682,104
Foreign net operating loss carryforwards – U.K.		15,259,909		11,655,853
Foreign capital allowance – U.K.		149,371		113,522
U.S. research and development tax credit carryforwards		919,415		—
Share-based compensation		770,598		1,255,983
Interest expense		1,165,193		850,248
Change in fair value of derivative liabilities		654,354		195,265
Other, net – U.K.		123,341		93,739
Other, net – U.S.		187,644		179,677
Gross deferred tax assets		29,146,130		24,785,980
Valuation allowance for deferred tax assets		(15,903,470)		(14,074,740)
Net deferred tax assets		13,242,660		10,711,240
Deferred tax liabilities:
In-process research and development		(882,427)		(882,427)
Developed technology		—		(369,237)
Covenant not-to-compete		(37,711)		(49,832)
Other, net – Malaysia		(11,297)		(11,297)
Other, net – U.S.		(6,371)		(6,371)
Net deferred tax liabilities		(937,806)		(1,319,164)
Net deferred tax asset	$	12,304,854	$	9,392,076

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December 31,

September 30,
Deferred tax assets:
2017

2017
Federal net operating loss carryforwards
$
4,063,000

$
4,075,000
State net operating loss carryforwards

1,703,000

963,000
AMT credit carryforward

533,000

533,000
Foreign net operating loss carryforwards – U.K.

10,578,000

10,578,000
Foreign capital allowance – U.K.

108,000

108,000
UK bad debts

2,000

2,000
Restricted stock – U.K.

1,000

1,000
US unearned revenue

282,000

409,000
US deferred rent

20,000

76,000
Share-based compensation

335,000

447,000
Foreign tax credits

1,820,000

1,797,000
Other, net - U.S.

71,000

82,000
Gross deferred tax assets

19,516,000

19,071,000
Valuation allowance for deferred tax assets

(2,144,000)

(2,144,000)
Net deferred tax assets

17,372,000

16,927,000
Deferred tax liabilities:

In process research and development

(4,562,000)

(7,000,000)
Developed technology

(575,000)

(900,000)
Covenant not-to-compete

(106,000)

(200,000)
Other

(5,000)

Net deferred tax liabilities

(5,248,000)

(8,100,000)
Net deferred tax asset
$
12,124,000

$
8,827,000

The deferred tax amounts have been classified inon the accompanying unaudited condensed consolidated balance sheets as follows:

December 31,

September 30,

2017

2017
Long-term deferred tax asset - U.S.
$
3,579,000

$
282,000
Long-term deferred tax asset - U.K.

8,545,000

8,545,000
Total long-term deferred tax asset
$
12,124,000

$
8,827,000


	June 30,		September 30,
	2021		2020

Deferred tax asset – U.K.	$	12,379,578	$	9,466,800
Total deferred tax asset	$	12,379,578	$	9,466,800

Deferred tax liability – U.S.	$	(63,427)	$	(63,427)
Deferred tax liability – Malaysia		(11,297)		(11,297)
Total deferred tax liability	$	(74,724)	$	(74,724)

Note 14 – Paycheck Protection Program

~~Note 12 - Intangible Assets~~

~~Intangible assets acquired~~The CARES Act established the Paycheck Protection Program (PPP) administered by the U.S. Small Business Administration (SBA), which authorized forgivable loans to small businesses. Pursuant to the CARES Act, PPP loans will be fully forgiven if the funds are used for payroll costs, rent and utilities, subject to certain conditions, including maintaining employees and maintaining salary levels. In April 2020, the Company applied for a PPP loan and received funding of approximately $540,000. The Company expended the funds received under the PPP in full on qualifying expenses, and maintained the ~~APP Acquisition included IPR&D, developed technology consisting of PREBOOST~~® ~~medicated wipes~~conditions set forth by the PPP. The Company submitted its application for ~~prevention of premature ejaculation and covenants not-to-compete.~~

~~The gross carrying amounts and net book value of intangible assets are as follows at December 31, 2017:~~

Gross Carrying

Accumulated

Net Book

Amount

Amortization

Value
Intangible assets with finite lives:

Developed technology - PREBOOST®
$
2,400,000

$
132,492

$
2,267,508
Covenants not-to-compete

500,000

83,333

416,667
Total intangible assets with finite lives

2,900,000

215,825

2,684,175
Acquired in-process research and development assets

18,000,000

—

18,000,000
Total intangible assets
$
20,900,000

$
215,825

$
20,684,175

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~~The gross carrying amounts and net book value of intangible assets are as follows at~~forgiveness in September ~~30, 2017:~~

Gross Carrying

Accumulated

Net Book

Amount

Amortization

Value
Intangible assets with finite lives:

Developed technology - PREBOOST®
$
2,400,000

$
81,533

$
2,318,467
Covenants not-to-compete

500,000

65,476

434,524
Total intangible assets with finite lives

2,900,000

147,009

2,752,991
Acquired in-process research and development assets

18,000,000

—

18,000,000
Total intangible assets
$
20,900,000

$
147,009

$
20,752,991

~~Intangible assets are carried at cost less accumulated amortization. Amortization is recorded over the projected related revenue stream for the PREBOOST~~® ~~developed technology over the next 10 years and 7 years for the covenants not-to-compete,~~2020 and the ~~amortization expense is~~SBA approved the forgiveness of the full amount of the loan and the related interest on November 10, 2020. For accounting purposes, the Company treated the PPP loan as a government grant. As a result, the Company recorded ina reduction to selling, general and administrative expenses inof approximately $420,000 and a reduction to payroll-related research and development expenses of approximately $120,000 related to these funds within the ~~accompanying~~ unaudited condensed consolidated ~~statement~~statements of ~~operations.~~ operations for the three and nine months ended June 30, 2020.

Note 15 – Net (Loss) Income Per Share

Basic net (loss) income per common share is computed by dividing net (loss) income by the weighted average number of common shares outstanding for the period. Diluted net (loss) income per share is computed by dividing net (loss) income by the weighted average number of common shares outstanding during the period after giving effect to all dilutive potential common shares that were outstanding during the period. Dilutive potential common shares consist of the incremental common shares issuable upon the exercise of stock options, stock appreciation rights and common stock purchase warrants as determined under the treasury stock method.

The ~~IPR&D assets will not be amortized until~~following table provides a reconciliation of the ~~underlying development programs are completed. Upon obtaining regulatory approval,~~net (loss) income per basic and diluted common share outstanding:


	Three Months Ended				Nine Months Ended
	June 30,				June 30,
	2021		2020		2021		2020

Net (loss) income	$	(2,692,866)	$	(3,025,380)	$	11,688,854	$	(7,140,990)

Basic weighted average common shares outstanding		79,729,370		66,728,782		75,054,871		65,709,139
Net effect of dilutive instruments:
Stock options		—		—		7,208,123		—
Stock appreciation rights		—		—		44,379		—
Common stock purchase warrants		—		—		499,783		—
Total net effect of dilutive instruments		—		—		7,752,285		—
Diluted weighted average common shares outstanding		79,729,370		66,728,782		82,807,156		65,709,139
Net (loss) income per basic common share outstanding	$	(0.03)	$	(0.05)	$	0.16	$	(0.11)
Net (loss) income per diluted common share outstanding	$	(0.03)	$	(0.05)	$	0.14	$	(0.11)

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For the ~~IPR&D assets will then be accounted for as finite-lived intangible assets and amortized on a straight-line basis over~~nine months ended June 30, 2021, approximately 819,000 potentially dilutive instruments were excluded from the computation of net income per diluted weighted average common share outstanding because their ~~respective estimated useful lives.~~

~~Amortization expense was $68,816 and $26,729~~effect would have been antidilutive. Due to our net loss for the three months ended June 30, 2021 and three and nine months ended June 30, 2020, all potentially dilutive instruments were excluded because their inclusion would have been anti-dilutive. See Notes 9 and 10 for a discussion of our potentially dilutive instruments.

Note 16 – Industry Segments

The Company currently operates in 2 reporting segments: Sexual Health Business and Research and Development. The Sexual Health Business segment consists of the Company’s commercial product, FC2. The Sexual Health Business also included PREBOOST® before the sale of the business in December ~~31, 2017~~2020. The Research and ~~2016, respectively. Based~~Development segment consists of multiple drug products under clinical development. The Company’s Sexual Health Business segment will include any future revenues, cost of sales and selling expenses for TADFIN™, if approved. Costs associated with the development of TADFIN™ are currently included in the Research and Development segment. There are no significant inter-segment sales. We evaluate the performance of each segment based on ~~finite-lived intangible assets recorded as~~operating profit or loss. There is no inter-segment allocation of ~~December 31, 2017, the estimated future amortization expense~~non-operating expenses and income taxes. Our chief operating decision-maker (CODM) is Mitchell S. Steiner, M.D., our Chairman, President and Chief Executive Officer.

The Company's operating (loss) income by segment was as follows:

Estimated
Year Ending September 30,
Amortization Expense
2018
$
206,446
2019

309,234
2020

316,368
2021

323,706
2022

331,316
Thereafter

1,197,105
Total
$
2,684,175


	Three Months Ended				Nine Months Ended
	June 30,				June 30,
	2021		2020		2021		2020

Sexual health business	$	12,960,770	$	5,749,513	$	32,804,711	$	18,052,461
Research and development		(11,362,155)		(4,432,497)		(24,962,340)		(13,606,628)
Corporate		(4,470,479)		(2,709,868)		7,001,512		(7,922,756)
Operating (loss) income	$	(2,871,864)	$	(1,392,852)	$	14,843,883	$	(3,476,923)

All of our net revenues, which are primarily derived from the sale of FC2, are attributed to the Sexual Health Business reporting segment. See Note ~~13 - Subsequent Events~~

~~We have evaluated events~~4 for additional information regarding our net revenues. Costs related to the office located in London, England are fully dedicated to FC2 and ~~transactions that occurred subsequent to December 31, 2017 through~~are presented as a component of the ~~date the financial statements were issued, for potential recognition or disclosure~~Sexual Health Business segment. Drug commercialization costs are included in the ~~accompanying unaudited condensed consolidated financial statements. We did not identify any events or transactions that should be recognized or disclosed~~Research and Development segment. Certain expenses in the ~~accompanying unaudited condensed consolidated financial statements.~~three and nine months ended June 30, 2020 have been reclassified to conform to the current period presentation. The gain on sale of the PREBOOST® business and depreciation and amortization related to long-lived assets that are not utilized in the production of FC2 are not reported as part of the reporting segments or reviewed by the CODM. These amounts are included in Corporate in the reconciliations above. Total assets are not presented by reporting segment as they are not reviewed by the CODM when evaluating the reporting segments’ performance.

‎

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

Veru ~~Inc.~~ is aan oncology biopharmaceutical company ~~focused~~with a focus on ~~urology~~developing novel medicines for the management of prostate and ~~oncology.~~ breast cancers.

The ~~Company does business~~Company’s prostate cancer drug pipeline includes sabizabulin, VERU-100 and zuclomiphene citrate.

Sabizabulin (VERU-111) for the treatment of men with metastatic castration resistant prostate cancer who have also become resistant to at least one androgen receptor targeting agent

Sabizabulin (VERU-111) is an oral, first-in-class, new chemical entity that targets and inhibits microtubules to disrupt transport of the androgen receptor into the nucleus (androgen receptor transport disruptor). Open label Phase 1b and Phase 2 clinical studies with sabizabulin in men with metastatic castration and androgen receptor targeting agent resistant prostate cancer are ongoing. The Phase 1b clinical study completed enrollment of 39 men. The Phase 1b study has yielded promising efficacy and safety clinical data. Daily chronic drug administration appears feasible and safe. The Phase 2 clinical study has completed enrollment of 41 men with metastatic castration resistant prostate cancer who have also become resistant to at least one androgen receptor targeting agent, such as ~~both "Veru"~~abiraterone or enzalutamide, but prior to proceeding to IV chemotherapy. Evidence of tumor efficacy including PSA declines and ~~"The Female Health Company." On~~objective tumor responses (partial and complete responses) were observed, and sabizabulin was well tolerated with no clinically relevant neutropenia or neurotoxicity. The safety profile is similar to what has been reported in the FDA package inserts for an androgen receptor targeting agent, enzalutamide or abiraterone. In July ~~31, 2017,~~2020, the Company ~~changed its corporate name from The Female Health Company to Veru Inc.~~

Veru utilizes the U.S. Food and Drug Administration's (the FDA) 505(b)(2) regulatory approval pathway to develop and commercialize drug candidates. The FDA's 505(b)(2) regulatory approval pathway is designed to allow for potentially expedited, lower cost and lower risk regulatory approval based on previously established safety, efficacy, and manufacturing information onhad a ~~drug that has been already approved by~~meeting with the FDA and received positive input from the FDA on the pivotal Phase 3 trial design for sabizabulin. The indication is for the ~~same or~~treatment in men with metastatic castration resistant prostate cancer who have failed one androgen receptor targeting agent, but prior to IV chemotherapy. The Phase 3 VERACITY clinical study is an open label, randomized, multicenter, registration study evaluating sabizabulin daily dosing versus an alternative androgen receptor targeting agent as the active control. The primary endpoint is radiographic progression-free survival. The Phase 3 study is expected to enroll approximately 245 men with a ~~different indication. Veru is developing drug candidates under~~2:1 randomization of sabizabulin versus the ~~505(b)(1) pathway as well, which is the traditional full new drug application (NDA) pathway that requires a complete preclinical, clinical, and manufacturing application.~~active control. The Company is currently ~~developing~~enrolling patients in its pivotal Phase 3 VERACITY study, which is expected to be conducted in approximately 45 clinical sites across the ~~following~~U.S.

VERU-100 for androgen deprivation therapy (ADT) of advanced prostate cancer

VERU-100 is a novel, proprietary long-acting gonadotropin-releasing hormone (GnRH) antagonist peptide three-month subcutaneous depot formulation designed to address the current limitations of commercially available ADT. Androgen deprivation therapy is currently the mainstay of advanced prostate cancer treatment and is used as a foundation of treatment throughout the course of the disease even as other endocrine, chemotherapy, or radiation treatments are added or stopped. Specifically, VERU-100 is a chronic, long-acting GnRH antagonist peptide administered as a small volume, three-month depot subcutaneous injection without a loading dose. VERU-100 immediately suppresses testosterone with no testosterone surge upon initial or repeated administration, a problem that occurs with currently approved luteinizing hormone-releasing hormone (LHRH) agonists used for ADT. There are no GnRH antagonist depot injectable formulations commercially approved beyond a one-month injection. The Company is currently enrolling patients in its VERU-100 Phase 2 study. The Phase 2 clinical trial is an open label, multicenter, dose finding study evaluating the efficacy and safety of subcutaneous injected doses of VERU-100 in men with hormone sensitive advanced prostate cancer. The VERU-100 Phase 2 study is expected to enroll approximately 35 patients. The primary efficacy endpoint is percent of men that reach castrate levels of total testosterone (<50 ng/dL) by Day 28 and maintain castrate testosterone levels for 90 days. If the Phase 2 trial is successful, the Phase 3 clinical trial of approximately 100 men is planned to initiate in the fourth quarter of calendar year 2021.

Zuclomiphene citrate for the treatment of men who have hot flashes caused by androgen deprivation therapy for advanced prostate cancer

Zuclomiphene citrate is an oral nonsteroidal estrogen receptor agonist being developed to treat hot flashes, a common side effect caused by ADT in men with advanced prostate cancer. Following an End of Phase 2 meeting with the FDA, the Company plans to advance zuclomiphene citrate to a Phase 3 clinical trial in men with advanced prostate cancer who experience moderate to severe hot flashes.

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The Company’s breast cancer drug ~~product candidates: Tamsulosin DRS slow release granules~~pipeline includes enobosarm and ~~Tamsulosin XR capsules~~sabizabulin.

Enobosarm, selective androgen receptor targeted agonist, for ~~lower urinary tract~~the treatment of androgen receptor positive (AR+), estrogen receptor positive (ER+) and human epidermal growth factor receptor 2 negative (HER2-) metastatic breast cancer (3^rd line metastatic setting)

Enobosarm is the first new class of targeting endocrine therapy in advanced breast cancer in decades. Enobosarm is an oral, first-in-class, new chemical entity, selective androgen receptor agonist that activates the androgen receptor (AR) in AR+ ER+ HER2- metastatic breast cancer, which results in tumor suppressor activity without the unwanted masculinizing side effects. Enobosarm has extensive nonclinical and clinical experience having been evaluated in 25 separate clinical studies in approximately 1,450 subjects dosed, including three Phase 2 clinical studies in advanced breast cancer involving more than 250 patients. In the two Phase 2 clinical studies conducted in women with AR+ ER+ HER2- metastatic breast cancer, enobosarm demonstrated significant antitumor efficacy in heavily pretreated cohorts that failed estrogen receptor targeting agents, chemotherapy, and/or CDK 4/6 inhibitors and was well tolerated with a favorable safety profile. In the fourth quarter of calendar 2020, the FDA agreed to the Phase 3 multicenter, international, open label, and randomized (1:1) ARTEST registration clinical trial design to evaluate the efficacy and safety of enobosarm monotherapy versus physician’s choice of either exemestane  everolimus or a SERM as the active comparator for the treatment of metastatic AR+ ER+ HER2- breast cancer in approximately 210 patients with ≥ 40% AR staining in breast cancer tissue who have failed a nonsteroidal aromatase inhibitor, fulvestrant, and a CDK4/6 inhibitor. The primary endpoint is radiographic progression-free survival. The pivotal Phase 3 ARTEST study is anticipated to commence in the second half of calendar year 2021.

In June 2021 at the American Society of Clinical Oncology (ASCO) 2021 Annual Meeting, the Company announced additional clinical results from the enobosarm Phase 2 study demonstrating that the anticancer benefits of enobosarm were related to the presence and amount of AR expression in breast cancer tissue in subjects with AR+ ER+ HER2- metastatic breast cancer. In the Phase 2 study, the presence and the amount of AR receptor expression in breast cancer tissue correlated with the antitumor response. The best overall target lesion reduction of >30% occurred only in subjects who were AR+ (>10% AR nuclei staining). In a post-hoc analysis of 84 women (9mg and 18 mg cohorts combined) who had AR+ ER+ HER2- metastatic breast cancer, measurable disease, and centrally confirmed AR status at study entry, an AR positivity threshold of ≥40% staining in breast cancer tissue distinguished patients that were most likely to respond to enobosarm. AR positivity ≥40% was common as 52% of subjects in study met this threshold.

Focusing on the post-hoc analysis in the 9mg cohort, the dose selected for the Phase 3 ARTEST study, the objective response rate (percent of patients with a best overall response of complete response or partial response) was 48% for ≥40% AR positivity versus 0% for <40% AR positivity (p<0.0001). Similarly, the clinical benefit rate (percentage of patients with a best overall response of complete response, partial response, or stable disease) was 79% for ≥40% AR positivity versus 18% for <40% AR positivity (p<0.0001). The median radiographic progression free survival was 5.5 month for ≥40% AR positivity versus 2.75 months for <40% AR positivity (p<0.001). Enobosarm was very well tolerated without masculinizing side effects, increases in hematocrit, or liver toxicity.

Conclusions from Phase 2 study presented at ASCO 2021:

Enobosarm, a selective AR agonist, targets AR, a tumor suppressor, in AR+ ER+ HER2- metastatic breast cancer

Objective tumor responses (efficacy) to enobosarm monotherapy require the presence and a threshold level of AR expression (≥40% AR cutoff) in heavily pretreated AR+ ER+ HER2- metastatic breast cancer

AR may be used as a biomarker to identify patients with AR+ ER+ HER2- metastatic breast cancer that are most likely to respond to enobosarm

Enobosarm treatment was well tolerated as an endocrine therapy without masculinizing side effects, increases in hematocrit, or liver toxicity

Targeting the AR tumor suppressor pathway to be studied prospectively in a 3rd line metastatic setting in the Phase 3 ARTEST registration clinical trial of enobosarm monotherapy versus active control (exemestane  everolimus or a SERM) for the treatment of AR+ ER+ HER2- metastatic breast cancer patients who have failed a nonsteroidal aromatase inhibitor, fulvestrant, and a CDK4/6 inhibitor.

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We intend to also conduct a Phase 2 clinical study to evaluate the efficacy and safety of enobosarm plus CDK4/6 inhibitor, abemaciclib, combination therapy versus an alternative estrogen blocking agent (fulvestrant or an aromatase inhibitor) in subjects with AR+ ER+ HER2- metastatic breast cancer who have failed first line CDK4/6 inhibitor, palbociclib, plus an estrogen blocking agent (non-steroidal aromatase inhibitor or fulvestrant) and have an AR nuclei staining ≥ 40% in breast cancer tissue. We plan to enroll approximately 106 subjects in this Phase 2 clinical study which is expected to commence in the second half of calendar year 2021.

Sabizabulin for the treatment of taxane resistant metastatic triple negative breast cancer

Metastatic triple negative breast cancer (TNBC) is an aggressive form of breast cancer that occurs in approximately 15% of all breast cancers. This form of breast cancer does not express ER, progesterone receptor (PR), or HER2 and is resistant to endocrine therapies. The first line of treatment usually includes IV taxane chemotherapy. Almost all women will eventually develop taxane resistance. Sabizabulin is an oral, first-in-class, new chemical entity that targets and inhibits microtubules to disrupt the cytoskeleton. Sabizabulin is not a substrate for P-glycoprotein drug resistance protein. Over expression of P-glycoprotein is a common mechanism that results in taxane resistance in TNBC. Preclinical studies in human triple negative breast cancer grown in animal models demonstrate that sabizabulin significantly inhibits cancer proliferation, migration, metastases, and invasion of triple negative breast cancer cells and tumors that have become resistant to paclitaxel (taxane). Using the safety information from the Phase 1b and Phase 2 sabizabulin prostate cancer clinical studies in a total of approximately 80 men, the Company plans to meet with the FDA in calendar year 2021 and to commence a Phase 2b clinical study in the second half of calendar year 2021 to evaluate sabizabulin in women with metastatic TNBC. The planned Phase 2b clinical study will evaluate daily oral dosing of sabizabulin for TNBC in a three-arm study of sabizabulin monotherapy, sabizabulin + Trodelvy® (sacituzumab govitecan-hziy) combination therapy, and Trodelvy monotherapy (control arm) in approximately 156 women with metastatic TNBC that have become resistant to at least two systemic chemotherapies including a taxane IV chemotherapy.

Trodelvy® (sacituzumab govitecan-hziy) is a registered trademark of Gilead Sciences, Inc.

Sabizabulin for the treatment of hospitalized COVID-19 patients at high risk for acute respiratory distress syndrome (ARDS)

Sabizabulin is a novel once-a-day orally dosed small molecule that has both broad anti-inflammatory and anti-viral properties which may serve as a two-pronged approach to the treatment of COVID-19 virus infection and the subsequent debilitating inflammatory effects that can lead to ARDS and death.

We conducted a double-blind, randomized, placebo-controlled Phase 2 clinical trial evaluating daily oral once-a-day dosing of sabizabulin 18mg versus placebo in approximately 40 hospitalized COVID-19 patients who were at high risk for ARDS. This trial was conducted in 5 sites across the United States. Patients that were hospitalized with documented evidence of COVID-19 infection with symptoms and who were at high risk for ARDS were enrolled. Subjects received either sabizabulin 18mg or placebo as well as standard of care for 21 days or until released from the hospital. The primary efficacy endpoint was the proportion of patients that were alive without respiratory failure at Day 29. On February 8, 2021, we announced positive results from this Phase 2 clinical trial evaluating sabizabulin for the treatment of hospitalized patients with COVID-19 who were high risk for ARDS. For the primary endpoint in hospitalized patients in a modified intent to treat population, sabizabulin treatment compared to placebo had a statistically significant and clinically meaningful improvement in the proportion of patients with treatment failures (death or alive with respiratory failure) being 5.6% in the sabizabulin treated group (n=18) and 30% in the placebo treated group (n=20) at Day 29. This represents an 81% relative reduction in treatment failures and shows statistical significance with p=0.05. Sabizabulin was tolerated with a good safety profile.

In February 2021, the FDA agreed to advancing sabizabulin into Phase 3 clinical registration trial. The Phase 3 clinical trial is a double-blind randomized (2:1) placebo-controlled trial evaluating daily oral doses of 9mg sabizabulin for 21 days versus placebo in 300 hospitalized patients (200 subjects will be treated with sabizabulin and 100 subjects will receive placebo) who tested positive for the SARS-CoV-2 virus and who are at high risk for ARDS. The primary efficacy endpoint will be proportion of patients alive at Day 60. Secondary endpoints will include proportion of patients alive without respiratory failure, days in ICU, days on mechanical ventilations, days in the hospital, and viral load. The Company is currently enrolling patients in its sabizabulin for COVID-19 Phase 3 pivotal study. The Company has selected clinical sites in the U.S., Brazil, Argentina, Colombia, and Mexico. The Company anticipates completion of the Phase 3 trial during the fourth calendar quarter of 2021.

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The Biomedical Advanced Research and Development Authority of the U.S. Department of Health and Human Services (BARDA) and Veru have had several meetings to discuss possible grant funding for the Phase 3 study and manufacturing scale up.

Sexual Health Division

The Company's Sexual Health Division includes a drug candidate, TADFIN™, for the treatment of benign prostatic hyperplasia ~~(BPH or enlarged prostate)~~(BPH) and a commercial product, the FC2 Female Condom/FC2 Internal Condom® (FC2), ~~Solifenacin DRG, slow release granules, for overactive bladder (urge incontinence, urgency, or frequency of urination), Tadalafil/finasteride combination capsule for restricted urination because of~~ an enlarged prostate; VERU-944 (cis-clomiphene citrate) for hot flashes in men associated with prostate cancer hormone treatment, VERU-722 (fixed ratio clomiphene citrate) for male infertility and VERU-111 a novel oral anti-tubulin cancer therapy targeting alpha & beta tubulin for a variety of malignancies, including metastatic prostate, breast, endometrial and ovarian cancers.

~~To help support these clinical development programs, the Company markets and sells the PREBOOST~~® ~~medicated individual wipe, which is a male genital desensitizing drug~~FDA-approved product for the ~~prevention~~dual protection against unplanned pregnancy and the transmission of ~~premature ejaculation~~sexually transmitted infections.

TADFIN™ (tadalafil 5mg and finasteride 5mg combination capsule) is being ~~co-promoted~~developed to treat urinary tract symptoms caused by BPH. Tadalafil (CIALIS®) is currently approved for treatment of BPH and erectile dysfunction and finasteride is currently approved for treatment of BPH (finasteride 5mg PROSCAR®) and male pattern hair loss (finasteride 1mg PROPECIA®). The co-administration of tadalafil and finasteride has been shown to be more effective for the treatment of BPH than finasteride alone. The Company had a successful pre-New Drug Application (NDA) meeting with ~~Timm Medical Technologies, Inc.~~the FDA and submitted the NDA for TADFIN™ in February 2021. An NDA was filed by the FDA in April 2021 with a PDUFA date in December 2021. If approved, TADFIN™ is expected to be marketed and distributed by telemedicine (telemedicine being the remote diagnosis and treatment of patients by means of telecommunications technology) and telepharmacy channels. The Company’s Sexual Health Business segment will include future revenues for TADFIN™, if approved. Costs associated with the development of TADFIN™ are currently included in our Research and ~~also markets and~~Development segment.

The Company sells FC2 in both the ~~FC2 Female Condom® (FC2)~~commercial sector in the ~~US market~~U.S. and in the public health sector in the U.S. and globally. In the U.S., FC2 is available by prescription through multiple telemedicine and ~~other sales~~internet pharmacy channels as well as retail pharmacies. It is also available to public health sector entities such as state departments of health and ~~through The Female Health Company Division in~~501(c)(3) organizations. In the global public health ~~sector. The Female Health~~sector, the Company ~~Division~~ markets FC2 to entities, including ministries of health, government health agencies, U.N. agencies, nonprofit organizations and commercial partners, that work to support and improve the lives, health and well-being of women around the world.

On October 31, 2016, as part of the Company's strategy to diversify its product line to mitigate the risks of being a single product company, the Company completed its acquisition (the APP Acquisition) of Aspen Park Pharmaceuticals, Inc. (APP) through the merger of a wholly owned subsidiary of the Company into APP. The completion of the APP Acquisition transitioned us from a single product company selling only the FC2 Female Condom® to a biopharmaceutical company with multiple drug products under clinical development and commercialization.

On August 12, 2016, the FDA agreed that the Company's Tamsulosin DRS medication qualifies for the expedited 505(b)(2) regulatory approval pathway. In March 2017, the Company initiated a bioequivalence clinical study for Tamsulosin DRS and in April 2017 announced the successful completion of Stage 1 of the bioequivalence clinical study, which selected the optimal formulation of our proprietary Tamsulosin DRS product. In October 2017, the Company initiated Stage 2 of the bioequivalence clinical study of Tamsulosin DRS and in November 2017 announced the results of Stage 2 of the bioequivalence clinical study. During the Stage 2 bioequivalence clinical study, dosing with Tamsulosin DRS fasted and Tamsulosin DRS fed were successfully shown to be bioequivalent with FLOMAX fed based on AUC, which is the key determinant of drug exposure over time. The Tamsulosin DRS formulation still needs to meet the remaining bioequivalence criterion for peak value (Cmax). The Company intends to initiate a new bioequivalence study after adjusting the formulation to address Cmax and expects this study to be completed in the first half of calendar 2018. The Company plans to develop Tamsulosin XR (extended release) capsules (tamsulosin HCl extended release capsules) as well. The Company does not believe that the new bioequivalence study and capsule formulation development will affect the timing of its planned submission of an NDA for Tamsulosin DRS granules and Tamsulosin XR capsules and, if the new bioequivalence study is successful, plans to submit the NDA in 2018.

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On December 6, 2016, the Company presented an overview of its drug candidate for male infertility, VERU-722, at the meeting of the Bone, Reproductive and Urologic Drugs (BRUD) FDA Advisory Committee at the invitation of the FDA. At the meeting, the committee discussed appropriate clinical trial design features, including acceptable endpoints for demonstrating clinical benefit, for drugs intended to treat secondary hypogonadism (low testosterone levels) while preserving or improving testicular function, including spermatogenesis. At the meeting, the FDA Advisory Committee provided guidance for clinical trial design and endpoints, and agreed with the intended patient population to treat, recommended a short-term study, and supported the use of improvement of semen quality for such clinical endpoints as avoidance of aggressive assisted reproductive procedures such as ~~in vitro~~ fertilization or pregnancy. Based on this advice, the Company is considering advancing VERU-722 into Phase 2 clinical trial in men with testicular dysfunction (oligospermia (low sperm count) and secondary hypogonadism) as a cause of male factor infertility.

~~On May 13, 2017, the Company announced positive results of a clinical study of its novel PREBOOST~~® ~~product. The PREBOOST~~® clinical study enrolled 26 men aged 18 years or older in a heterosexual, monogamous relationship, with PE, defined as reported poor control over ejaculation, personal distress related to ejaculation and average IELT of two minutes or less on stopwatch measurement. After treatment with PREBOOST®, 82 percent of men were no longer considered to have premature ejaculation with an increase on average of 5 minutes. Results showed that treatment was well tolerated. Therefore, the results of the study showed that PREBOOST® ~~prolonged time to ejaculation, supporting the clinical validity of PREBOOST~~® for the prevention of premature ejaculation. The Company launched the product in the United States in January 2017 and in October 2017 entered into a co-promotion and distribution agreement with Timm Medical Technologies, Inc.

On May 24, 2017, the Company announced that, following a Pre-IND meeting with the FDA, it plans to advance VERU-944 (cis-clomiphene citrate), oral agent being evaluated for the treatment of hot flashes in men receiving hormone therapy, androgen deprivation therapy (ADT), for advanced prostate cancer into Phase 2 clinical trial utilizing the 505(b)(2) regulatory pathway. Approximately 80% of men receiving one of the common forms of ADT, including LUPRON® (Leuprolide), ELIGARD® (Leuprolide), and FIRMAGON®(degarelix), experience hot flashes and 30-40% will suffer from moderate to severe hot flashes. An investigational new drug application (IND) is expected to be filed with the FDA in the first half of calendar 2018.

On December 11, 2017, the Company announced that it has acquired world-wide rights to a novel, proprietary oral granule formulation for solifenacin from Camargo Pharmaceuticals Services, LLC. Solifenacin is the active ingredient in a leading drug VESIcare® for the treatment of overactive bladder in men and women. Solifenacin Delayed Release Granule (DRG) formulation addresses the large population of men and women who have overactive bladder (OAB) and who have dysphagia, or difficulty swallowing tablets. In a Pre-IND meeting, the FDA confirmed that a single bioequivalence study and that no additional nonclinical, clinical efficacy and/or safety studies will be required to support the approval of Solifenacin DRG product for the treatment of overactive bladder. ~~The Company plans to complete the Solifenacin DRG bioequivalence study in 2018 and to file the NDA in 2019.~~

On December 15, 2017, the Company acquired world-wide rights to Tadalafil-Finasteride combination capsules formulation from Camargo Pharmaceuticals Services, LLC. Tadalafil-Finasteride combination capsules (tadalafil 5mg and finasteride 5mg) is a new, proprietary formulation that addresses the large population of men who have lower urinary tract symptoms and restricted urinary stream because of an enlarged prostate. Tadalafil 5mg is a phosphodiesterase 5 (PDE5) inhibitor marketed under CIALIS® for benign prostatic hyperplasia and erectile dysfunction and finasteride 5mg is a Type 2, 5-alpha reductase inhibitor marketed under PROSCAR® to decrease size the prostate, prevent urinary retention and the need for prostate surgery in men who have an enlarged prostate. In a Pre-IND meeting held in November 2017, the FDA agreed that a single a bioequivalence study and no additional nonclinical, clinical efficacy and safety studies will be required to support the approval of Tadalafil-Finasteride combination capsules via a 505(b)(2) regulatory pathway. The Company plans to complete the bioequivalence study in 2018 and to file the NDA in 2019.

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Prior to the completion of the APP Acquisition, the Company had been a single product company, focused on manufacturing, marketing and selling the Female Condom (FC2). FC2 is the only currently available female-controlled product approved for market by the FDA and cleared by the World Health Organization (WHO) for purchase by U.N. agencies that provides dual protection against unintended pregnancy and sexually transmitted infections (STIs), including HIV/AIDS and the Zika virus. Nearly allMost of the Company’s net revenues ~~for~~during the three and nine months ended ~~December 31, 2017~~June 30, 2021 and ~~2016~~2020 were derived from sales of ~~FC2.~~FC2 in the commercial and public health sectors.

Sale of PREBOOST® Business

On December 8, 2020, the Company entered into an Asset Purchase Agreement, pursuant to which the Company sold substantially all of the assets related to the Company's PREBOOST® business. PREBOOST® is a 4% benzocaine medicated individual wipe for the treatment of premature ejaculation and was a commercial product in the Company’s Sexual Health Division during fiscal 2020. The transaction closed on December 8, 2020. The purchase price for the transaction was $20.0 million, consisting of $15.0 million paid at closing, $2.5 million payable 12 months after closing and $2.5 million payable 18 months after closing.

COVID-19 Environment

In December 2019, a novel strain of coronavirus was reported to have emerged in Wuhan, China. COVID-19, the disease caused by the coronavirus, has since spread to over 100 countries, including every state in the United States. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020, the United States declared a national emergency with respect to the COVID-19 outbreak.

In an effort to contain and mitigate the spread of COVID-19, many countries, including the United States, the United Kingdom and Malaysia, have imposed unprecedented restrictions on travel, and there have been business closures and a substantial reduction in economic activity in countries that have had significant outbreaks of COVID-19. In addition, and in an attempt to slow the rapid growth of the COVID-19 infection rate, many governments around the world, including in the United States at the federal, state and local levels as well as in the United Kingdom and Malaysia, have from time to time imposed mandatory sheltering in place and social distancing restrictions that severely limit the ability of its citizens to travel freely and to conduct activities.

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The COVID-19 pandemic has substantially impacted the global healthcare system, including the conduct of clinical trials. Many healthcare systems have restructured operations to prioritize caring for those suffering from COVID-19 and to limit or cease other activities. The severe burden on healthcare systems caused by this pandemic has also impaired the ability of many research sites to start new clinical trials or to enroll new patients in clinical trials. The imposed mandatory sheltering in place and social distancing restrictions may delay the recruitment of patients and impede their ability to effectively participate in such trials. Significant fees may also be owed to contract research organizations associated with starting and stopping clinical trials, typically more so than delaying the start of a clinical trial.

To date, COVID-19 has not impacted the Company’s ability to supply product demand for FC2. We have experienced, and continue to experience, some temporary disruptions to our manufacturing facility due to the implementation of government policies. On March 16, 2020, the Malaysian government issued an order closing non-essential businesses in that country due to the COVID-19 pandemic. As a result, the sole facility where the Company manufactures FC2 was unable to manufacture or ship product starting March 16, 2020. Because FC2 is a health product, the Company received an exemption to reopen the facility with limited staff to ship existing inventory on March 27, 2020, to reopen for manufacturing with 50% of the regular number of workers and social distancing requirements on April 20, 2020 and to return to 100% of the regular number of workers but with continued social distancing requirements on May 4, 2020. On June 1, 2021, the Malaysian government issued a nationwide lockdown order placing limitations on social and economic activity in the country. The Company was able to secure the required approvals, as a health product, to continue to partially operate by reducing the number of employees physically allowed in the facilities to 60% of the total workforce. On July 3, 2021, the lockdown was strengthened in the region in which the Company operates and the Company entered into a two week period ceasing all operations, in common with similar manufacturing businesses. On July 19, 2021, after allowing some time for staff testing, operations resumed at the required levels of 60% of the total workforce. The Company has partially mitigated the disruption to production by changing staffing patterns. Furthermore, the Company has enrolled staff in a vaccination program that has commenced and is ongoing. From time to time, we have temporarily paused operations as part of our contact tracing protocols and to allow for cleaning and disinfection of our production facility. The Company has had and continues to have a sufficient quantity of FC2 inventory both inside and outside of Malaysia to satisfy customer demand. We do not anticipate that the recent closure, or currently ongoing reduced operating capacity, will have a material impact to the Company’s consolidated operating results in the fourth quarter of fiscal 2021 or foreseeable future periods. The Company continues to operate enhanced health and safety protocols to protect the employees at its Malaysian facility, to respond in the event an employee at the facility is determined to have tested positive for COVID-19, and to mitigate the impact of COVID-19 on the Company’s Malaysian manufacturing operations. However, no such measures can eliminate risks relating to the COVID-19 pandemic, and if the Company’s Malaysian manufacturing facility is subject to future government mandates to counter COVID-19 or encounters labor or raw material shortages, transportation delays or other issues, our ability to supply product to our customers could be disrupted.

The sole supplier of the nitrile polymer sheath for FC2 also produces surgical gloves and has at times prioritized their production during the COVID-19 pandemic and may continue to do so, which could disrupt the Company’s supply of a critical raw material. Malaysian ports are currently open for shipment but at reduced capacity, and the Company may also encounter issues shipping product into key markets or through freight or other carriers. To mitigate these factors, the Company continues to build strategic stock to ensure supply is available during a period of potential disruption. The COVID-19 pandemic and related economic disruption may also adversely affect customer demand for FC2. For example, sales of FC2 could be impacted in the U.S. prescription channel if insurance coverage is affected by job losses and in the global public health sector if governments delay future tenders or reduce spending on female condoms due to financial strains or changed spending priorities caused by the COVID-19 pandemic. The COVID-19 pandemic did not have a material net impact on our consolidated operating results during the three and nine months ended June 30, 2021.

To protect the health and safety of our workforce, we have closed our offices in the United States and the United Kingdom to non-essential staff and our personnel have largely been working remotely. Travel between our facilities in the United States, the United Kingdom and Malaysia has also been restricted. As of the date of this report, our operations have not been significantly impacted by such remote work requirements and travel restrictions.

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Significant uncertainty remains as to the potential impact of the COVID-19 pandemic on our operations, and on the global economy. It is currently not possible to predict how long the pandemic will last or the time that it will take for economic activity to return to prior levels as a result of uncertainties, including the extent and rate of the spread of the virus that continue to fluctuate, the potential for additional peaks in infection rates, and the timing and availability of vaccines, treatments or cures to slow and eventually stop the spread. We do not yet know the full extent of any impact on our business or our operations; however, we will continue to monitor the COVID-19 situation and its impact on our business closely and expect to reevaluate the timing of our anticipated clinical trials as the impact of COVID-19 on our industry becomes clearer.

Sales of FC2 in the public health and commercial sectors

FC2 Commercial Sector. In 2017, the Company began expanding access to FC2 in the U.S. by making it available by prescription. With a prescription, FC2 is covered by most insurance companies with no copay under the ACA and the laws of 20+ states prior to enactment of the ACA. In 2018, we dissolved our small-scale marketing and sales program to focus our efforts in accessing fast-growing, highly reputable telemedicine firms to bring our much-needed FC2 product to patients with a prescription in a cost-effective and highly convenient manner. As a result of these efforts, the Company now supplies FC2 to telemedicine providers in the U.S. prescription channel. The Company is working to develop supply and distributor relationships with additional telemedicine and other providers.

FC2 Global Public Health Sector.FC2’s ~~primary~~ use is for ~~disease~~the prevention ~~and family planning,~~of HIV/AIDS and the transmission of other sexually transmitted diseases and prevention of unintended pregnancies, and the global public health sector ishas been an important market for FC2. Within the ~~Company’s main market. Within the~~global public health sector, various organizations supply critical products such as FC2, at no cost or low cost, to those who need but cannot afford to buy such products for themselves.

FC2 has been distributed in ~~144~~the U.S. and 149 other countries. A significant number of countries with the highest demand potential are in the developing world. The incidence of HIV/AIDS, other ~~STIs~~sexually transmitted infections and ~~unwanted~~unintended pregnancy in these countries represents a remarkable potential for significant sales of a product that benefits some of the world’s most underprivileged people. However, conditions in these countries can be volatile and result in unpredictable delays in program development, tender applications and processing orders.

The Company is working to further develop a global market and distribution network for FC2 by maintaining relationships with global public health sector groups and completing strategic arrangements with companies with the necessary marketing and financial resources and local market expertise.

The Company currently has ~~a relatively small customer base, with~~ a limited number of customers for FC2 in the global public health sector who generally purchase in large quantities. Over the past few years, ~~major~~significant customers have included large global agencies, such as UNFPA, USAID, the Brazil Ministry of Health through Semina Indústria e Comércio Ltda (Semina), the Company's distributor in Brazil, and ~~USAID.~~the Republic of South Africa health authorities that purchase through the Company's various local distributors. Other customers include ministries of health or other governmental agencies, which either purchase directly or via in-country distributors, and NGOs.

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Purchasing patterns for FC2 in the public health sector vary significantly from one customer to another and may reflect factors other than simple demand. For example, some governmental agencies purchase FC2 through a formal procurement process in which a tender (request for bid) is issued for either a specific or a maximum unit quantity. Tenders also define the other elements required for a qualified bid submission (such as product specifications, regulatory approvals, clearance by ~~WHO,~~the World Health Organization, unit pricing and delivery timetable). Bidders have a limited period of time in which to submit bids. Bids are subjected to an evaluation process which is intended to conclude with a tender award to the successful bidder. The entire tender process, from publication to award, may take many months to ~~complete.~~complete, including administrative actions or appeals. A tender award indicates acceptance of the bidder’s price rather than an order or guarantee of the purchase of any minimum number of units. Many governmental tenders are stated to be “up to” the maximum number of units, which gives the applicable government agency discretion to purchase less than the full maximum tender amount. Orders are placed after the tender is awarded; there are often no set dates for orders in the tender and there are no guarantees as to the timing or amount of actual orders or shipments. Orders received may vary from the amount of the tender award based on a number of factors including vendor supply capacity, quality inspections and changes in demand. Administrative issues, politics, bureaucracy, exchange rate risk, process errors, changes in leadership, funding priorities and/or other pressures may delay or derail the process and affect the purchasing patterns of public health sector customers. As a result, the Company may experience significant quarter-to-quarter sales ~~variations~~variances in the global public health sector due to the timing and shipment of large orders of FC2.

In April 2017, the Company launched a small scale marketing and sales program to support the promotion of FC2 in the US market. The commercial team developed a plan to confirm the “proof of concept” that FC2 represented a significant business opportunity. This required changes in the distribution process for FC2 in the US. As part of this reorganizationOn August 27, 2018, the Company announced ~~new distribution agreements with three~~that through six of its distributors in the ~~country's largest distributors that support~~Republic of South Africa, the ~~pharmaceutical industry. This newly developed network now allows~~Company had received a tender award to supply 75% of a tender covering up to ~~98%~~120 million female condoms over three years. The tender was extended until January 2022. The Company began shipping units under this tender award in the third quarter of ~~major retail pharmacies the ability to make FC2 available to their customers.~~fiscal 2019 and we have shipped approximately 14.0 million units through June 30, 2021. In ~~addition to the distribution system,~~October 2020, the Company ~~expanded sales and market access efforts that resulted~~was awarded up to 20 million units through its distributor in ~~FC2 now being available through~~Brazil under the following access points: community-based organizations, by prescription, utilizing the telemedicine “HeyDoctor” App, through 340B covered entities, college and universities and our patient assistance program. We continuenew Brazil female condom tender. These units are expected to ~~increase healthcare provider awareness, education and acceptance which has resulted in more women utilizing FC2~~be delivered over two years. The Company began shipping units under this tender award in the ~~US. We believe that the initial results from these efforts support the US market opportunity~~first quarter of fiscal 2021 and ~~that~~ we ~~will continue to see increased utilization of FC2.~~ have shipped approximately 9.7 million units through June 30, 2021.

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FC2 Unit Sales.Details of the quarterly unit sales of FC2 for the last five fiscal years ~~are~~were as follows:


Period	2021	2020	2019	2018	2017

October 1 — December 31	12,318,988	10,070,700	7,382,524	4,399,932	6,389,320
January 1 — March 31	8,189,552	6,884,472	9,792,584	4,125,032	4,549,020
April 1 — June 30	11,201,588	10,532,048	10,876,704	10,021,188	8,466,004
July 1 — September 30		5,289,908	9,842,020	6,755,124	6,854,868
Total	31,710,128	32,777,128	37,893,832	25,301,276	26,259,212

Period
2018
2017
2016
2015
2014
October 1 – December 31
4,399,932 6,389,320 15,380,240 12,154,570 11,832,666
January 1 - March 31

4,549,020 9,163,855 20,760,519 7,298,968
April 1 - June 30

8,466,004 10,749,860 14,413,032 13,693,652
July 1 - September 30

6,854,868 6,690,080 13,687,462 9,697,341
Total
4,399,932 26,259,212 41,984,035 61,015,583 42,522,627

Revenues. ~~The~~Most of the Company's net revenues ~~are primarily~~during the three and nine months ended June 30, 2021 and 2020 were derived from sales of FC2 in the U.S. prescription channel and global public ~~sector and~~health sector. The Company also had revenues from sales of PREBOOST® (Roman Swipes) through the date the PREBOOST® business was sold on December 8, 2020. These sales are recognized upon shipment or delivery of the product to ~~its customers. Other sales are from FC2 into~~ the ~~prescription channel in the US and sales of PREBOOST; however, these sales were not material to our results for the three months ended December 31, 2017.~~customers depending on contract terms.

The Company is working to further develop a global market and distribution network for FC2 by maintaining relationships with public health sector groups and completing partnership arrangements with companies with the necessary marketing and financial resources and local market expertise.

The Company’s most significant customers have been ~~either~~telemedicine providers in the U.S. who sell into the prescription channel and global public health sector agencies ~~or those~~ who ~~facilitate their purchases~~purchase and/or ~~distribution of~~distribute FC2 for use in preventing the transmission of HIV/AIDS ~~prevention~~ and/or family planning. ~~The Company's four largest customers currently are UNFPA, USAID, Barrs Medical (PTY) Ltd and Semina. We sell to the Brazil Ministry of Health either through UNFPA or Semina.~~

~~In 2017, the Company began expanding access to FC2 in the U.S. by making it available by prescription. With a prescription, FC2 is covered by most insurance companies with $0 copay.~~ The Company also hired a small sales force to help educate doctors, pharmacists, clinics and student health centers on the benefits of FC2 and how to prescribe it. In the U.S., FC2 is sold to major distributors and sold direct to city and state public health departments and non-profit organizations.

~~Because the~~ Company manufactures FC2 in a leased facility located in Selangor D.E., Malaysia, resulting in a portion of the Company's operating costs ~~are~~being denominated in foreign currencies. While a ~~material~~significant portion of the Company's future unit sales are likely to be in foreign markets, all sales are denominated in the U.S. dollar. Effective October 1, 2009, the Company’s U.K. and Malaysia subsidiaries adopted the U.S. dollar as their functional currency, further reducing the Company’s foreign currency risk.

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

We have recently seen an increase in the cost of the nitrile polymer used to produce FC2 and may experience increases in other material costs due to the impact of COVID-19 and increased inflation. Our costs of sales and gross margins may be adversely impacted if we are unable to pass along cost increases to our customers.

On August 7, 2021, the Company learned that a fire had occurred at the manufacturing site used by our supplier to produce component sheaths for FC2. The preliminary analysis by the supplier indicates that production will be impacted for at least two months before it can restart. We have robust levels of inventory of FC2 in our U.S. warehouses and of FC2 and component sheaths in our facility in Malaysia. As a result, we believe that this supply disruption will have no impact on sales of FC2 in the fourth quarter of fiscal 2021 and, based on historic ordering and our forecasts, we believe that it will not have a significant impact on sales of FC2 in the first quarter of fiscal 2022. Given our inventory position, and the initial guidance given to us by our supplier at this stage, we expect any impact from this temporary disruption would be limited to the global public health sector market and that it would have no impact on sales in the U.S. market.

Conducting research and development is central to our business model. ~~Since the completion~~The Company’s Research and Development segment includes multiple products and management routinely evaluates each product in its portfolio of products. Advancement is limited to available working capital and management’s understanding of the ~~APP Acquisition we~~prospects for each product. If future prospects do not meet management’s strategic goals, advancement may be discontinued. We have invested and expect to continue to invest significant time and capital in our research and development operations. ~~In fiscal 2018, we~~Our research and development expenses were $11.2 million and $4.4 million for the three months ended June 30, 2021 and 2020, respectively, and $24.4 million and $13.7 million for the nine months ended June 30, 2021 and 2020, respectively. We expect to ~~increase our~~continue this trend of increased expenses relating to research and development due to advancement of multiple drug candidates.

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Results of Operations

THREE MONTHS ENDED ~~DECEMBER 31, 2017~~JUNE 30, 2021 COMPARED TO THREE MONTHS ENDED~~DECEMBER 31, 2016~~ JUNE 30, 2020

The Company generated net revenues of ~~$2,586,613~~$17.7 million and net loss of ~~$4,257,152,~~$2.7 million, or ~~$(0.08)~~$(0.03) per basic and diluted common share, for the three months ended ~~December 31, 2017,~~June 30, 2021, compared to net revenues of ~~$3,243,599~~$10.3 million and net loss of ~~$1,366,181,~~$3.0 million, or ~~$(0.04)~~$(0.05) per basic and diluted common share, for the three months ended ~~December 31, 2016.~~

June 30, 2020. Net revenues ~~decreased $656,986, or 20 percent, on~~increased 71% over the prior period.

FC2 net revenues increased 83% year over year. There was a ~~31 percent decrease~~6% increase in total FC2 unit sales ~~for the three months ended December 31, 2017, compared with the same period last year. The principal factor~~and an increase in ~~the decrease is the period to period impact of the timing of shipments for key customers. The~~ FC2 average sales price per unit ~~increased 16 percent~~of 72%. The principal factor for the increase in the FC2 average sales price per unit compared to prior period was the change in the sales mix with the ~~same period last year due to changes in sales mix and unit price increases for customers~~U.S. prescription channel representing 76% of total FC2 net revenues in the current year period compared to 56% of total FC2 net revenues in the prior year period. The Company experienced an increase of 150% in FC2 net revenues in the U.S. prescription channel and a decrease of 2% in FC2 net revenues in the global public health sector.

Cost of sales ~~decreased $318,741 to $1,272,574~~remained consistent at $3.8 million in the three months ended ~~December 31, 2017 from $1,591,315 for the same period last year. The reduction is due~~June 30, 2021 compared to ~~the lower unit sales.~~

~~Gross profit decreased $338,245, or 20 percent, to $1,314,039 for~~ the three months ended ~~December 31, 2017~~June 30, 2020. The cost per unit decreased due to decreased labor costs and period costs in the prior year period of approximately $0.3 million resulting from ~~$1,652,284 for~~decreased production due to the temporary shutdown of the Company’s manufacturing facility in Malaysia as a result of the COVID-19 pandemic in the prior year.

Gross profit increased to $13.9 million in the three months ended ~~December 31, 2016.~~June 30, 2021 from $6.5 million in the three months ended June 30, 2020. Gross profit margin for the ~~three months ended December 31, 2017 and~~fiscal 2021 period was 79% of net revenues, compared to 63% of net revenues for the ~~same period~~fiscal 2020 period. The increase in ~~2016 was 51 percent of~~the gross profit margin is primarily due to an increase in net ~~revenues.~~revenues in the U.S. prescription channel and a decrease in labor costs.

Significant quarter-to-quarter ~~variations~~variances in the Company’s results have historically resulted from the timing and shipment of large orders rather than from any fundamental changes in the business or the underlying demand for ~~female condoms.~~FC2. The Company is also currently seeing pressure on ~~spending~~pricing for FC2 by large global agencies and donor governments in the developed world. As a result, the Company may continue to experience challenges for ~~unit~~revenue from sales of FC2 in the global public ~~sector for~~health sector. The Company is experiencing a significant increase in revenue from sales in the ~~remainder of fiscal 2018.~~U.S. prescription channel, which is helping grow net revenues quarter to quarter and year to year.

Research and development expenses increased ~~$1,867,686~~ to ~~$2,038,786 for~~$11.2 million in the three months ended ~~December 31, 2017~~June 30, 2021 from ~~$171,100~~$4.4 million in the ~~prior year period.~~same period in fiscal 2020. The increase is primarily due to increased ~~research and development~~ costs associated with the multiple in-process research and development projects ~~acquired pursuant to the APP Acquisition~~ and increased personnel ~~costs associated~~costs. During the fiscal 2021 period, the Company initiated two Phase 3 clinical trials and one Phase 2 clinical trial with additional clinical trial initiations coming. This ongoing clinical trial activity has resulted in increased costs. Additionally, in the fiscal 2020 period, research and ~~development.~~development expenses were reduced by $0.1 million due to the funds received under the Paycheck Protection Program. See Note 14 to the financial statements included in this report for additional information related to the Paycheck Protection Program.

Selling, general and administrative expenses increased ~~$418,193, or 17 percent,~~ to ~~$2,947,697 for~~$5.6 million in the three months ended ~~December 31, 2017~~June 30, 2021 from ~~$2,529,504~~$3.5 million in ~~the prior year period. The increase primarily~~ ~~relates to salaries for our U.S. Commercial team, part of our Commercial reporting segment.~~

~~The Company incurred a loss on net accounts receivable of approximately $3.76 million for~~ the three months ended ~~December 31, 2017, as a result of a settlement agreement we entered with Semina, our distributor in Brazil. This amount~~June 30, 2020. The increase is ~~presented as a separate line item~~due primarily to increased personnel and share-based compensation costs. Additionally, in the ~~accompanying unaudited condensed consolidated statement~~fiscal 2020 period, selling, general and administrative expenses were reduced by $0.4 million due to the funds received under the Paycheck Protection Program. See Note 14 to the financial statements included in this report for additional information related to the Paycheck Protection Program.

Interest expense, which consists of ~~operations.~~

~~Business acquisition expenses for~~items related to the Credit Agreement and Residual Royalty Agreement, was $1.3 million in the three months ended ~~December 31, 2017 decreased to zero from $826,370~~June 30, 2021, which is comparable with $1.2 million in ~~the prior year period for~~ ~~expenses representing costs related to the APP Acquisition.~~

~~Interest and other expense, net, for~~ the three months ended ~~December 31, 2017~~June 30, 2020.

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Expense associated with the change in fair value of the embedded derivatives related to the Credit Agreement and Residual Royalty Agreement was ~~$13,169, compared to $9,621 for the same period~~$1.3 million in ~~fiscal year 2017. The Company recorded a foreign currency transaction loss of $53,455 in the most recent quarter, compared to $11,939 for the same period last year.~~

~~The income tax benefit for~~ the three months ended ~~December 31, 2017~~June 30, 2021, compared to expense of $0.2 million in the three months ended June 30, 2020. The liabilities associated with embedded derivatives represent the fair value of the change of control provisions in the Credit Agreement and Residual Royalty Agreement. The increase in the fair value of the embedded derivatives is due to an increase in projected FC2 net revenues in future periods and decreases in the discount rates. See Note 3 and Note 8 to the financial statements included in this report for additional information.

Income tax benefit in the third quarter of fiscal 2021 was ~~$3,246,053,~~$2.9 million, compared to income tax ~~benefit~~expense of ~~$530,069 for~~$0.2 million in the ~~same period in~~third quarter of fiscal ~~year 2017.~~2020. The increase in the income tax benefit of $3.1 million is primarily due to the benefit recognized from the increasing the value of the U.K. net operating losses due to the increase in the U.K. tax rates from 19% to 25%.

NINE MONTHS ENDED JUNE 30, 2021 COMPARED TO NINE MONTHS ENDED JUNE 30, 2020

The Company generated net revenues of $45.6 million and net income of $11.7 million, or $0.16 per basic common share and $0.14 per diluted common share, for the nine months ended June 30, 2021, compared to net revenues of $30.8 million and net loss of $7.1 million, or $(0.11) per basic and diluted common share, for the nine months ended June 30, 2020. Net revenues increased 48% over the prior period.

FC2 net revenues increased 51% year over year. There was a 15% increase in total FC2 unit sales and an increase in FC2 average sales price per unit of 31%. The principal factor for the increase in the FC2 average sales price per unit compared to prior period was the change in the sales mix with the U.S. ~~federal corporate income tax rate~~prescription channel representing 74% of total FC2 net revenues in the current year period compared to 62% of total FC2 net revenues in the prior year period. The Company experienced an increase of 79% in FC2 net revenues in the U.S. prescription channel and an increase of 6% in FC2 net revenues in the global public health sector.

Cost of sales increased to $10.0 million in the nine months ended June 30, 2021 from ~~35%~~$9.6 million in the nine months ended June 30, 2020 primarily due to ~~21% under~~an increase in unit sales partially offset by a decrease in labor, equipment maintenance, and transportation costs.

Gross profit increased to $35.6 million in the ~~Tax Act and~~nine months ended June 30, 2021 from $21.2 million in the nine months ended June 30, 2020. Gross profit margin for the fiscal 2021 period was 78% of net revenues, compared to 69% of net revenues for the fiscal 2020 period. The increase in the ~~loss before income taxes.~~gross profit margin is primarily due to an increase in net revenues in the U.S. prescription channel and a decrease in labor, equipment maintenance, and transportation costs.

Significant quarter-to-quarter variances in the Company’s results have historically resulted from the timing and shipment of large orders rather than from any fundamental changes in the business or the underlying demand for FC2. The Company is also currently seeing pressure on pricing for FC2 by large global agencies and donor governments in the developed world. As a result, the Company may continue to experience challenges for revenue from sales of FC2 in the global public health sector. The Company is experiencing a significant increase in revenue from sales in the U.S. prescription channel, which is helping grow net revenues quarter to quarter and year to year.

Research and development expenses increased to $24.4 million in the nine months ended June 30, 2021 from $13.7 million in the same period in fiscal 2020. The increase is primarily due to increased costs associated with the multiple in-process research and development projects and increased personnel costs. During the fiscal 2021 period, the Company initiated two Phase 3 clinical trials and one Phase 2 clinical trial with additional clinical trial initiations coming. This ongoing clinical trial activity has resulted in increased costs. Additionally, in the fiscal 2020 period, research and development expenses were reduced by $0.1 million due to the funds received under the Paycheck Protection Program. See Note 14 to the financial statements included in this report for additional information related to the Paycheck Protection Program.

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~~Liquidity~~

Selling, general and ~~Sources of Capital~~administrative expenses increased to $14.7 million in the nine months ended June 30, 2021 from $11.0 million in the nine months ended June 30, 2020. The increase is due primarily to increased personnel costs, patent-related legal costs, and increased insurance costs. Additionally, in the fiscal 2020 period, selling, general and administrative expenses were reduced by $0.4 million due to the funds received under the Paycheck Protection Program. See Note 14 to the financial statements included in this report for additional information related to the Paycheck Protection Program.

~~Our operating activities generated cash of $296,662 in~~During the first quarter of fiscal ~~2018. Accounts receivable~~2021, we recorded a pre-tax gain on sale of the Company’s PREBOOST® business of $18.4 million. See Note 2 to the financial statements included in this report for additional information.

Interest expense, which consists of items related to the Credit Agreement and ~~long-term other receivables decreased~~Residual Royalty Agreement, was $3.7 million in the nine months ended June 30, 2021, which is comparable with $3.5 million in the nine months ended June 30, 2020.

Expense associated with the change in fair value of the embedded derivatives related to the Credit Agreement and Residual Royalty Agreement was $2.0 million in the nine months ended June 30, 2021, compared to expense of $94,000 in the nine months ended June 30, 2020. The liabilities associated with embedded derivatives represent the fair value of the change of control provisions in the Credit Agreement and Residual Royalty Agreement. The increase in the fair value of the embedded derivatives is due to an increase in projected FC2 net revenues in future periods and decreases in the discount rates. See Note 3 and Note 8 to the financial statements included in this report for additional information.

Income tax benefit in the first nine months of fiscal 2021 was $2.8 million, compared to income tax expense of $31,000 in the first nine months of fiscal 2020. The increase in the income tax benefit of $2.8 million is primarily due to the benefit recognized from ~~$11.4~~the increasing the value of the U.K. net operating losses due to the increase in the U.K. tax rates from 19% to 25%.

Liquidity and Sources of Capital

Liquidity

Our cash and cash equivalents on hand at June 30, 2021 was $123.2 million, compared to $13.6 million at September 30, ~~2017 to $3.0 million at December 31, 2017.~~

On December 27, 2017, we entered into a settlement agreement with Semina pursuant to which Semina has made a payment of $2.25 million and is obligated to make a second payment of $1.5 million by February 28, 2018, to settle net amounts due to us totaling $7.5 million relating to the 2014 Brazil Tender. The settlement was not related to our belief in the ultimate collectability of the receivables or in the creditworthiness of Semina. We elected to settle these amounts due to the uncertainty regarding the timing of payment by the Brazilian Government and, ultimately to us, on the remaining amounts due. The result of the settlement was a net loss of approximately $3.76 million, which is included in selling, general and administrative expenses in our unaudited condensed consolidated statement of operations for the three months ended December 31, 2017.

2020. At ~~December 31, 2017,~~June 30, 2021, the Company had working capital of ~~$4.0~~$137.2 million and stockholders’ equity of ~~$44.8~~$155.0 million compared to working capital of ~~$4.8~~$12.3 million and stockholders’ equity of ~~$48.5~~$30.1 million as of ~~December 31, 2016.~~September 30, 2020. The increase in working capital is primarily due to the increase in cash on hand and an increase in prepaid research and development costs.

We anticipate that we will continue to consume cash as we develop our drug candidates. Because of the numerous risks and uncertainties associated with the development of pharmaceutical products, we are unable to estimate the exact amounts of capital outlays and operating expenditures necessary to fund development of our drug candidates and obtain regulatory approvals. Our future capital requirements will depend on many factors. See Part I, Item 1A, “Risk Factors - Risks Related to Our Financial Position and Need for Capital” in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2020 for a description of certain risks that will affect our future capital requirements.

The Company believes its current cash position and cash expected to be generated from sales of the Company’s commercial product are adequate to fund planned operations of the Company for at least the next 12 months. To the extent the Company may need additional capital for its operations or the conditions for raising capital are favorable, the Company may access financing alternatives that may include debt financing, common stock offerings, or financing involving convertible debt or other equity-linked securities and may include financings under the Company’s shelf registration statement on Form S-3 (File No. 333-239493) or under a new registration statement.

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Operating activities

Operating activities used cash of $14.8 million in the nine months ended June 30, 2021. Cash from operating activities included net income of $11.7 million, adjustments to reconcile net income to net cash provided by operating activities totaling a reduction of $17.9 million and changes in operating assets and liabilities of $8.5 million. Adjustments to net income primarily consisted of $18.4 million related to the gain on sale of the PREBOOST® business, $2.9 million of interest paid in excess of interest expense, and $2.9 million of deferred income taxes, partially offset by $3.7 million of share-based compensation and $2.0 million for the change in fair value of derivative liabilities. The decrease in cash from changes in operating assets and liabilities included an increase in prepaid expenses and other assets of $9.6 million and an increase in accounts receivable of $3.1 million, partially offset by an increase in accrued expenses and other current liabilities of $2.8 million.

Our operating activities used cash of $1.6 million in the nine months ended June 30, 2020. Cash used in operating activities included a net loss of $7.1 million, adjustments for noncash items totaling $6.2 million and changes in operating assets and liabilities of $0.6 million. Adjustments for noncash items primarily consisted of $3.5 million of noncash interest expense and $2.0 million of share-based compensation. The decrease in cash from changes in operating assets and liabilities included an increase in inventories of $1.8 million, partially offset by an increase in accounts payable of $0.6 million and an increase in accrued expenses and other current liabilities of $0.6 million.

Investing activities

Net cash from investing activities was $14.8 million in the nine months ended June 30, 2021, attributed to $15.0 million received from the sale of the Company’s PREBOOST® business.

Net cash used in investing activities in the nine months ended June 30, 2020 was $73,000 and was associated with capital expenditures at our U.K. and Malaysia locations.

Financing activities

Net cash provided by financing activities in the nine months ended June 30, 2021 was $109.5 million and primarily consisted of proceeds from the underwritten public offering of the Company’s common stock, net of fees and costs paid through June 30, 2021, of $108.0 million (see discussion below) and proceeds from stock option exercises of $1.5 million.

Net cash provided by financing activities in the nine months ended June 30, 2020 was $10.8 million and consisted of $13.4 million from the sale of shares under common stock purchase agreements with Aspire Capital Fund, LLC (see discussion below), proceeds from the Premium Finance Agreement of $0.8 million, which were used to finance the Company’s directors and officers liability insurance premium, and proceeds from stock option exercises of $0.4 million, less payments on the Credit Agreement (see discussion below) of $3.3 million and payments on the Premium Finance Agreement of $0.6 million.

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Sources of Capital

Common Stock Offering

On February 22, 2021, we completed an underwritten public offering of 7,419,354 shares of our common stock, which included the exercise in full of the underwriters' option to purchase additional shares, at a public offering price of $15.50 per share. Net proceeds to the Company from this offering were $107.9 million after deducting underwriting discounts and commissions and costs incurred by the Company through June 30, 2021. All of the shares sold in the offering were by the Company. The offering was made pursuant to the Company’s shelf registration statement on Form S-3 (File No. 333-239493).

SWK Credit Agreement

On March 5, 2018, the Company entered into a Credit Agreement (as amended, the “Credit Agreement”) with the financial institutions party thereto from time to time (the “Lenders”) and SWK Funding LLC, as agent for the Lenders (the “Agent”), for a synthetic royalty financing transaction. On and subject to the terms of the Credit Agreement, the Lenders provided the Company with a term loan of $10.0 million, which was advanced to the Company on the date of the Credit Agreement. Under the Credit Agreement, the Company is required to make quarterly payments on the term loan based on the Company’s product revenue from net sales of FC2 until the earlier of receipt by the Lenders of a return premium specified in the Credit Agreement or a required payment upon termination of the Credit Agreement on March 5, 2025 or an earlier change of control of the Company or sale of the FC2 business. The recourse of the Lenders and the Agent for obligations under the Credit Agreement is limited to assets relating to FC2. On May 13, 2019, the Company entered into an amendment to the Credit Agreement (the “Second Amendment”) which included a reduction to the percentages to be used to calculate the quarterly revenue-based payments due on product revenue from net sales of FC2 during calendar year 2019, a return to the original percentages to calculate the quarterly revenue-based payments due on product revenue from net sales of FC2 during calendar year 2020 and an increase to the percentages to be used to calculate the quarterly revenue-based payments due on product revenue from net sales of FC2 during calendar year 2021 and thereafter until the loan has been repaid.

In connection with the Company's acquisition of intellectual property rights associated with Solifenacin DRG and Tadalafil/ Finasteride combination capsules, the Company will be obligated to make upfront payments totaling $500,000 by March 2018, as well as future installment payments and milestone payments.

~~The Company's~~ Credit Agreement, ~~with BMO Harris Bank N.A. expired~~Veru and the Agent also entered into a Residual Royalty Agreement, dated as of March 5, 2018 (as amended, the “Residual Royalty Agreement”), which provides for an ongoing royalty payment of 5% of product revenue from net sales of FC2 commencing after the Lenders would have received their return premium based on ~~December 29, 2017. No amounts were outstanding~~the return premium and calculation of revenue-based payments under the Credit Agreement without taking into account the amendments effected by the Second Amendment. The Residual Royalty Agreement will terminate upon (i) a change of control or sale of the FC2 business and the payment by the Company of the amount due in connection therewith pursuant to the Credit Agreement, or (ii) mutual agreement of the parties.

The Company made total payments under the Credit Agreement of $6.4 million and $3.3 million during the ~~three~~nine months ended ~~December 31, 2017 or 2016.~~June 30, 2021 and 2020, respectively. As a result of the Second Amendment, the Company currently estimates the aggregate amount of quarterly revenue-based payments payable during the 12-month period subsequent to June 30, 2021 will be approximately $0.9 million under the Credit Agreement. The Company began making payments under the Residual Royalty Agreement during the quarter ended June 30, 2021, totaling $0.3 million during the period. The Company currently estimates the aggregate amount of quarterly revenue-based payments payable during the 12-month period subsequent to June 30, 2021 will be approximately $3.7 million under the Residual Royalty Agreement.

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Aspire Capital Purchase Agreement

On ~~December 29, 2017,~~June 26, 2020, the Company entered into ~~the~~a common stock purchase agreement (the “2020 Purchase ~~Agreement~~Agreement”) with Aspire Capital Fund, LLC (Aspire Capital) which provides that, upon the terms and subject to the conditions and limitations set forth therein, the Company has the right, from time to time ~~and~~ in its sole discretion during the 36-month term of the 2020 Purchase Agreement, to direct Aspire Capital to purchase up to ~~$15.0~~$23.9 million of the ~~Company's~~Company’s common stock in the aggregate. Upon execution of the 2020 Purchase Agreement, the Company issued and sold to Aspire Capital under the 2020 Purchase Agreement 1,644,737 shares of common stock at a price per share of $3.04, for an aggregate purchase price of $5,000,000. Other than the ~~304,457~~212,130 shares of common stock issued to Aspire Capital in consideration for entering into the 2020 Purchase Agreement and the initial sale of 1,644,737 shares of common stock, the Company has no obligation to sell any shares of common stock pursuant to the 2020 Purchase Agreement and the timing and amount of any such sales are in the Company's sole discretion subject to the conditions and terms set forth in the 2020 Purchase Agreement. As of June 30, 2021, the ~~date of filing this Quarterly Report with~~amount remaining under the ~~SEC, no shares of~~2020 Purchase Agreement was $18.9 million, which is registered under the Company’s ~~common stock have been sold to Aspire Capital under the Purchase Agreement.~~

The Company believes its current cash position and its ability to secure equity financing or other financing alternatives are adequate to fund operations of the Company for the next 12 months. Such financing alternatives may include debt financing, convertible debt or other equity-linked securities and may include financings under the Company's currentshelf registration statement on Form S-3 (File No. ~~333-221120)~~333-239493). ~~The Company's intention is to be opportunistic when pursuing equity financing which could include selling common stock under~~Effective June 26, 2020, upon the execution of the 2020 Purchase Agreement, the Company’s prior purchase agreement with Aspire Capital ~~and/or~~was terminated.

Fair Value Measurements

As of June 30, 2021 and September 30, 2020, the Company’s financial liabilities measured at fair value on a ~~marketed deal with an investment bank. See Part I, Item 1A, "Risk Factors - Risks Related to Our Financial Position and Need for Capital"~~recurring basis, which consisted of embedded derivatives, represent the fair value of the change of control provisions in the ~~Company's Form 10-K~~Credit Agreement and Residual Royalty Agreement. See Note 8 to the financial statements included in this report for additional information.

The fair values of these liabilities were estimated based on unobservable inputs (Level 3 measurement), which requires highly subjective judgment and assumptions. The Company determined the ~~year ended September 30, 2017,~~fair value of the embedded derivatives at inception and on subsequent valuation dates using a Monte Carlo simulation model. This valuation model incorporates transaction details such as the contractual terms of the instruments and assumptions including projected FC2 revenues, expected cash outflows, expected repayment dates, probability and estimated dates of a change of control, expected volatility, and risk-free interest rates and applicable credit risk. The assumptions used in calculating the fair value of financial instruments represent the Company’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, the use of different estimates or assumptions would result in a higher or lower fair value and different amounts being recorded in the Company’s financial statements. Material changes in any of these inputs could result in a significantly higher or lower fair value measurement at future reporting dates, which could have a material effect on our results of operations. See Note 3 to the financial statements included in this report for ~~a description of certain risks related to our ability to raise capital on acceptable terms.~~additional information.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company's exposure to market risk is limited to fluctuations in raw material commodity prices, particularly the nitrile polymer used to manufacture FC2, and foreign currency exchange rate risk associated with the Company's foreign operations. The Company does not utilize financial instruments for trading purposes or to hedge risk and holds no derivative financial instruments which would expose it to significant market risk. Effective October 1, 2009, the Company's U.K. subsidiary and Malaysia subsidiary each adopted the U.S. dollar as its functional currency. The consistent use of the U.S. dollar as the functional currency across the Company reduces its foreign currency risk and stabilizes its operating results. The Company’s distributors are subject to exchange rate risk as their orders are denominated in U.S. dollars and they generally sell to their customerswas discussed in the ~~local country currency. If currency fluctuations~~“Quantitative and Qualitative Disclosures About Market Risk” section contained in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2020. There have abeen no material ~~impact on a distributor it may ask the Company for pricing concessions or other financial accommodations. The Company currently has no significant exposure~~changes to ~~interest rate risk. The Company had a line~~such exposures since September 30, 2020.

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Table of ~~credit with BMO Harris Bank, consisting of a revolving note for up to $10 million. The line of credit expired on December 29, 2017.~~Contents

Item 4. 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the ~~Company's~~Company’s management, including the ~~Company's Principal~~Company’s Chief Executive Officer and the ~~Company's Principal~~Company’s Chief Financial Officer, of the effectiveness of the design and operation of the ~~Company's~~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 Principal~~Company’s Chief Executive Officer and ~~Principal~~Chief Financial Officer concluded that the ~~Company's~~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 ~~Principal~~Chief Executive Officer and ~~Principal~~Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective at reaching that level of reasonable assurance.

Changes in Internal Control over Financial Reporting

There ~~was~~were no ~~change~~changes in the ~~Company's~~Company’s internal control over financial reporting ~~(as~~(as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) during the Company's most recently completed fiscal quarter that ~~has~~have materially affected, or isare reasonably likely to materially affect, the Company's internal control over financial reporting.

‎

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Neither the Company nor any of its subsidiaries is a party to any material pending legal proceedings at the date of filing of this Quarterly Report on Form 10-Q.

‎

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In connection with the APP Acquisition, two purported derivative and class action lawsuits were filed against the Company in the Circuit Court of Cook County, Illinois, which were captioned Glotzer v. The Female Health Company, et al., Case No. 2016-CH-13815, and Schartz v. Parrish, et al., Case No. 2016-CH-14488. On January 9, 2017 these two lawsuits were consolidated. On March 31, 2017, the plaintiffs filed a consolidated complaint. The consolidated complaint named as defendants Veru, the members of our board of directors prior to the closing of the APP Acquisition and the members of our board of directors after the closing of the APP Acquisition. The consolidated complaint alleges, among other things, that our directors breached their fiduciary duties, or aided and abetted such breaches, by consummating the APP Acquisition in violation of the Wisconsin Business Corporation Law and NASDAQ voting requirements and by causing us to issue the shares of our common stock and Series 4 Preferred Stock to the former stockholders of APP pursuant to the APP Acquisition in order to evade the voting requirements of the Wisconsin Business Corporation Law. The consolidated complaint also alleges that Mitchell S. Steiner, a director and the President and Chief Executive Officer of Veru and a co-founder of APP, and Harry Fisch, a director of Veru and a co-founder of APP, were unjustly enriched in receiving shares of our common stock and Series 4 Preferred Stock in the APP Acquisition. Based on these allegations, the consolidated complaint seeks equitable relief, including rescission of the APP Acquisition, money damages, disgorgement of the shares of our common stock and Series 4 Preferred Stock issued to Dr. Steiner and Dr. Fisch, and costs and expenses of the litigation, including attorneys' fees. On May 5, 2017, the defendants filed a motion to dismiss the consolidated complaint. On August 15, 2017, the court entered an order dismissing without prejudice the claims that the post-acquisition directors aided and abetted the alleged breaches of fiduciary duties by the pre-acquisition directors and that Dr. Steiner and Dr. Fisch were unjustly enriched. The court did not dismiss the claims that the pre-acquisition directors breached their fiduciary duties and the claims that Veru consummated the APP Acquisition in violation of the Wisconsin Business Corporation Law and NASDAQ voting requirements, and the action is continuing as to those claims. Veru believes that this action is without merit and is vigorously defending itself.

Item 1A. Risk Factors

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risks and uncertainties relating to the Company's business disclosed in Part I, Item 1A, "Risk Factors," ofin the Company's Annual Report on Form 10-K for the fiscal year ended September 30, ~~2017.~~2020. There have been no material changes from the risk factors previously disclosed in Part I, Item 1A, "Risk Factors," ofin the Company's Annual Report on Form 10-K for the fiscal year ended September 30, ~~2017, except for the following additional risk factor:~~2020.

~~The recently passed Tax Cuts and Jobs Act may have a significant impact on our financial condition and results of operations.~~
‎

On December 22, 2017, significant changes were enacted to the U.S. tax law pursuant to H.R.1. “An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018” (the “Tax Act”) (previously known as “The Tax Cuts and Jobs Act”). The Tax Act makes broad and complex changes to the U.S. tax code that could materially affect us. The Tax Act includes a permanent reduction in the U.S. federal corporate income tax rate from 35% to 21%, requires companies to pay a one-time transition tax on the previously untaxed earnings of certain foreign subsidiaries, generally eliminates the corporate alternative minimum tax, adds an anti-base erosion tax and makes other changes to deductions, credits and business-related exclusions.

While we have reflected the impact of the Tax Act on the accounting treatment of certain discrete items, we are still evaluating the full potential impact of the Tax Act on our tax provision and deferred tax assets. It is possible that the changes contained in the Tax Act could result in a write down of deferred tax assets or otherwise have an adverse impact on our effective tax rate, tax payments, financial condition or results of operations. The Tax Act is complex and additional interpretative guidance may be issued that could affect interpretations and assumptions we have made, as well as actions we may take as a result of the Tax Act.

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Item 6. Exhibits


Exhibit Number	Description
2.1	Asset Purchase Agreement, dated as of December 8, 2020, between the Company and Roman Health Ventures Inc. (incorporated by reference to Exhibit 2.2 to the Company’s Form 10-K (File No. 1-13602) filed with the SEC on December 10, 2020).

3.1	Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Company's Form SB-2 Registration Statement (File No. 333-89273) filed with the SEC on October 19, 1999).

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 (incorporated by reference to Exhibit 3.2 to the Company's Form SB-2 Registration Statement (File No. 333-46314) filed with the SEC on September 21, 2000).

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 (incorporated by reference to Exhibit 3.3 to the Company's Form SB-2 Registration Statement (File No. 333-99285) filed with the SEC on September 6, 2002).

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 (incorporated by reference to Exhibit 3.4 to the Company's Form 10-QSB (File No. 1-13602) filed with the SEC on May 15, 2003).

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 (incorporated by reference to Exhibit 3.5 to the Company's Form 10-QSB (File No. 1-13602) filed with the SEC on May 17, 2004).

3.6	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 4 (incorporated by reference to Exhibit 3.1 to the Company's Form 8-K (File No. 1-13602) filed with the SEC on November 2, 2016).

3.7	Articles of Amendment to the Amended and Restated Articles of Incorporation of the Company changing the corporate name to Veru Inc. and increasing the number of authorized shares of common stock to 77,000,000 shares (incorporated by reference to Exhibit 3.1 to the Company's Form 8-K (File No. 1-13602) filed with the SEC on August 1, 2017).

3.8	Articles of Amendment to the Amended and Restated Articles of Incorporation of the Company increasing the number of authorized shares of common stock to 154,000,000 shares (incorporated by reference to Exhibit 3.1 to the Company's Form 8-K (File No. 1-13602) filed with the SEC on March 29, 2019).

3.9	Amended and Restated By-Laws (incorporated by reference to Exhibit 3.1 to the Company's Form 8-K (File No. 1-13602) filed with the SEC on May ~~22, 2013)~~4, 2018).

4.1	Amended and Restated Articles of Incorporation, as amended (same as Exhibits 3.1, 3.2, 3.3, 3.4, 3.5, 3.6,3.7and ~~3.7~~3.8).

4.2	Articles II, VII and XI of the Amended and Restated By-Laws (included in Exhibit ~~3.7)~~3.9).

~~10.1~~31.1	Executive Employment Agreement, dated as of October 4, 2017, between the Company and Michele Greco (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K (File No. 1-13602) filed with the SEC on January 10, 2018). +

~~10.2~~	Separation Agreement and General Release, effective as of January 4, 2018, between the Company and Daniel Haines (incorporated by reference to Exhibit 10.2 to the Company's Form 8-K (File No. 1-13602) filed with the SEC on January 10, 2018). +

~~Table of Contents~~


~~31.1~~	Certification of ~~Principal~~Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

31.2	Certification of ~~Principal~~Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

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32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002).,

101	The following materials from the Company's Quarterly Report on Form 10-Q for the quarter ended ~~December 31, 2017,~~June 30, 2021, formatted in ~~XBRL (Extensible~~iXBRL (Inline Extensible Business Reporting Language): (1) the Unaudited Condensed Consolidated Balance Sheets, (2) the Unaudited Condensed Consolidated Statements of Operations, (3) the Unaudited Condensed Consolidated ~~Statement~~Statements of Stockholders’ Equity, (4) the Unaudited Condensed Consolidated Statements of Cash Flows and (5) the Notes to the Unaudited Condensed Consolidated Financial Statements.

*	~~Filed herewith~~
**
104	Cover Page Interactive Data File (formatted as iXBRL and contained in Exhibit 101).

*	Filed herewith
**	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 Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.
+	~~Management contract or compensatory plan or arrangement~~

‎

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

VERU INC.

DATE: ~~February 14, 2018~~August 12, 2021

/s/ Mitchell S. Steiner

Mitchell S. Steiner ~~President and~~

Chairman, Chief Executive Officer and President

DATE: ~~February 14, 2018~~August 12, 2021

/s/ Michele Greco

Michele Greco ~~Executive Vice President of Finance~~

Chief Financial Officer and

Chief Administrative Officer

3547



	December 31, 2017		September 30, 2017
ASSETS
Current Assets:
Cash	$	3,572,350	$	3,277,602
Accounts receivable, net		3,000,308		3,555,350
Inventory, net		3,067,036		2,767,924
Prepaid expenses and other current assets		625,497		697,097
TOTAL CURRENT ASSETS		10,265,191		10,297,973

LONG-TERM ASSETS
PLANT AND EQUIPMENT
Equipment, furniture and fixtures		4,069,810		4,067,896
Leasehold improvements		287,686		287,686
Less: accumulated depreciation and amortization		(3,844,272)		(3,800,043)
Plant and equipment, net		513,224		555,539
Other trade receivables (Note 5)		—		7,837,500
Other assets		159,662		156,431
Deferred assets		423,001		—
Deferred income taxes		12,124,000		8,827,000
Intangible assets, net		20,684,175		20,752,991
Goodwill		6,878,932		6,878,932
TOTAL ASSETS	$	51,048,185	$	55,306,366

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable	$	2,517,371	$	2,685,718
Accrued expenses and other current liabilities		2,383,628		1,441,359
Unearned revenue		990,016		1,014,517
Accrued compensation		338,136		345,987
TOTAL CURRENT LIABILITIES		6,229,151		5,487,581

LONG-TERM LIABILITIES
Other liabilities (Note 5)		—		1,233,750
Deferred rent		68,446		131,830
TOTAL LIABILITIES		6,297,597		6,853,161

Commitments and contingencies (Note 10)
STOCKHOLDERS' EQUITY
Preferred stock		—		—
Common stock		556,967		553,922
Additional paid-in-capital		91,102,159		90,550,669
Accumulated other comprehensive loss		(581,519)		(581,519)
Accumulated deficit		(38,520,414)		(34,263,262)
Treasury stock, at cost		(7,806,605)		(7,806,605)
TOTAL STOCKHOLDERS' EQUITY		44,750,588		48,453,205
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	51,048,185	$	55,306,366

See notes to unaudited condensed consolidated financial statements.


	Three Months Ended
	December 31,
	2017		2016

Net revenues	$	2,586,613	$	3,243,599

Cost of sales		1,272,574		1,591,315

Gross profit		1,314,039		1,652,284

Operating expenses:
Research and development		2,038,786		171,100
Selling, general and administrative		2,947,697		2,529,504
Loss on settlement of accounts receivable		3,764,137		—
Business acquisition		—		826,370
Total operating expenses		8,750,620		3,526,974

Operating loss		(7,436,581)		(1,874,690)

Non-operating expenses:
Interest and other expense, net		(13,169)		(9,621)
Foreign currency transaction loss		(53,455)		(11,939)
Total non-operating expenses		(66,624)		(21,560)

Loss before income taxes		(7,503,205)		(1,896,250)

Income tax benefit		(3,246,053)		(530,069)

Net loss	$	(4,257,152)	$	(1,366,181)

Net loss per basic and diluted common share outstanding	$	(0.08)	$	(0.04)

Basic and diluted weighted average common shares outstanding		53,154,076		30,976,140

See notes to unaudited condensed consolidated financial statements.


	December 31, 2017		September 30, 2017

Trade receivables	$	2,905,094	$	11,330,814
Other receivables		128,317		100,139
Accounts receivable, gross		3,033,411		11,430,953
Less: allowance for doubtful accounts		(33,103)		(38,103)
Accounts receivable, net		3,000,308		11,392,850
Less: long-term trade receivables		—		(7,837,500)
Current accounts receivable, net	$	3,000,308	$	3,555,350


Fiscal	Balance at		Provision Charges		Write offs/		Balance at
Year	October 1		to Expenses		Recoveries		December 31
2017	$	38,103	$	—	$	—	$	38,103
2018	$	38,103	$	—	$	(5,000)	$	33,103



		Weighted Average
		Grant Date
	Shares	Fair Value		Vesting Period
Outstanding at September 30, 2017	198,750	$	0.99
Granted	—
Vested	(190,000)
Forfeited	—
Outstanding at December 31, 2017	8,750	$	1.82	April 2018


	For the three months ended December 31,
	2017		2016
Operating (loss) income:	(In thousands)
Commercial	$	143	$	948
Research and Development		(2,032)		(159)
Corporate		(5,548)		(2,664)
	$	(7,437)	$	(1,875)

Revenues:
United States	$	994	$	358
South Africa		318		636
Zimbabwe		300		516
Peru		282		—
Cameroon		—		891
Other		693		843
	$	2,587	$	3,244



	Estimated
Year Ending September 30,	Amortization Expense
2018	$	206,446
2019		309,234
2020		316,368
2021		323,706
2022		331,316
Thereafter		1,197,105
Total	$	2,684,175