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 statements 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 and plans, 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. These statements 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, 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 in regulatory approval of products under development;

risks related to our ability to obtain sufficient financing on acceptable terms when needed to fund product development and our ~~operations;~~operations, including our ability to secure timely grant or other funding to develop VERU-111 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 at an early stage 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;

government entities may take actions that directly or indirectly have the effect of limiting opportunities for VERU-111 as a COVID-19 treatment, including favoring other treatment alternatives or imposing price controls on COVID-19 treatments;

product demand and market acceptance;

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;

the risk that we will be affected by regulatory developments, including a reclassification of products;

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 and/or of our ability to supply product due to raw material shortages, labor shortages, physical damage to our facilities, COVID-19 (including the impact of COVID-19 on suppliers of key raw materials), product testing, transportation delays or regulatory actions;

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

Table of Contents

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, and the risk that we may not prevail in any appeal of the summary judgment for the Company in the class action litigation relating to our acquisition of Aspen Park Pharmaceuticals, Inc.;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, including our ~~recent~~2018 South Africa 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 sector customers may order and purchase fewer units than the full maximum tender amount;

~~Table of Contents~~

our ~~recent~~2018 South Africa tender award could be subject in the future to reallocation for potential local manufacturing initiatives, which could reduce the size of the award to us;

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 described above and in Part I, Item 1A, "Risk Factors," in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, ~~2018~~2019 and Part II, Item 1A of this Form 10-Q. 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 except as required by applicable law.

Table of Contents

PART I.FINANCIAL INFORMATION

Item 1. Financial Statements

VERU INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS



	June 30,		September 30,		March 31,		September 30,
	2019		2018		2020		2019
Assets
Current assets:
Cash	$	8,039,116	$	3,759,509
Cash and cash equivalents					$	2,557,514	$	6,295,152
Accounts receivable, net		4,766,962		3,972,632		5,802,016		5,021,057
Inventory, net		3,130,720		2,302,030		6,016,323		3,647,406
Prepaid expenses and other current assets		1,206,003		1,148,345		3,084,037		1,843,297
Total current assets		17,142,801		11,182,516		17,459,890		16,806,912
Plant and equipment, net		314,690		404,552		332,362		351,895
Operating lease right-of-use assets						1,075,601		—
Deferred income taxes		8,574,448		8,543,758		8,632,613		8,433,669
Intangible assets, net		20,245,803		20,477,729		20,010,311		20,168,495
Goodwill		6,878,932		6,878,932		6,878,932		6,878,932
Other assets		684,091		965,152		1,486,446		988,867
Total assets	$	53,840,765	$	48,452,639	$	55,876,155	$	53,628,770

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	3,134,795	$	3,226,036	$	4,235,679	$	3,124,751
Accrued research and development costs		1,464,298		981,357		2,204,196		2,475,490
Accrued compensation						1,537,483		1,597,197
Accrued expenses and other current liabilities		2,403,620		2,465,657		1,781,446		1,436,888
Credit agreement, short-term portion (Note 8)		4,660,572		6,692,718
Unearned revenue		—		187,159
Credit agreement, short-term portion						6,662,842		5,385,649
Operating lease liability, short-term portion						398,513		—
Total current liabilities		11,663,285		13,552,927		16,820,159		14,019,975
Credit agreement, long-term portion (Note 8)		4,489,540		2,701,570
Residual royalty agreement (Note 8)		1,824,745		1,753,805
Credit agreement, long-term portion						2,333,267		2,886,382
Residual royalty agreement						4,408,215		3,845,518
Operating lease liability, long-term portion						871,572		—
Deferred income taxes		895,861		844,758		296,605		296,605
Deferred rent		201,167		88,161
Other liabilities		30,000		30,000		31,760		247,154
Total liabilities		19,104,598		18,971,221		24,761,578		21,295,634

Commitments and contingencies (Note 11)
Commitments and contingencies (Note 12)

Stockholders' equity:
Preferred stock; no shares issued and outstanding at June 30, 2019 and September 30, 2018		—		—
Common stock, par value $0.01 per share; 154,000,000 and 77,000,000 shares authorized, 67,002,483 and 57,468,660 shares issued and 64,818,779 and 55,284,956 shares outstanding at June 30, 2019 and September 30, 2018, respectively		670,025		574,687
Preferred stock; no shares issued and outstanding at March 31, 2020 and September 30, 2019						—		—
Common stock, par value $0.01 per share; 154,000,000 shares authorized, 67,879,242 and 67,221,951 shares issued and 65,695,538 and 65,038,247 shares outstanding at March 31, 2020 and September 30, 2019, respectively						678,792		672,220
Additional paid-in-capital		109,612,826		95,496,506		113,158,536		110,268,057
Accumulated other comprehensive loss		(581,519)		(581,519)		(581,519)		(581,519)
Accumulated deficit		(67,158,560)		(58,201,651)		(74,334,627)		(70,219,017)
Treasury stock, 2,183,704 shares, at cost		(7,806,605)		(7,806,605)		(7,806,605)		(7,806,605)
Total stockholders' equity		34,736,167		29,481,418		31,114,577		32,333,136
Total liabilities and stockholders' equity	$	53,840,765	$	48,452,639	$	55,876,155	$	53,628,770

See notes to unaudited condensed consolidated financial statements.



	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	June 30,				June 30,				March 31,				March 31,
	2019		2018		2019		2018		2020		2019		2020		2019

Net revenues	$	9,727,060	$	5,501,730	$	23,074,984	$	10,661,215	$	9,943,104	$	6,976,115	$	20,521,120	$	13,347,924

Cost of sales		3,155,902		2,427,542		7,250,895		5,075,470		2,506,606		2,367,264		5,815,527		4,094,993

Gross profit		6,571,158		3,074,188		15,824,089		5,585,745		7,436,498		4,608,851		14,705,593		9,252,931

Operating expenses:
Research and development		4,866,114		3,787,562		10,138,524		7,822,724		3,930,260		2,910,587		9,230,234		5,272,410
Selling, general and administrative		3,547,046		4,024,146		10,663,884		10,869,535		3,805,916		3,822,854		7,559,430		7,116,838
Loss on settlement of accounts receivable		—		227,208		—		3,991,346
Total operating expenses		8,413,160		8,038,916		20,802,408		22,683,605		7,736,176		6,733,441		16,789,664		12,389,248

Operating loss		(1,842,002)		(4,964,728)		(4,978,319)		(17,097,860)		(299,678)		(2,124,590)		(2,084,071)		(3,136,317)

Non-operating (expenses) income:
Interest expense		(1,091,276)		(1,380,122)		(3,627,971)		(1,730,717)		(1,164,962)		(1,258,272)		(2,306,387)		(2,536,695)
Change in fair value of derivative liabilities										469,000		(628,000)		75,000		(403,000)
Other income (expense), net		18,345		64		70,376		(15,516)		51,991		1,994		(10,035)		10,844
Change in fair value of derivative liabilities		157,000		(378,000)		(246,000)		(399,000)
Foreign currency transaction loss		(16,601)		(1,591)		(57,788)		(118,124)
Total non-operating expenses		(932,532)		(1,759,649)		(3,861,383)		(2,263,357)		(643,971)		(1,884,278)		(2,241,422)		(2,928,851)

Loss before income taxes		(2,774,534)		(6,724,377)		(8,839,702)		(19,361,217)		(943,649)		(4,008,868)		(4,325,493)		(6,065,168)

Income tax (benefit) expense		(458)		1,206,131		117,207		(3,342,339)		(133,140)		25,167		(209,883)		117,665

Net loss	$	(2,774,076)	$	(7,930,508)	$	(8,956,909)	$	(16,018,878)	$	(810,509)	$	(4,034,035)	$	(4,115,610)	$	(6,182,833)

Net loss per basic and diluted common share outstanding	$	(0.04)	$	(0.15)	$	(0.14)	$	(0.30)	$	(0.01)	$	(0.06)	$	(0.06)	$	(0.10)

Basic and diluted weighted average common shares outstanding		62,917,362		53,789,409		62,745,355		53,432,404		65,367,493		62,767,258		65,202,103		62,659,352

See notes to unaudited condensed consolidated financial statements.	See notes to unaudited condensed consolidated financial statements.								See notes to unaudited condensed consolidated financial statements.

Table of Contents

VERU INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY


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

Balance at September 30, 2018	$	—	57,468,660	$	574,687	$	95,496,506	$	(581,519)	$	(58,201,651)	$	(7,806,605)	$	29,481,418	57,468,660	$	574,687	$	95,496,506	$	(581,519)	$	(58,201,651)	$	(7,806,605)	$	29,481,418
Share-based compensation		—	—		—		417,256		—		—		—		417,256	—		—		417,256		—		—		—		417,256
Shares issued in connection with public offering of common stock, net of fees and costs		—	7,142,857		71,428		9,060,539		—		—		—		9,131,967	7,142,857		71,428		9,060,539		—		—		—		9,131,967
Issuance of shares pursuant to share-based awards		—	190,000		1,900		(1,900)		—		—		—		—	190,000		1,900		(1,900)		—		—		—		—
Net loss		—	—		—		—		—		(2,148,798)		—		(2,148,798)	—		—		—		—		(2,148,798)		—		(2,148,798)
Balance at December 31, 2018		—	64,801,517		648,015		104,972,401		(581,519)		(60,350,449)		(7,806,605)		36,881,843	64,801,517		648,015		104,972,401		(581,519)		(60,350,449)		(7,806,605)		36,881,843
Share-based compensation		—	—		—		496,209		—		—		—		496,209	—		—		496,209		—		—		—		496,209
Issuance of shares pursuant to share-based awards		—	166,667		1,667		198,333		—		—		—		200,000	166,667		1,667		198,333		—		—		—		200,000
Net loss		—	—		—		—		—		(4,034,035)		—		(4,034,035)	—		—		—		—		(4,034,035)		—		(4,034,035)
Balance at March 31, 2019		—	64,968,184		649,682		105,666,943		(581,519)		(64,384,484)		(7,806,605)		33,544,017	64,968,184	$	649,682	$	105,666,943	$	(581,519)	$	(64,384,484)	$	(7,806,605)	$	33,544,017
Share-based compensation		—	—		—		468,207		—		—		—		468,207
Shares issued in connection with common stock purchase agreement		—	2,000,000		20,000		3,580,000		—		—		—		3,600,000
Amortization of deferred costs		—	—		—		(101,981)		—		—		—		(101,981)
Issuance of shares pursuant to share-based awards		—	34,299		343		(343)		—		—		—		—
Net loss		—	—		—		—		—		(2,774,076)		—		(2,774,076)
Balance at June 30, 2019	$	—	67,002,483	$	670,025	$	109,612,826	$	(581,519)	$	(67,158,560)	$	(7,806,605)	$	34,736,167

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
Share-based compensation		—	—		—		411,848		—		—		—		411,848
Net loss		—	—		—		—		—		(3,831,218)		—		(3,831,218)
Balance at March 31, 2018		—	55,696,650		556,967		91,514,007		(581,519)		(42,351,632)		(7,806,605)		41,331,218
Share-based compensation		—	—		—		459,974		—		—		—		459,974
Shares issued in connection with common stock purchase agreement		—	1,176,470		11,764		1,988,236		—		—		—		2,000,000
Amortization of deferred costs		—	—		—		(56,656)		—		—		—		(56,656)
Issuance of shares pursuant to share-based awards		—	55,000		550		65,450		—		—		—		66,000
Net loss		—	—		—		—		—		(7,930,508)		—		(7,930,508)
Balance at June 30, 2018	$	—	56,928,120	$	569,281	$	93,971,011	$	(581,519)	$	(50,282,140)	$	(7,806,605)	$	35,870,028

See notes to unaudited condensed consolidated financial statements.	See notes to unaudited condensed consolidated financial statements.															See notes to unaudited condensed consolidated financial statements.

Table of Contents

VERU INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


	Nine Months Ended				Six Months Ended
	June 30,				March 31,
	2019		2018		2020		2019
OPERATING ACTIVITIES
Net loss	$	(8,956,909)	$	(16,018,878)	$	(4,115,610)	$	(6,182,833)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		126,084		131,920		74,213		84,394
Amortization of intangible assets		231,926		206,447		158,184		154,617
Noncash change in right-of-use assets						154,325		—
Noncash interest expense		3,627,971		1,730,717		2,306,387		2,536,695
Share-based compensation		1,381,672		1,079,276		1,296,178		913,465
Deferred income taxes		20,413		(3,367,000)		(198,944)		24,710
Loss on settlement of accounts receivable		—		3,991,346
Provision for obsolete inventory						229,047		51,924
Change in fair value of derivative liabilities		246,000		399,000		(75,000)		403,000
Other		261,172		(39,155)		7,500		122,433
Changes in current assets and liabilities:
(Increase) decrease in accounts receivable		(791,272)		2,339,947
(Increase) decrease in inventory		(941,188)		114,037
Increase in accounts receivable						(1,837,178)		(54,603)
Increase in inventory						(2,597,964)		(748,095)
Increase in prepaid expenses and other assets		(68,578)		(275,586)		(962,470)		(73,589)
(Decrease) increase in accounts payable		(46,894)		775,923
Increase (decrease) in accounts payable						1,110,928		(656,527)
Decrease in unearned revenue		(187,159)		(253,536)		—		(187,159)
Increase in accrued expenses and other current liabilities		566,557		454,324
Decrease in accrued expenses and other current liabilities						(293,429)		(391,011)
Decrease in operating lease liabilities						(183,658)		—
Net cash used in operating activities		(4,530,205)		(8,731,218)		(4,927,491)		(4,002,579)

INVESTING ACTIVITIES
Capital expenditures		(74,948)		(47,696)		(54,680)		(644)
Net cash used in investing activities		(74,948)		(47,696)		(54,680)		(644)

FINANCING ACTIVITIES
Proceeds from sale of shares in public offering, net of fees and costs		9,131,967		—
Proceeds from sale of shares in public offering, net of fees						—		9,400,000
Payment of costs related to public offering						—		(268,033)
Proceeds from sale of shares under common stock purchase agreement						1,227,000		—
Installment payments on SWK credit agreement		(4,047,207)		(642,485)		(944,612)		(3,191,717)
Proceeds from stock option exercises		200,000		66,000		408,632		200,000
Net proceeds from sale of shares under common stock purchase agreement		3,600,000		1,922,160
Proceeds from SWK credit agreement		—		10,000,000
Payment of debt issuance costs		—		(266,923)
Proceeds from premium finance agreement						836,780		—
Installment payments on premium finance agreement						(277,965)		—
Cash paid for debt portion of finance lease						(5,302)		—
Net cash provided by financing activities		8,884,760		11,078,752		1,244,533		6,140,250

Net increase in cash		4,279,607		2,299,838
CASH AT BEGINNING OF PERIOD		3,759,509		3,277,602
CASH AT END OF PERIOD	$	8,039,116	$	5,577,440
Net (decrease) increase in cash						(3,737,638)		2,137,027
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD						6,295,152		3,759,509
CASH AND CASH EQUIVALENTS AT END OF PERIOD					$	2,557,514	$	5,896,536

Schedule of noncash investing and financing activities:
Shares issued in connection with common stock purchase agreement	$	—	$	347,081
Supplemental disclosure of noncash activities:
Right-of-use assets recorded in exchange for lease liabilities					$	1,229,926	$	—
Amortization of deferred costs related to common stock purchase agreement	$	101,981	$	56,656	$	34,759	$	—


See notes to unaudited condensed consolidated financial statements.

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”) 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”) 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, ~~2018.~~2019. The accompanying condensed consolidated balance sheet as of September 30, ~~2018~~2019 has been derived from our audited financial statements. The unaudited condensed consolidated statements of operations for the three and ~~nine~~six months ended ~~June 30, 2019~~March 31, 2020 and cash flows for the ~~nine~~six months ended ~~June 30, 2019~~March 31, 2020 are not necessarily indicative of the results to be expected for any future period or for the fiscal year ending September 30, ~~2019.~~ 2020.

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 and nature of 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 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 (the “Malaysia subsidiary”). All significant intercompany transactions and accounts have been eliminated in consolidation. Prior to the completion of the October 31, 2016 acquisition (the “APP Acquisition”) of APP through the merger of a wholly owned subsidiary of the Company into APP, the Company had been a single product company engaged in marketing, manufacturing and distributing a consumer healthcare product, the FC2 Female Condom/FC2 Internal Condom® (“FC2”). The completion of the APP Acquisition transitioned the Company into a biopharmaceutical company focused on oncology and urology with multiple drug products under clinical development. Most of the Company’s net revenues during the three and ~~nine~~six months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ were derived from sales of FC2.

Reclassifications: Certain prior period amounts inon the accompanying unaudited interim condensed consolidated financial statements have been reclassified to conform with the current period presentation. These reclassifications had no effect on the results of operations or financial position for any period presented.

~~Cash concentration~~Leases: Leases are classified as either operating or finance leases at inception. A right-of-use (“ROU”) asset and corresponding lease liability are established at an amount equal to the present value of fixed lease payments over the lease term at the commencement date. The ~~Company’s cash~~ROU asset includes any initial direct costs incurred and lease payments made at or before the commencement date and is ~~maintained primarily in three financial institutions, located in Chicago, Illinois; London, England and Kuala Lumpur, Malaysia.~~

~~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.~~reduced by lease incentive payments. The Company has ~~a facility~~elected not to separate the lease and nonlease components for all classes of ~~$250,000 for such performance bonds. Such security has been extended infrequently and only on occasions where it has been a contract term expressly stipulated~~underlying assets. The Company uses its incremental borrowing rate as ~~an absolute requirement by~~ the ~~customer or its provider of funds. The expiration~~discount rate to determine the present value of the ~~bond~~lease payments for leases that do not have a readily determinable implicit discount rate. The incremental borrowing rate is ~~defined by~~ the ~~completion~~rate of interest that the ~~event such as, but not limited~~Company would be charged to borrow on a ~~period of time after the product has been distributed or expiration of the product shelf life.~~collateralized basis over a similar term and amount in a similar economic environment. The Company ~~had no restricted cash at June 30, 2019. Restricted cash was $135,000 at September 30, 2018 and is included in cash on~~determines the ~~accompanying unaudited condensed consolidated balance sheets.~~incremental borrowing rates for its leases by adjusting the risk-free interest rate with a credit risk premium corresponding to the Company’s credit rating.

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

~~Deferred financing costs~~:Costs incurred in connection with the common stock purchase agreement discussed in Note 9 have been included in other assets on the accompanying unaudited condensed consolidated balance sheets at June 30, 2019 and September 30, 2018. When shares of the Company’s common stock are sold under the common stock purchase agreement, a pro-rata portion of the deferred costs is recorded to additional paid-in-capital.

As discussed in Note 9, in connection with the common stock offering that closed on October 1, 2018, we incurred costs of approximately $190,000 through September 30, 2018. This amount was included in other assets on the accompanying unaudited condensed consolidated balance sheet at September 30, 2018. These costs were charged to additional paid-in capital in the nine months ended June 30, 2019 after the common stock offering was closed.

Costs incurred in connection with the issuance of debt discussed in Note 8 are presented as a reduction of the debt on the accompanying unaudited condensed consolidated balance sheets at June 30, 2019 and September 30, 2018. These issuanceOperating lease costs are being amortized using the effective interest method over the expected repayment period of the debt, which is currently estimated to occur in the fourth quarter of fiscal 2021. The amortization is included in interest expense on the accompanying unaudited condensed consolidated statements of operations.

~~Fair value measurements: 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 condensed consolidated financial statements are not necessarily indicative of the amounts that could be realized on disposition of the financial instruments. See Note 3 for a discussion of fair value measurements.

The carrying amounts reported in the accompanying unaudited condensed consolidated balance sheets for cash, accounts receivable, accounts payable and other accrued liabilities approximate their fair value based on the short-term nature of these instruments. The carrying value of long-term debt, taking into consideration debt discounts and related derivative instruments, is estimated to approximate fair value.

~~Derivative instruments~~: The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency risks. The Company reviews the terms of debt instruments it enters into to determine whether there are embedded derivative instruments, which are required to be bifurcated and accounted for separately as derivative financial instruments. Embedded derivatives that are not clearly and closely related to the host contract are bifurcated and are recognized at fair value with changes in fair value recognized as either a gain or loss in earnings. Liabilities incurred in connection with an embedded derivative are discussed in Note 8.

~~Revenue recognition~~: Revenue is recognized when control of the promised goods is transferred to the customer in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those products. See Note 4 for further discussion on revenue.

~~Research and development costs: Research and development costs are expensed as they are incurred and include salaries and benefits, clinical trial costs and contract services. Nonrefundable advance~~fixed lease payments made for goods or services to be used in research and development activities are deferred and capitalized 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 Company did not have any capitalized nonrefundable advance payments as of June 30, 2019 and September 30, 2018.

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. 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.

~~Share-based compensation: The Company recognizes share-based compensation expense in connection with its share-based awards, based on the estimated fair value of the awards on the date of grant,~~ on a straight-line basis over the ~~vesting period. Calculating share-based compensation expense requires the input of highly subjective judgment and assumptions, including estimates~~term of the ~~expected life~~lease. Finance lease costs are a combination of the ~~share-based award, stock price volatility and risk-free interest rates.~~

~~Advertising: The Company's policy is to~~amortization expense ~~advertising costs as incurred. Advertising costs were immaterial to the Company’s results of operations~~ for the ~~three~~ROU asset and ~~nine months ended June 30, 2019 and 2018.~~

~~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~~interest expense for the ~~expected future tax consequences of events that have been included in~~outstanding lease liability using the ~~financial statements or tax returns. Under this method, deferred tax assets and liabilities~~applicable discount rate. Variable lease payments are ~~determined~~recognized when incurred based on ~~the differences between the financial statements and tax bases~~occurrence or usage. Short-term leases with an initial term 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 benefits12 months or less are not ~~expected to be realized.~~

~~Foreign currency translation and operations: Effective October 1, 2009,~~recorded on the ~~Company determined that there were significant changes in facts and circumstances, triggering an evaluation of its subsidiaries’ functional currency. The evaluation indicated that~~balance sheet; we recognize lease expense for short-term leases on a straight-line basis over 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 $0.6 million as of June 30, 2019 and September 30, 2018. Assets located outside of the U.S. totaled approximately $6.1 million and $5.2 million at June 30, 2019 and September 30, 2018, respectively.lease term.

Other comprehensive loss: Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net 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, are components of other comprehensive loss.

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. For the three and ~~nine~~six months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ comprehensive loss is equivalent to the reported net loss.

Recently Issued Accounting Pronouncements: In ~~May 2014,~~February 2016, the ~~FASB~~Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ~~2014‑09,~~ ~~Revenue from Contracts with Customers (Topic 606)~~. This new accounting guidance on revenue recognition provides for a single five-step model that includes identifying the contract with a customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction price to the performance obligations, and recognizing revenue when, or as, an entity satisfies a performance obligation. The new guidance also requires additional financial statement disclosures that will enable users to understand the nature, amount, timing and uncertainty of revenue and cash flows relating to customer contracts. The Company adopted the new guidance on October 1, 2018 using the modified retrospective method and elected to apply the guidance only to contracts that were not completed as of the date of adoption. The adoption of this guidance did not have a material effect on our consolidated financial statements and related disclosures. See Note 4 for disclosures relating to the Company's revenue recognition.

~~In February 2016, the FASB issued ASU~~ 2016‑02, Leases (Topic 842), which requires that lessees recognize ~~a right-of-use~~an ROU asset and a lease liability for all leases with lease terms greater than twelve months in the balance sheet. ASU 2016-02 distinguishes leases as either a finance lease or an operating lease, which affects how the leases are measured and presented in the statement of operations and statement of cash flows, and requires disclosure of key information about leasing arrangements. ~~ASU 2016‑02~~ ~~is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.~~ A modified retrospective transition approach is required upon adoption. ~~Early adoption is permitted.~~ In July 2018, the FASB issued ASU No. 2018‑10, Codification Improvements to Topic 842, Leases to clarify the implementation guidance and ASU No. 2018‑11, Leases (Topic 842) Targeted Improvements. This updated guidance provides an optional transition method, which allows for the initial application of the new accounting standard at the adoption date and the recognition of a cumulative-effect adjustment to the opening balance of retained earnings as of the beginning of the period of adoption. In December 2018, the FASB issued ASU 2018-20, Leases (Topic 842): Narrow-Scope Improvements for Lessors to address certain implementation issues facing lessors when adopting ASU 2016‑02. In March 2019, the FASB issued ASU 2019‑01, Leases (Topic 842): Codification Improvements to address, among other things, certain transition disclosure requirements subsequent to the adoption of ASU 2016‑02.

The Company ~~will adopt~~adopted the new lease accounting standard using the modified retrospective approach on October 1, 2019 and ~~intends to elect~~elected certain practical expedients, including the optional transition method that allows for the application of the new standard at its adoption date with no restatement of prior period amounts. We elected the package of practical expedients permitted under the transition guidance, which allowed us to not reassess our prior conclusions about lease identification, lease classification, and initial direct costs. ~~We are~~ ~~evaluating the effect~~Adoption of the new ~~guidance on~~standard resulted in the recording of ROU assets and lease liabilities of approximately $1.2 million and $1.5 million, respectively, and the derecognition of prepaid expenses and operating lease deferred rent liabilities of $23,000 and $247,000, respectively, as of October 1, 2019 with zero cumulative-effect adjustment to retained earnings. The new standard did not materially impact our consolidated financial statements and related disclosures. The primary effect of adoption will be recording right-of-use assets and corresponding lease obligations for current operating leases. The adoption is expected to have a material impact on the Company’s consolidated balance sheets, but not on the consolidated statementsstatement of operations or cash ~~flows. The Company is reviewing current accounting policies and related disclosures, and evaluating changes to business processes and controls to support adoption of the new standard.~~

~~In November 2016, the FASB issued ASU 2016-18,~~ ~~Statement of Cash Flows(Topic 230):Restricted Cash~~flows. 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. We adopted ASU 2016‑18 effective October 1, 2018. The adoption of ASU 2016‑18 did not have a material effect on the presentation of our consolidated statements of cash flows or related disclosures.

~~In January 2017, the FASB issued ASU 2017‑04,~~ ~~Intangibles - Goodwill and Other Topics (Topic 350): Simplifying the Test for Goodwill 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 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 fair value. ASU 2017‑04 is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We do not expect the adoption of ASU 2017‑04 to have a material effect on our financial position or results of operations.

~~In May 2017, the FASB issued ASU 2017‑09,~~ ~~Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting~~. The purpose of ASU 2017‑09 is to provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The amendments in ASU 2017‑09 should be applied prospectively to an award modified on or after the adoption date. We adopted ASU 2017‑09 effective October 1, 2018. The adoption of ASU 2017‑09 did not have a material effect on our financial position or results of operations.

In June 2018, the FASB issued ASU 2018‑07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. The purpose of ASU 2018-07 is to expand the scope of Topic 718, Compensation—Stock Compensation (which currently only includes share-based payments to employees) to include share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned. ASU 2018-07 will be effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted, but no earlier than the Company’s adoption date of ~~Topic 606, Revenue from Contracts with Customers~~. The Company has issued share-based payments to nonemployees in the past but is not able to predict the amount of future share-based payments to nonemployees, if any. We adopted ASU 2018-07 effective October 1, 2019. The adoption of ASU 2018‑07 isdid not ~~expected to~~ have a material ~~effect~~impact on our consolidated financial ~~position or results of operations but should simplify the process by which the Company measures compensation expense for share-based payments to nonemployees.~~statements and related disclosures.

In ~~August 2018,~~December 2019, the FASB issued ASU ~~2018‑13,~~2019-12, ~~Fair Value Measurement~~Income Taxes (Topic ~~820): Disclosure Framework – Change~~740). Simplifying the Accounting for Income Taxes. The new guidance eliminates certain exceptions related to the ~~Disclosure Requirements~~approach for ~~Fair Value Measurement~~.intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes. ASU 2018‑13 modifies the disclosure requirements by adding, removing, and modifying certain required disclosures for fair value measurements for assets and liabilities disclosed within the fair value hierarchy. ASU 2018‑132019-12 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, ~~2019 and early~~2020. Early adoption is permitted. The adoption of ASU ~~2018‑13~~2019-12 is not expected to have a material effect on our consolidated financial ~~position or results of operations as it modifies disclosure requirements only.~~statements and related disclosures.

The Company has incurred quarterly operating losses since the fourth quarter of fiscal 2016 and anticipates that it will continue to consume cash and incur substantial net losses as it develops its drug candidates. Because of the numerous risks and uncertainties associated with the development of pharmaceutical products, the Company is unable to estimate the exact amounts of capital outlays and operating expenditures necessary to fund development of its drug candidates and obtain regulatory approvals. The Company’s future capital requirements will depend on many factors.

The Company believes its current cash position, cash expected to be generated from sales of the Company’s commercial products, and its ability to secure equity financing or other financing alternatives are adequate to fund planned operations of the Company for the next 12 months. Such financing alternatives 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 effective shelf registration statement on Form S-3 (File No. 333-221120) (the “Shelf Registration Statement”). The Company intends to be opportunistic when pursuing equity or debt financing which could include selling common stock under its common stock purchase agreement with Aspire Capital Fund, LLC (see Note 9) ~~and/or a marketed deal with an investment bank.~~.

FASB ~~ASC~~Accounting Standards Codification (“ASC”) Topic 820 specifies a hierarchy of valuation techniques based on whether the inputs 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).

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.

We review the fair value hierarchy classification on a quarterly basis. Changes in the ability to observe valuation inputs may result in a reclassification of levels of certain securities within the fair value hierarchy. There were no transfers between Level 1, Level 2 and Level 3 during the ~~nine~~six months ended ~~June 30, 2019~~March 31, 2020 and ~~2018.~~2019.

The Company determines the fair value of hybrid instruments based on available market data using appropriate valuation models, considering all of the rights and obligations of each instrument. The Company estimates the fair value of hybrid instruments using various techniques (and combinations thereof) that are considered to be consistent with the objective of measuring fair value. In selecting the appropriate technique, the Company considers, among other factors, the nature of the instrument, the market risks that it embodies and the expected means of settlement. Estimating the fair value of derivative financial instruments requires the development of significant and subjective estimates that may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors. Increases in fair value during a given financial quarter result in the recognition of non-cash derivative expense. Conversely, decreases in fair value during a given financial quarter would result in the recognition of non-cash derivative income.

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 ~~June 30, 2019~~March 31, 2020 and ~~2018:~~2019:

The expense associated with the change in fair value of the embedded derivatives is included as a separate line item on ~~our~~the accompanying unaudited condensed consolidated statements of operations.

The liabilities associated with embedded derivatives represent the fair value of the 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 embedded derivatives using a Monte Carlo simulation model to value the financial liabilities at inception and on subsequent valuation dates. This valuation model incorporates transaction details such as the contractual terms, expected cash outflows, expected repayment dates, probability of a change of control, expected volatility, and risk-free interest rates. A significant acceleration of the estimated repayment date or a significant decrease in the probability of a change of control event prior to repayment of the Credit Agreement, in isolation, would result in a significantly lower 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~~March 31, 2020 and September 30, 2019:

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.

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 direct product sales of FC2 in the global public sector, sales of FC2 in the U.S. prescription channel, and sales of PREBOOST® medicated wipes for prevention of premature ejaculation. The following table presents net revenues from these three categories:

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 agreement. Some of the Company’s contracts require the customer to make advanced payments prior to transferring control of the products. These advanced payments create a contract liability for the Company. The balances of the Company’s contract liability, included in accrued expenses and other current liabilities on the accompanying unaudited condensed consolidated balances sheets, was approximately ~~$106,000~~$508,000 and ~~$4,000~~$249,000 at ~~June 30, 2019~~March 31, 2020 and September 30, ~~2018,~~2019, respectively.

The Company records an unearned revenue liability if a customer pays consideration for product that was shipped by the Company but revenue recognition criteria have not been met under the terms of a contract. Unearned revenue is recognized as revenue after control of the product is transferred to the customer and all revenue recognition criteria have been met. The Company had no unearned revenue at ~~June~~March 31, 2020 or September 30, 2019. ~~Unearned~~

The Company recognized revenue ~~at September 30, 2018 was approximately $187,000~~of $299,000 and ~~was comprised of sales made to a large distributor who had~~$221,000 during the ~~right to return product under certain conditions.~~six months ended March 31, 2020 and 2019, respectively, after satisfying its contract obligations and transferring control for previously recorded contract liabilities or unearned revenue.

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 Company's business, extended credit terms may occasionally be offered as a sales promotion or for certain sales. ~~The~~For sales to the Company’s distributor in Brazil, the Company has agreed to credit terms of up to ~~150~~180 days subsequent to clearance of the product by the Ministry of Health in Brazil. The Company classified approximately $1.1 million and $300,000 of trade receivables with its distributor in Brazil as long-term as of March 31, 2020 and September 30, 2019, respectively, because payment was expected in greater than one year. The long-term portion of trade receivables is included in other assets on the ~~Republic~~accompanying unaudited condensed consolidated balance sheets.

The components of accounts receivable consist of the following at ~~June 30, 2019~~March 31, 2020 and September 30, ~~2018:~~2019:

~~On December 27, 2017, we entered into a settlement agreement with Semina, our distributor~~*Included in Brazil, pursuant to which Semina made a payment of $2.2 million and was 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 Brazil tender in 2014. Semina did not make its second payment of $1.5 million by February 28, 2018. In July 2018, the Company agreed to accept $1.3 million as settlement of the $1.5 million that was owed. 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,other assets on the remaining amounts due. The result of the settlement was a net loss of $0.2 million and $4.0 million in the three and nine months ended June 30, 2018, respectively, which is presented as a separate line item in the accompanying unaudited condensed consolidated ~~statements of operations.~~ balance sheets

At ~~June~~March 31, 2020 and at September 30, 2019, no ~~customer~~customers had ana current accounts receivable balance that represented greater than 10% of current assets. ~~At September 30, 2018, one customer had an accounts receivable balance that represented 15% of current assets.~~

At ~~June 30, 2019,~~March 31, 2020, three customers had an accounts receivable balance greater than 10% of net accounts receivable and long-term trade receivables, representing ~~76%~~81% of net accounts receivable and long-term trade receivables in the aggregate. At September 30, ~~2018, three~~2019, two customers had an accounts receivable balance greater than 10% of net accounts receivable and long-term trade receivables, representing ~~74%~~66% of net accounts receivable and long-term trade receivables in the aggregate.

For the three months ended ~~June 30,~~March 31, 2020, there were three customers whose individual net revenue to the Company exceeded 10% of the Company’s net revenues, representing 80% of the Company’s net revenues in the aggregate. For the three months ended March 31, 2019, there were four customers whose individual net revenue to the Company exceeded 10% of the Company’s net revenues, representing 82% of the Company’s net revenues in the aggregate.

For the six months ended March 31, 2020, there were two 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 six months ended March 31, 2019, there were three customers whose individual net revenue to the Company exceeded 10% of the Company’s net revenues, representing 63% of the Company’s net revenues in the aggregate. For the three months ended June 30, 2018, there were two customers whose individual net revenue to the Company exceeded 10% of the Company’s net revenues, representing 78% of the Company’s net revenues in the aggregate.

For the nine months ended June 30, 2019, there were three customers whose individual net revenue to the Company exceeded 10% of the Company’s net revenues, representing 64% of the Company’s net revenues in the aggregate. For the nine months ended June 30, 2018, there were three customers whose individual net revenue to the Company exceeded 10% of the Company’s net revenues, representing 65%66% of the Company’s net revenues in the aggregate.

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 charged-off when deemed uncollectible.

The table below summarizes the change in the allowance for doubtful accounts for the ~~nine~~six months ended ~~June 30, 2019~~March 31, 2020 and ~~2018.~~2019:

Recoveries of accounts receivable previously charged off are recorded when received. The Company’s customers are primarily large global agencies, non-government organizations, ministries of health and other governmental agencies, which purchase and distribute 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.

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, 2019~~March 31, 2020 and September 30, ~~2018:~~

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 which range as follows:~~

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, 2019~~March 31, 2020 and September 30, ~~2018:~~

Intangible assets acquired in the APP Acquisition included in-process research and development (“IPR&D”), developed technology consisting of PREBOOST® medicated wipes for prevention of premature ejaculation, and covenants not-to-compete. IPR&D represents incomplete research and development projects at APP as of the date of the APP Acquisition. These intangible assets are carried at cost less accumulated amortization. Intangible assets with finite lives are tested for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. IPR&D is tested for impairment at least annually in the fourth quarter of each fiscal year until the underlying projects are completed or abandoned.

The gross carrying amounts and net book value of intangible assets are as follows at ~~June 30, 2019:~~March 31, 2020:

The gross carrying amounts and net book value of intangible assets are as follows at September 30, ~~2018:~~2019:

Amortization is recorded over the projected related revenue stream for the PREBOOST® developed technology over 10 years and on a straight-line basis over seven years for the covenants not-to-compete. The amortization expense is recorded in selling, general and administrative expenses in the accompanying unaudited condensed consolidated statements of operations. The IPR&D assets will not be amortized until the underlying development projects are completed. If and when development is complete, which generally occurs when regulatory approval to market the product is obtained, the associated IPR&D assets would be accounted for as finite-lived intangible assets and amortized over the estimated period of economic benefit. If a development project is abandoned, the associated IPR&D assets would be charged to expense.

For the three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ amortization expense was approximately ~~$77,000~~$79,000 and ~~$69,000~~$77,000, respectively. For the ~~nine~~six months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ amortization expense was approximately ~~$232,000~~$158,000 and ~~$206,000,~~$155,000, respectively.

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, additional development costs, inability to achieve expected synergies, higher operating costs, changes in tax laws and other macroeconomic 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.

The carrying amount of goodwill at ~~June 30, 2019~~March 31, 2020 and September 30, ~~2018~~2019 was $6.9 million. There was no change in the balance during the ~~nine~~six months ended ~~June 30, 2019~~March 31, 2020 and 2018. Goodwill represents the difference between the purchase price and the estimated fair value of the net assets acquired in the APP Acquisition. Goodwill from the APP Acquisition principally relates to intangible assets that do not qualify for separate recognition, our expectation to develop and market new products, and the deferred tax liability generated as a result of the transaction. Goodwill is not tax deductible for income tax purposes and was assigned to the Company’s sole reporting unit in the Company’s Research and Development reporting segment, which consists of multiple drug products under clinical development for oncology and urology.

Goodwill is tested for impairment at least annually in the fourth quarter of each fiscal year 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, and 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.2019.

The Lenders will be 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 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 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 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, 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) five. 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.

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) five.

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 will be adjusted to fair market value at each subsequent 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 in 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, 2019~~March 31, 2020 and September 30, ~~2018,~~2019, the Credit Agreement liability consisted of the following:

The short-term portion of the Credit Agreement represents the aggregate of the estimated quarterly revenue-based payments payable during the 12-month periods subsequent to ~~June 30, 2019~~March 31, 2020 and September 30, ~~2018,~~2019, respectively.

At ~~June 30, 2019~~March 31, 2020 and September 30, ~~2018,~~2019, the Residual Royalty Agreement liability consisted of the following:

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~~six months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ interest expense related to the Credit Agreement and Residual Royalty Agreement was as follows:

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 is payable in three quarterly installments of principal and interest, which began on January 1, 2020. The balance of the insurance premium liability is $559,000 as of March 31, 2020 and is included in accrued expenses and other current liabilities on the accompanying unaudited condensed consolidated balance sheet.

The Company has 5,000,000 shares designated as Class A Preferred Stock with a par value of $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 – Series 2 authorized; 700,000 shares of Class A Preferred Stock – Series 3 authorized; and 548,000 shares of Class A Preferred Stock – Series 4 (the “Series 4 Preferred Stock”) authorized. There were no shares of Class A Preferred Stock of any series issued and outstanding at ~~June 30, 2019~~March 31, 2020 and September 30, ~~2018.~~2019. The Company has 15,000 shares designated as Class B Preferred Stock with a par value of $0.50 per share. There were no shares of Class B Preferred Stock issued and outstanding at ~~June 30, 2019~~March 31, 2020 and September 30, ~~2018.~~

On March 27, 2019, following approval by stockholders at the Company’s annual meeting of stockholders held on March 26, 2019, the Company filed an amendment to its articles of incorporation to increase the number of authorized shares of common stock from 77,000,000 to 154,000,000 shares.2019.

On October 1, 2018, we completed an underwritten public offering of 7,142,857 shares of our common stock, at a public offering price of $1.40 per share. Net proceeds to the Company from this offering were $9.1 million after deducting underwriting discounts and commissions and costs paid by the Company. All of the shares sold in the offering were by the Company. The offering was made pursuant to the Shelf Registration Statement.

In connection with the closing of the APP Acquisition, the Company issued a warrant to purchase up to 2,585,379 shares of the Company's common stock to Torreya Capital, the Company's financial advisor (the “Financial Advisor Warrant”). The Financial Advisor Warrant has a five-year term expiring October 31, 2021, a cashless exercise feature and a strike price equal to $1.93 per share. The Financial Advisor Warrant vested upon issuance and remains outstanding at ~~June 30, 2019.~~

In May 2018, the Company issued two warrants to purchase a total of up to 750,000 shares of the Company's common stock at $2.31 per share in connection with a services agreement. The services agreement was terminated in March 2019 and the warrants were cancelled at the same time. Prior to termination of the services agreement, for measurement and recognition purposes, the Company utilized the lowest aggregate amount within the range of potential values, which was zero. Therefore, in prior periods, the Company had determined the fair value of these warrants to be zero and had not recognized any compensation expense related to these warrants.31, 2020.

On December 29, 2017, the Company entered into a common stock purchase agreement (the “Purchase 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 Purchase Agreement, to direct Aspire Capital to purchase up to $15.0 million of the Company’s common stock in the aggregate. Concurrently with entering into the Purchase Agreement, the Company also entered into a registration rights agreement with Aspire Capital (the “Registration Rights Agreement”), in which the Company agreed to prepare and file under the Securities Act of 1933 and under the Shelf Registration Statement, a 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 Purchase Agreement.

Under the 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”), 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 Purchase 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.

During the six months ended March 31, 2020, we sold 300,000 shares of common stock to Aspire Capital under the Purchase Agreement resulting in proceeds to the Company of $1.2 million. As a result of these sales, we recorded approximately $35,000 of deferred costs to additional paid-in capital.

Since inception of the Purchase Agreement through March 31, 2020, we sold an aggregate of 4,017,010 shares of common stock to Aspire Capital resulting in proceeds to the Company of $7.8 million. As of March 31, 2020, the amount remaining under the Purchase Agreement was $7.2 million. Subsequent to March 31, 2020, we sold 400,000 shares of common stock to Aspire Capital under the Purchase Agreement resulting in proceeds to the Company of $1.3 million.

In consideration for entering into the Purchase Agreement, concurrently with the execution of the Purchase Agreement, the Company issued to Aspire Capital 304,457 shares of the Company’s common stock. The shares of common stock issued as consideration were valued at approximately $347,000. This amount and related expenses of approximately $78,000, which total approximately $425,000, were recorded as deferred costs.

During the third quarter of fiscal 2019, we sold 2,000,000 shares of common stock to Aspire Capital under the Purchase Agreement resulting in proceeds to the Company of $3.6 million. As a result of this sale, we recorded approximately $102,000 of the deferred costs noted above to additional paid-in capital. During the third quarter of fiscal 2018, we sold 1,176,470 shares of common stock to Aspire Capital under the Purchase Agreement resulting in proceeds to the Company of $2.0 million. As a result of this sale, we recorded approximately $57,000 of the deferred costs noted above to additional paid-in capital. The unamortized amount of deferred costs of approximately $203,000 and $238,000 ~~and $340,000~~ at ~~June 30, 2019~~March 31, 2020 and September 30, ~~2018,~~2019, respectively, is included in other assets on the accompanying unaudited condensed consolidated balance sheets. ~~As of June 30, 2019, the amount remaining under the Purchase Agreement was $8.4 million.~~

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~~six months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ we recorded share-based compensation expenses as follows:

In March 2018, the Company’s stockholders approved the Company's 2018 Equity Incentive Plan (the “2018 Plan”). On March ~~26, 2019,~~24, 2020, the Company’s stockholders approved an increase in the number of shares that may be issued under the 2018 Plan to ~~6.0~~11.0 million. As of ~~June 30, 2019, 3,006,239~~March 31, 2020, 5,876,321 shares remain available for issuance under the 2018 Plan.

In July 2017, the Company’s stockholders approved the Company's 2017 Equity Incentive Plan (the “2017 Plan”). A total of 4.7 million shares are authorized for issuance under the 2017 Plan. As of ~~June 30, 2019, 46,514~~March 31, 2020, 70,181 shares remain available for issuance under the 2017 Plan. The 2017 Plan replaced the Company's 2008 Stock Incentive Plan (the “2008 Plan”), and no further awards will be made under the 2008 Plan.

Each option grants the holder the right to purchase from us one 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~~six months ended ~~June 30, 2019~~March 31, 2020 and ~~2018:~~2019:

During the three and ~~nine~~six months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ 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 following table summarizes the stock options outstanding and exercisable at ~~June 30, 2019:~~March 31, 2020:

The aggregate intrinsic values in the table above are before income taxes and represent the number of in-the-money options outstanding or exercisable multiplied by the closing price per share of the Company’s common stock on the last trading day of the quarter ended ~~June 30, 2019~~March 31, 2020 of ~~$2.13,~~$3.27, less the respective weighted average exercise price per share at period end.

The total intrinsic value of options exercised during the ~~nine~~six months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ was approximately ~~$105,000~~$1.1 million and ~~$44,000,~~$48,000, respectively. Cash received from options exercised during the ~~nine~~six months ended ~~June 30,~~March 31, 2020 and 2019 was approximately $409,000 and $200,000, respectively.During the six months ended March 31, 2020, 223,415 options were exercised using the cashless exercise feature available under the 2017 Plan and 2018 ~~was approximately $200,000 and $66,000, respectively.~~Plan, which resulted in the issuance of 143,958 shares of common stock.

As of ~~June 30, 2019,~~March 31, 2020, the Company had unrecognized compensation expense of approximately ~~$3.5~~$4.1 million related to unvested stock options. This expense is expected to be recognized over approximately three years.

The Company has issued restricted stock to employees, directors and consultants. Such issuances had vesting periods that ranged from one to three years. All such shares of restricted stock vest provided the grantee has not voluntarily terminated service or been terminated for cause prior to the vesting date. There were no shares of restricted stock outstanding at June 30, 2019 and September 30, 2018.

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 vested on October 31, 2018. The restricted stock units were settled in common stock issued under the 2017 Plan. As of June 30, 2019, there are no outstanding restricted stock units.

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 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 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. Upon exercise, the stock appreciation rights will be settled in common stock issued under the 2017 Plan. As of ~~June 30, 2019, these~~March 31, 2020, vested stock appreciation rights based on 50,000 shares of common stock remain outstanding.

The Company has operating leases for its office, manufacturing and warehouse space, and 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 six years, which include the option to extend a lease when the Company is reasonably certain to exercise that option. The Company does not have any leases that have not yet commenced as of March 31, 2020. Certain of 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 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.

The components of the Company’s lease cost were as follows for the three and six months ended March 31, 2020:

The Company paid cash of $244,000 for amounts included in the measurement of operating lease liabilities during the six months ended March 31, 2020.

The Company’s operating lease ROU assets and the related lease liabilities are presented as separate line items on the accompanying unaudited condensed consolidated balance sheet as of March 31, 2020. The Company’s finance lease ROU asset was $39,000 as of March 31, 2020 and is included in property and equipment, net on the accompanying unaudited condensed consolidated balance sheet. The current and long-term finance lease liabilities were $20,000 and $17,000, respectively, and are included in accrued expenses and other current liabilities and other liabilities, respectively, on the accompanying unaudited condensed consolidated balance sheet as of March 31, 2020.

Other information related to the Company’s leases as of March 31, 2020 was as follows:

The Company’s lease agreements do not 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.

Under FASB ASC 840, the lease accounting guidance prior to the Company’s adoption of FASB ASC 842, the Company had net capital lease assets of $43,000 included in property and equipment, net and a related capital lease obligation of $42,000 included in accrued expenses and other current liabilities and other liabilities on the accompanying unaudited condensed consolidated balance sheet as of September 30, 2019.

Under FASB ASC 840, future minimum payments under operating leases consisted of the following as of September 30, 2019:

The minimum lease payments presented above do not include real estate taxes, common area maintenance charges or insurance charges payable under the Company’s operating leases for office and manufacturing facility space. These amounts are generally not fixed and can fluctuate from year to year.

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 $10.0 million.

From time to time we may be involved in litigation or other contingencies arising in the ordinary course of business. Based on the information presently available, management believes there are no contingencies, claims or actions, pending or threatened, the ultimate resolution of which 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 defense related to litigation to the extent they are 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.

In response to the APP Acquisition, two purported derivative and class action lawsuits were filed against the Company and certain of its officers and directors in the Circuit Court of Cook County, Illinois, 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. These lawsuits were originally filed on or about October 21, 2016 and November 7, 2016, respectively. 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 alleged, among other things, that the 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 alleged that Dr. Steiner, a director and the Chairman, President and Chief Executive Officer of Veru and a co-founder of APP, and Dr. Fisch, a director and Vice Chairman 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.

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 our directors prior to the closing of the APP Acquisition 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. On November 30, 2018, plaintiffs filed an Amended Consolidated Complaint. The Amended Consolidated Complaint makes allegations similar to those in the original consolidated complaint as to the claims that were not dismissed and names as defendants Veru and the members of our board of directors prior to the closing of the APP Acquisition. The Amended Consolidated Complaint also makes claims against Dr. Steiner for allegedly aiding and abetting the pre-acquisition directors’ breach of fiduciary duty and for unjust enrichment. Like the original consolidated complaint, which was previously dismissed in part, the Amended 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 costs and expenses of the litigation, including attorneys' fees. On December 14, 2018, the defendants filed their answer to the Amended Consolidated Complaint wherein they denied any and all liability and asserted additional defenses. On January 14, 2019, the plaintiffs filed a motion for class certification. On May 6, 2019, the Court granted plaintiffs’ motion and certified a class consisting of “All holders of common stock of the Female Health Company as of October 31, 2016 and their successors in interest, excluding the named defendants to the Action and any person, firm, trust, corporation or other entity related to or affiliated with any of the Defendants.” The parties filed cross-motions for summary judgment on April 15, 2019. On July 10, 2019, the Court denied plaintiffs’ motion for summary judgment, granted defendants’ motion for summary judgment on all counts, dismissed the Amended Consolidated Complaint, and entered final judgment in favor of all defendants. Plaintiffs have a right to appeal the final judgment. Veru will continue vigorously defending itself on appeal if necessary.~~No amount has been accrued for possible losses relating to this litigation as any such losses are not both probable and reasonably estimable.~~

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 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.

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 and tax credit carryforwards.

~~On December 22, 2017, significant changes were enacted to the U.S. tax law pursuant to the federal tax legislation commonly referred to as the~~The Tax Cuts and Jobs Act of 2017 (the “Tax Act”). The Tax Act includes a permanent reduction in the U.S. federal corporate income tax rate from 35% to 21%, a one-time repatriation tax on deferred foreign income, and changes to deductions, credits and business-related exclusions.

~~The Tax Act also~~ repealed the alternative minimum tax (“AMT”) for corporations. The ~~new~~ law provides that AMT carryovers can be utilized to reduce or eliminate the tax liability in subsequent years or to obtain a tax refund. ~~For~~The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was enacted on March 27, 2020, accelerates the ability to claim a refund of the entire refundable credit to 2018 with an election when filing. The Tax Act previously allowed a 50% refundable credit for tax years beginning in 2018 ~~2019 and~~through 2020, towith a 100% credit refund in 2021. At March 31, 2020, the ~~extent the~~Company has $0.5 million of AMT credit carryovers ~~exceed regular tax liability, 50% of the excess AMT credit carryovers will be refundable. Any remaining credits will be fully refundable~~ in ~~2021. At September 30, 2018, the Company reclassified $0.5 million of its AMT credit carryovers from its deferred tax assets to~~prepaid expenses and other current assets due to the expectation, as a result of the CARES Act, that the AMT credits will be refundable over the next ~~several years.~~

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’s calculations are based on the information available, prepared or analyzed (including computations) in reasonable detail.

The Company completes a detailed analysis of its deferred income tax valuation allowances on an annual basis or more frequently if information comes to its attention that would indicate that a revision to its 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, forecasts 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 2015, the Company generated taxable income on a consolidated basis. However, the Company had a cumulative pretax loss in the U.S. for fiscal 2018 and the two preceding fiscal years. Forming a conclusion that a valuation allowance is not needed is difficult when there is significant negative evidence such as cumulative losses in recent years. Management has projected future taxable losses in the U.S. driven by the investment in research and development, and based on their analysis concluded that a valuation allowance should continue to be recorded against the U.S. deferred tax assets related to federal and state net operating loss carryforwards as of June 30, 2019. An additional valuation allowance has been recorded against the U.S. deferred tax assets and net operating loss carryforwards as of June 30, 2019 of $2.4 million. In addition, the Company’s holding company for the non-U.S. operating companies, The Female Health Company Limited, continues to have a full valuation allowance. The operating U.K. subsidiary, The Female Health Company (UK) plc does not have a valuation allowance due to projections of future taxable income for the next 10 years.year.

As of September 30, ~~2018,~~2019, the Company had U.S. federal and state net operating loss carryforwards of ~~$33.2~~$42.7 million and ~~$36.2~~$25.4 million, respectively, for income tax purposes with $14.4 million and ~~$19.6~~$20.5 million, respectively, expiring in years 2022 to ~~2037~~2038 and ~~$18.8~~$28.3 million and ~~$16.6~~$4.9 million, respectively, which can be carried forward indefinitely. The Company’s U.K. subsidiary has U.K. net operating loss carryforwards of ~~$62.3~~$61.7 million as of September 30, ~~2018,~~2019, which can be carried forward indefinitely to be used to offset future U.K. taxable income.

ASC Topic 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740 developed a two-step process to evaluate a tax position and also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Company has not recorded a reserve for any tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility.

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

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

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

Basic net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding 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 consist of the incremental common shares issuable upon the exercise of stock options, stock appreciation rights 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 9 and 10 for a discussion of our dilutive potential common shares.

The Company currently operates in two reporting segments: Commercial and Research and Development. The Commercial segment consists of FC2 ~~PREBOOST®~~ and ~~drug commercialization costs.~~PREBOOST®. The Research and Development segment consists of multiple drug products under clinical development for oncology and urology. There are no significant inter-segment sales. We evaluate the performance of each segment based on operating profit or loss. There is no inter-segment allocation of 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.

All of our net revenues, which are primarily derived from the sale of FC2, are attributed to our Commercial reporting segment. See Note 4 for additional information regarding our net revenues. ~~The loss on settlement~~Costs related to the office located in London, England are fully dedicated to FC2 and are presented as a component of ~~accounts receivable and depreciation~~the Commercial segment. 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.

There are many uncertainties regarding the current COVID-19 pandemic. The Company is closely monitoring the impact of the pandemic on all aspects of its business, including how it will impact its customers, employees, suppliers, vendors, and distribution channels. While the pandemic did not materially adversely affect the Company’s financial results and business operations in the three months ended March 31, 2020, 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. 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 more clear.

The CARES Act established the Paycheck Protection Program (“PPP”), which authorizes forgivable loans to small businesses. Pursuant to the CARES Act, the loan 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. Loans made under the PPP have a maturity of 2 years and an interest rate of 1%. Prepayments may be made without penalty. In April 2020, the Company received loan funding of approximately $540,000 under the PPP. As of the date of this report, the Company has not terminated any employees in the U.S. due to the COVID-19 pandemic. The Company intends to use the proceeds from the PPP to pay salaries for its U.S.-based employees and to pay rent and utilities.

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

Veru Inc., The Prostate Cancer Company, is an oncology and urology biopharmaceutical company developing novel medicines for the management of prostate ~~cancer treatment and prostate cancer supportive care as well as urology specialty pharmaceuticals.~~cancer.

The Company’s prostate cancer pipeline includes VERU-111, zuclomiphene citrate, and VERU-100.

VERU-111 is an oral, next-generation, first-in-class ~~selective~~ small molecule that targets ~~and disrupts~~ alpha and beta tubulin subunits ofto disrupt microtubules in cells to treat metastatic prostate cancer patients whose disease is resistant to both castration and novel androgen-blocking agents ~~(abiraterone~~(e.g., abiraterone or enzalutamide). VERU-111 is being evaluated in men with metastatic castration and androgen-blocking agent resistant prostate cancer in two portions of an ongoing open label clinical trial: the Phase 1b portion and the Phase 2 portion. Recently we announced positive results from the fully enrolled but ongoing Phase 1b portion of the Phase 1b/2 VERU-111 trial for prostate cancer. The Phase 1b portion of the Phase 1b/2 clinical ~~trial.~~ study enrolled 39 men with metastatic castration-resistant prostate cancer who have also become resistant to at least one novel androgen blocking agent from 7 clinical sites in the United States. A standard 3x3 design was used to establish the maximum tolerated dose (MTD), to select a recommended clinical dose for Phase 2 study, and to assess preliminary evidence of antitumor activity of VERU-111. Oral dosing escalated from 4.5mg to 81mg (7 days of dosing followed by 14 days of no drug each 21-day cycle and expanded to 21 days of continuous dosing per cycle). As for safety, the MTD of VERU-111 was determined to be 72mg (3 of 11 men had reversible Grade 3 diarrhea). No Grade 3 diarrhea was observed at doses less than 72 mg per day. At doses of VERU-111 of 63 mg and lower per day, mild to moderate nausea, vomiting, diarrhea and fatigue were the most common adverse events. There were no reports of neurotoxicity and no neutropenia at doses 63 mg and lower oral daily dosing continuous for 21 days per cycle. Preliminary antitumor activity was assessed by serum PSA and standard local imaging with bone and CT scans. In the eight men that received at least four 21-day cycles of oral VERU-111 at any dose, based upon their 21-day cycle baseline PSA levels, 6/8 (75%) had decreases in their PSA levels, 4 patients (50%) demonstrated a greater than or equal to 30% decline, and 2 patients (25%) had a greater than or equal to 50% decline in serum PSA. Based upon PCWG3 and Response Evaluation Criteria in Solid Tumors (RECIST) 1.1 criteria, objective tumor responses were seen in 2 patients (25%) (soft tissue and bone) and 5/8 patients (63%) had stable disease. Objective tumor responses and PSA declines lasted longer than 12 weeks. The primary endpoint used in pivotal efficacy studies for the treatment of metastatic castration-resistant prostate cancer is median time to cancer progression by imaging (bone and CT scans). In the current study, median duration of response, or time to cancer progression, has not been reached since 7 out of 8 of the men are still being treated on the study with an average duration of response of 10 months (range is 6-14 months). There are an additional 3 subjects on study that have not yet completed four 21-day cycles; therefore, a total of 10 men are still on study. The Phase 2 portion of the trial is currently enrolling men who have metastatic castration resistant prostate cancer and who have also become resistant to novel androgen blocking agents, such as abiraterone or enzalutamide, but prior to proceeding to IV chemotherapy, also referred to as the prechemotherapy stage. In addition, based on the Phase 1b safety and efficacy clinical data, the Company plans to meet with the FDA next quarter to reach agreement on the registration Phase 3 design for the treatment of men with metastatic castration resistant prostate cancer who also have failed one androgen blocking agent (enzalutamide or abiraterone). We also plan to present an update of the Phase 1b/2 clinical data at a future major scientific meeting.

Zuclomiphene citrate is an oral nonsteroidal estrogen receptor agonist ~~being evaluated in~~that has successfully completed a Phase 2 trial (Stage 1 testing placebo, Zuclomiphene 10mg, and Zuclomiphene 50 mg) to treat hot flashes, a common side effect caused by ~~hormone treatment for~~androgen deprivation therapy (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 with a potential start date in late calendar year 2020.

VERU-100 is a novel, proprietary peptide formulation for ~~androgen deprivation therapy~~ADT with multiple potential beneficial clinical attributes addressing the shortfalls of current FDA-approved ~~androgen deprivation therapy~~ADT formulations for the treatment of advanced prostate cancer. VERU-100 is a long-acting gonadotropin-releasing hormone (GnRH) antagonist designed to be administered as a small volume subcutaneous 3-month depot injection without a loading dose. VERU-100 will immediately suppress testosterone with no testosterone surge upon initial or repeated ~~administration ---~~ administration—a problem which occurs with currently approved ~~LHRH agonists. Currently, there~~luteinizing hormone-releasing hormone (LHRH) agonists used for ADT. There are no GnRH antagonists commercially approved beyond ~~1 month.~~a one-month injection. VERU-100 is anticipated to enter a Phase 2 dose-finding study with a potential start date in ~~early~~the third quarter of calendar year 2020.

Recently the Company announced that it has received FDA permission to initiate a Phase 2 clinical trial to assess the efficacy of VERU-111, a microtubule depolymerization agent, in combating COVID-19, the global pandemic disease caused by the novel coronavirus SARS-CoV-2.VERU-111 is an oral, first-in-class microtubule depolymerization agent that targets the colchicine binding site of alpha and beta tubulin subunits to inhibit microtubules and is currently under clinical development in prostate cancer. Drugs that target microtubules have broad antiviral activity by disrupting the intracellular transport of viruses such as SARS CoV-2, along microtubules. Microtubule trafficking is critical for viruses to cause infection. Furthermore, microtubule depolymerization agents that target alpha and beta tubulin subunits of microtubules also have strong anti-inflammatory effects including the potential to treat the cytokine release syndrome (cytokine storm) induced by the SARS-CoV-2 viral infection that seems to be associated with high COVID-19 mortality rates. The Company met with the FDA and received agreement on the clinical development program for VERU-111 as a potential dual antiviral and anti-inflammatory agent to combat COVID-19 under the new FDA program, Coronavirus Treatment Acceleration Program (CTAP). The Phase 2 clinical trial is a double-blind randomized (1:1) placebo-controlled trial evaluating daily oral doses of VERU-111 versus placebo for 21 days in 40 hospitalized patients (VERU-111 20 subjects and placebo 20 subjects) who tested positive for the SARS-CoV-2 virus and are at high risk for Acute Respiratory Distress Syndrome (ARDS). The primary efficacy endpoint will be the proportion of patients that are alive and without respiratory failure at Day 29. Secondary endpoints include the measured improvements on the WHO Disease Severity Scale (8-point ordinal scale) which captures COVID-19 disease symptoms and signs including hospitalization to progression of pulmonary symptoms to mechanical ventilation as well as death. The Phase 2 COVID-19 study will evaluate an 18mg oral daily dosing single treatment for 21 days. Because of the urgent need for effective and timely therapeutics to combat COVID-19, the Company has applied for significant grant funding through both The Biomedical Advanced Research and Development Authority of the US Department of Health and Human Services (BARDA) and The Defense Advanced Research Projects Agency of the US Department of Defense (DARPA) to expedite the clinical development program of VERU-111 for COVID-19. There can be no assurances that any such grant funding will be provided.

The Company is also advancing new drug formulations in its specialty pharmaceutical pipeline addressing unmet medical needs in urology such as ~~the Tadalafil and Finasteride Combination (TADFIN®)~~TADFIN® for the administration of tadalafil 5mg and finasteride 5mg combination formulation dosed daily ~~for benign prostatic hyperplasia (BPH).~~to treat urinary tract symptoms caused by BPH. Tadalafil (CIALIS®) is currently approved for treatment of ~~BPH~~benign prostatic hyperplasia (BPH) and erectile dysfunction and finasteride is currently approved for treatment of BPH (finasteride 5mg ~~PROSCAR®~~PROSCAR®) and male pattern hair loss (finasteride 1mg ~~PROPECIA®~~PROPECIA®). The co-administration of tadalafil and finasteride has been shown to be more effective for the treatment of BPH than by finasteride alone. The Company had a successful ~~preNDA~~pre-NDA meeting with the FDA and the expected submission of the NDA for TADFIN® is ~~summer~~the fourth quarter of ~~2020.~~calendar year 2020 or early 2021. The Company is also developing ~~Tamsulosin DRS granules and~~a Tamsulosin XR ~~capsules~~formulation which ~~are formulations~~is a formulation of tamsulosin, the active ingredient in ~~FLOMAX®~~FLOMAX®, which the Company has designed to avoid the ~~"food effect"~~“food effect” inherent in currently marketed versions of the drug, allowing for potentially safer administration and improved patient compliance.

The Company's commercial products include ~~the~~ FC2, ~~Female Condom/FC2 Internal Condom® ("FC2"),~~ an FDA-approved product for the dual protection ~~of unwanted~~against unintended pregnancy and sexually transmitted infections, and the ~~PREBOOST®~~PREBOOST® 4% benzocaine medicated individual wipe for the ~~prevention~~treatment of premature ~~ejaculation (also marketed as Roman Swipes).~~ejaculation. The Company’s Female Health Company Division markets and sells FC2 commercially and in the public health sector both in the U.S. and globally. In the U.S., FC2 is available by prescription through the Company’s multiple telemedicine and internet pharmacy partners and retail pharmacies, as well as OTC inthrough the ~~U.S.~~Company’s website at www.fc2.us.com. In the global public health sector, the Company 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. ~~For our premature ejaculation product,~~PREBOOST® is marketed ~~as “Roman~~online in the U.S. through an exclusive marketing arrangement under the Roman® Swipes~~” the Company has entered into a U.S. distributor agreement with~~ brand name by Roman Health Ventures Inc., Roman is a ~~premier and fast-growing men's health and~~leading telemedicine company that ~~discreetly~~ sells ~~men's~~men’s health products via the internet website www.getroman.com.

In October 2016, we completed the APP Acquisition. Prior to the completion of the APP Acquisition, the Company had been a single product company, focused on manufacturing, marketing and selling FC2 in the public sector. Most of the Company’s net revenues are currently derived from sales of FC2 in the public and commercial sectors.

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 imposed mandatory sheltering in place and social distancing restrictions that severely limit the ability of its citizens to travel freely and to conduct activities.

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. For these and other reasons, Veru has decided to postpone initiation of the first Phase 3 trial for zuclomiphene citrate until at least the end of calendar year 2020 or until such time as there is additional clarity and certainty surrounding the impact of the COVID-19 pandemic on the healthcare system.

The Phase 1b portion of our ongoing VERU-111 clinical trial is fully enrolled. As for the Phase 2 portion of the VERU-111 clinical trial, discontinuation would disrupt treatment of patients' advanced prostate cancer. Therefore, the VERU-111 Phase 2 study for metastatic castration resistant prostate cancer is currently enrolling as planned. However, there is a risk that changing circumstances relating to the COVID-19 pandemic may not allow our healthcare clinical trial investigators, their healthcare facilities or other necessary parties to continue to participate in these trials through completion.

In addition to its impact on our clinical trials, COVID-19 has had, and will likely continue to have, a significant impact on our operations. 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 continued social distancing requirements on May 4, 2020. The Company has had a sufficient quantity of FC2 outside of Malaysia to continue to satisfy customer demand, and with the facility reopening the Company does not expect to have issues with supply of FC2. However, if the Company's Malaysian manufacturing facility 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 has recently been prioritizing production of surgical gloves 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 limited capacity, and the Company may also encounter issues shipping product into key markets. The COVID-19 pandemic and related economic disruption may also adversely affect customer demand for FC2 and PREBOOST. For example, sales of FC2 could be impacted in the U.S. prescription market if insurance coverage is affected by job losses and in the Global Public 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. To protect the health and safety of our workforce, we have closed our offices in the United States and the United Kingdom and our personnel have been working remotely. Travel between our facilities in the United States, the United Kingdom and Malaysia has also been restricted.

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. 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 more clear.

FC2 Public Sector. FC2’s primary use is for ~~sexual disease~~the prevention of HIV/AIDS and other sexually transmitted diseases and family planning, and the global public health sector has been the Company’s main market for FC2. 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 the U.S. and ~~150~~149 other countries. A significant number of countries with the highest demand potential are in the developing world. The incidence of HIV/AIDS, other sexually transmitted infections and unwanted 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.

~~FC2 in the public sector~~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, significant customers have included large global agencies, such as UNFPA, USAID, the ~~United Nations Population Fund (UNFPA)~~Brazil Ministry of Health either through UNFPA or Semina Indústria e Comércio Ltda (Semina), the Company's distributor in Brazil, and the ~~United States Agency for International Development (USAID).~~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 ~~non-governmental organizations (“NGOs”).~~ NGOs.

Purchasing patterns for FC2 in the public 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, 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, 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, process errors, changes in leadership, funding priorities and/or other pressures may delay or derail the process and affect the purchasing patterns of public sector customers. As a result, the Company may experience significant quarter-to-quarter sales variances in the global public sector due to the timing and shipment of large orders of FC2.

On August 27, 2018, the Company announced that through six of its distributors in the Republic of South Africa, the Company had received a tender award to supply 75% of a tender covering up to 120 million female condoms over three ~~years, which includes an award to the Company of up to 29.8 million units of the 40 million total units for the first year.~~years. The Company began shipping units under this tender award in the third quarter of fiscal 2019.

The Company classified approximately $1.1 million and $300,000 of trade receivables with its distributor in Brazil as long-term as of March 31, 2020 and September 30, 2019, respectively, because payment was expected in greater than one year.

FC2 Commercial Sector. In April 2017, the Company launched a small-scale marketing and sales program to support the promotion of FC2 in the U.S. 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 U.S. As part of this ~~reorganization~~strategy the Company announced new distribution agreements with three of the country's largest distributors that support the pharmaceutical industry. This newly developed network now allows up to ~~98%~~92% of major retail pharmacies the ability to make FC2 available to their customers. In addition to the distribution system, the Company expanded sales and market access efforts that resulted in FC2 now being available through the following access points: community-based organizations, by prescription, ~~partnering with~~through leading telemedicine providers, through 340B covered entities, colleges and universities and our patient assistance program. We continue to increase healthcare provider awareness, education and acceptance, which has resulted in more women utilizing FC2 in the U.S. ~~We believe that~~In 2018, we dissolved our small-scale marketing and sales program to focus our efforts in partnering with fast-growing, highly reputable telemedicine firms (telemedicine being the ~~results from these efforts support the U.S. market opportunity~~remote diagnosis and ~~that we will continue~~treatment of patients by means of telecommunications technology) to ~~see increased utilization of FC2. We are experiencing~~bring our much-needed FC2 product to patients in a ~~significant increase in revenue from sales in the U.S. prescription channel primarily through telemedicine distribution partners.~~cost-effective and highly convenient manner.

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

Revenues. The Company's revenues are primarily derived from sales of FC2 in the global public sector and ~~into~~ the U.S. prescription channel. ~~Generally, these sales are recognized upon shipment of the product to the customers.~~ Other revenues are from sales of ~~PREBOOST®~~PREBOOST® (Roman® Swipes). These sales are recognized upon shipment or delivery of the product to the customers depending on contract terms.

The Company’s most significant customers have been global public health sector agencies who purchase and/or distribute FC2 for use in preventing the transmission of HIV/AIDS and/or family planning and, in the U.S., telemedicine providers who sell into the prescription channel.

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’s most significant customers have been global public health sector agencies who purchase and/or distribute FC2 for use in HIV/AIDS prevention and/or family planning and, in the U.S., telemedicine providers who sell into the prescription channel.

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. In~~copay under the ~~U.S.,~~Patient Protection and Affordable Care Act (the “ACA”) and the laws of 20+ states prior to enactment of the ACA. The Company supplies FC2 to a leading telemedicine provider, which has become one of our largest customers. The Company has developed and is ~~sold~~working to ~~major distributors~~develop additional supply and distributor relationships with telemedicine ~~providers for sale into the prescription channel~~ and ~~sold directly to city and state public health departments and non-profit organizations.~~other providers.

~~Because the~~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 portion of the Company's future 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.

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.

Conducting research and development is central to our business model. Since the completion of the APP Acquisition we have invested and expect to continue to invest significant time and capital in our research and development operations. Our research and development expenses were ~~$4.9~~$3.9 million and ~~$3.8~~$2.9 million for the three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively. Our research and development expenses were ~~$10.1~~$9.2 million and ~~$7.8~~$5.3 million for the ~~nine~~six months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively. ~~For the remainder of fiscal 2019, we~~We expect to continue this trend of increased expenses relating to research and development due to advancement of multiple drug candidates.

THREE MONTHS ENDED ~~JUNE 30, 2019~~MARCH 31, 2020 COMPARED TO THREE MONTHS ENDED ~~JUNE 30, 2018~~MARCH 31, 2019

The Company generated net revenues of ~~$9.7~~$9.9 million and net loss of ~~$2.8~~$0.8 million, or ~~$(0.04)~~$(0.01) per basic and diluted common share, for the three months ended ~~June 30, 2019,~~March 31, 2020, compared to net revenues of ~~$5.5~~$7.0 million and net loss of ~~$7.9~~$4.0 million, or ~~$(0.15)~~$(0.07) per basic and diluted common share, for the three months ended ~~June 30, 2018.~~March 31, 2019. Net revenues increased ~~77% for the period.~~ 43% year over year.

FC2 net revenues represented ~~95%~~96% of total net ~~revenues.~~revenues for the three months ended March 31, 2020. FC2 net revenues increased ~~69% for the period.~~39% year over year. There was a ~~9% increase~~30% decrease in total FC2 unit sales and an increase in FC2 average sales price per unit of ~~56%~~98%. The principal factor for the increase in the FC2 average sales price per unit compared to ~~the same period last~~prior year was ~~due to~~ the increase in ~~sales~~net revenues in the U.S. prescription channel. The Company experienced an increase of 168% in FC2 net revenues ~~of 1,074%~~ in the U.S. prescription channel and a ~~slight~~ decrease of 40% in FC2 net revenues in the global public ~~sector net revenues of 4%.~~sector.

Cost of sales increased to ~~$3.2~~$2.5 million in the three months ended ~~June 30, 2019~~March 31, 2020 from $2.4 million ~~for~~in the ~~same period last year~~three months ended March 31, 2019 primarily due to ~~the~~an increase in ~~unit sales in the U.S. prescription channel.~~labor, transportation, and equipment maintenance costs.

Gross profit increased to ~~$6.6~~$7.4 million ~~for~~in the three months ended ~~June 30, 2019~~March 31, 2020 from ~~$3.1~~$4.6 million ~~for~~in the three months ended ~~June 30, 2018.~~March 31, 2019. Gross profit margin for the ~~three months ended June 30, 2019~~2020 period was ~~68%~~75% of net revenues, compared to ~~56%~~66% of net revenues for the ~~same period~~2019 period. The increase in ~~2018. These increases were~~the gross profit margin is primarily due to the increase in sales in the U.S. prescription channel, which ~~have~~is at a higher ~~profit margin.~~average sales price.

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 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. The Company anticipates that its largest U.S. telemedicine customer may reduce its orders in the third quarter of fiscal 2020, which could adversely affect net revenues and gross profit margin.

Research and development expenses increased to ~~$4.9~~$3.9 million ~~for~~in the three months ended ~~June 30, 2019~~March 31, 2020 from ~~$3.8~~$2.9 million in the ~~prior year period.~~same period in fiscal 2019. The increase is primarily due to increased costs associated with the in-process research and development projects ~~acquired pursuant to the APP Acquisition~~ and increased personnel costs.

Selling, general and administrative expenses ~~decreased to $3.5~~remained consistent at $3.8 million ~~for~~in the three months ended ~~June 30, 2019 from $4.0 million in the prior year period. The decrease is primarily due~~March 31, 2020 compared to ~~the Company’s change in its U.S. sales strategy, which eliminated our internal sales team thereby resulting in a reduction of personnel and marketing expenses.~~

The Company incurred a loss on net accounts receivable of $0.2 million in the third quarter of fiscal 2018 to settle the remaining account receivable balance outstanding from Semina, our distributor in Brazil. This amount is presented as a separate line item in the accompanying unaudited condensed consolidated statement of operations for the three months ended ~~June 30, 2018.~~March 31, 2019.

Interest expense, which consists of items related to the Credit Agreement and Residual Royalty Agreement, ~~discussed~~was $1.2 million in ~~Note 8 to the financial statements included in this report, was $1.1 million for~~ the three months ended ~~June 30, 2019 compared to $1.4~~March 31, 2020, which is comparable with $1.3 million ~~for~~in the three months ended ~~June 30, 2018. The decrease in interest expense was a result of the amendment to the Credit Agreement that was executed on May 13, 2019, which resulted in a reduction in the effective interest rate.~~March 31, 2019.

Income associated with the change in fair value of the embedded derivatives related to the Credit Agreement and Residual Royalty Agreement was ~~$0.2~~$0.5 million ~~for~~in the three months ended ~~June 30, 2019~~March 31, 2020 compared to expense of ~~$0.4~~$0.6 million ~~for~~in the three months ended ~~June 30, 2018.~~March 31, 2019. The liabilities associated with embedded derivatives represent the fair value of the change of control provisions in the Credit Agreement and Residual Royalty Agreement. See Note 3 and Note 8 to the financial statements included in this report for additional information.

The income tax benefit ~~for~~in the ~~three months ended June 30, 2019~~second quarter of fiscal 2020 was ~~$458,~~$133,000, compared to an income tax expense of ~~$1.2 million for~~$25,000 in the ~~same period~~second quarter of fiscal 2019. The increase in ~~fiscal 2018. The change in~~the income tax ~~expense~~benefit of ~~$1.2 million~~$158,000 is primarily due to a decrease ~~of $1.3 million for the recharacterization of foreign tax credits to net operating loss~~ in the ~~prior~~change in the valuation allowance of $0.9 million, partially offset by a decrease in the income tax benefit of $0.8 million related to the decrease in the loss before income taxes during the current period.

~~NINE~~SIX MONTHS ENDED ~~JUNE 30, 2019~~MARCH 31, 2020 COMPARED TO ~~NINE~~SIX MONTHS ENDED ~~JUNE 30, 2018~~MARCH 31, 2019

The Company generated net revenues of ~~$23.1~~$20.5 million and net loss of ~~$9.0~~$4.1 million, or ~~$(0.14)~~$(0.06) per basic and diluted common share, for the ~~nine~~six months ended ~~June 30, 2019,~~March 31, 2020, compared to net revenues of ~~$10.7~~$13.3 million and net loss of ~~$16.0~~$6.2 million, or ~~$(0.30)~~$(0.10) per basic and diluted common share, for the ~~nine~~six months ended ~~June 30, 2018.~~March 31, 2019. Net revenues increased ~~116% for the period.~~54% year over year.

FC2 net revenues represented 97% of total net ~~revenues.~~revenues for the six months ended March 31, 2020. FC2 net revenues increased ~~111% for the period.~~51% year over year. There was a ~~51% increase~~1% decrease in total FC2 unit sales and an increase in FC2 average sales price per unit of ~~39%~~53%. The principal ~~factors~~factor for the increase in the FC2 average sales price per unit compared to ~~the same period last~~prior year ~~were~~was the increase in net revenues in the U.S. prescription ~~channel and the unit price increases for customers in the U.S. public sector.~~channel. The Company experienced an increase in FC2 net revenues of 158% in ~~both the global public sector and the U.S. prescription channels. The global public sector net revenues increased 33% and~~ the U.S. prescription channel and a decrease of 15% in FC2 net revenues ~~increased 1,033%.~~in the global public sector.

Cost of sales increased to ~~$7.3~~$5.8 million in the ~~nine~~six months ended ~~June 30,~~March 31, 2020 from $4.1 million in the six months ended March 31, 2019 primarily due to an increase in labor, transportation, and equipment maintenance costs.

Gross profit increased to $14.7 million in the six months ended March 31, 2020 from ~~$5.1~~$9.3 million in the six months ended March 31, 2019. Gross profit margin for the ~~same~~fiscal 2020 period ~~last year~~was 72% of net revenues, compared to 69% of net revenues for the fiscal 2019 period. The increase in the gross profit margin is primarily due to the increase in ~~unit sales.~~

Gross profit increased to $15.8 million for the nine months ended June 30, 2019 from $5.6 million for the nine months ended June 30, 2018. Gross profit margin for the nine months ended June 30, 2019 was 69% of net revenues, compared to 52% of net revenues for the same periodsales in ~~2018. In the nine months ended June 30, 2019, the Company experienced an increase in FC2 sales into~~ the U.S. prescription channel, ~~with~~which is at a higher ~~profit margins, contributing to the increase in overall gross profit margin.~~average sales price.

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 sector. The Company is experiencing a significant increase in revenue from sales in the ~~U.S~~U.S. prescription channel, which is helping grow net revenues quarter to quarter and year to year. The Company anticipates that its largest U.S. telemedicine customer may reduce its orders in the third quarter of fiscal 2020, which could adversely affect net revenues and gross profit margin.

Research and development expenses increased to ~~$10.1 million for the nine months ended June 30, 2019 from $7.8~~$9.2 million in the ~~prior year period.~~six months ended March 31, 2020 from $5.3 million in the same period in fiscal 2019. The increase is primarily due to increased costs associated with the in-process research and development projects ~~acquired pursuant to the APP Acquisition~~ and increased personnel costs.

Selling, general and administrative expenses ~~were $10.7 million for the nine months ended June 30, 2019, which was comparable~~increased to ~~the $10.9~~$7.6 million in the ~~prior year period.~~

~~The Company incurred a loss on net accounts receivable of $4.0~~six months ended March 31, 2020 from $7.1 million in the ~~nine~~six months ended ~~June 30, 2018, which includes $3.8 million incurred in the first quarter of fiscal 2018 as a result of a settlement agreement we entered with Semina, our distributor in Brazil, in December 2017.~~March 31, 2019. The ~~Company recorded an additional charge of $0.2 million in the third quarter of fiscal 2018 as a result of the Company’s decision in July 2018~~increase is primarily due to accept a reduced final payment in order to settle the remaining account receivable balance outstanding. This loss is presented as a separate line item in the accompanying unaudited condensed consolidated statement of operations for the nine months ended June 30, 2018.increased personnel, personnel costs, and related benefits.

Interest expense, which consists of items related to the Credit Agreement and Residual Royalty Agreement, was ~~$3.6~~$2.3 million ~~for~~in the ~~nine~~six months ended ~~June 30, 2019 compared to $1.7~~March 31, 2020, which is comparable with $2.5 million ~~for~~in the ~~nine~~six months ended ~~June 30, 2018. These agreements, which were entered into in~~ March ~~2018, were outstanding for the entire fiscal 2019 period, but outstanding for only four months in the fiscal 2018 period.~~31, 2019.

~~Expense~~Income associated with the change in fair value of the embedded derivatives related to the Credit Agreement and Residual Royalty Agreement was ~~$0.2 million for~~$75,000 in the ~~nine~~six months ended ~~June 30, 2019~~March 31, 2020 compared to expense of $0.4 million ~~for~~in the ~~nine~~six months ended ~~June 30, 2018.~~

March 31, 2019. The ~~Company realized a foreign currency transaction loss~~liabilities associated with embedded derivatives represent the fair value of ~~$58,000~~the change of control provisions in the ~~nine months ended June 30, 2019, compared to $118,000 for the same period last year. This foreign currency transaction loss was primarily due~~Credit Agreement and Residual Royalty Agreement. See Note 3 and Note 8 to the ~~adverse movement of the U.S. dollar against the Malaysian Ringgit during the periods.~~financial statements included in this report for additional information.

The income tax ~~expense for~~benefit in the ~~nine~~first six months ~~ended June 30, 2019~~of fiscal 2020 was ~~$0.1~~$0.2 million, compared to anincome tax expense of $0.1 million in the first six months of fiscal 2019. The increase in the income tax benefit of ~~$3.3 million for the same period in fiscal 2018. The change in income tax expense of $3.4~~$0.3 million is primarily due to a decrease in the ~~federal and state~~change in the valuation allowance of $1.0 million, partially offset by a decrease in the income tax benefit of ~~$3.7~~$0.6 million related to the decrease in the loss before income taxes during the current ~~period. This amount was partially offset by the increase in the valuation allowance recorded against the U.S. net deferred tax assets of $1.4 million in the current~~ period and a decrease of ~~$1.3 million related to~~$70,000 for the ~~recharacterization~~effect of lower foreign income tax ~~credits to net operating loss, which occurred in the prior period.~~rates.

Our cash on hand at ~~June 30, 2019~~March 31, 2020 was ~~$8.0~~$2.6 million, compared to ~~$3.8~~$6.3 million ~~(including restricted cash)~~ at September 30, ~~2018.~~2019. At ~~June 30, 2019,~~March 31, 2020, the Company had working capital of ~~$5.5~~$0.6 million and stockholders’ equity of ~~$34.7~~$31.1 million compared to ~~negative~~ working capital of ~~$2.4~~$2.8 million and stockholders’ equity of ~~$29.5~~$32.3 million as of September 30, ~~2018.~~2019. The ~~increase~~decrease in working capital is primarily due to an increase in the ~~net proceeds from~~current portion of the ~~common stock offering in October 2018~~Credit Agreement liability and the ~~sale~~recognition of ~~shares~~a current liability for operating leases as a result of ~~common stock under~~ the ~~Purchase Agreement discussed below.~~Company’s adoption of the new lease accounting standard, as described in Note 1 to the financial statements included in this report.

We have incurred quarterly operating losses since the fourth quarter of fiscal 2016 and anticipate that we will continue to consume cash and incur substantial net losses 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 II, Item 1A of this Form 10-Q and 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, ~~2018,~~2019, for a description of certain risks that will affect our future capital requirements.

The Company believes its current cash position, cash expected to be generated from sales of the Company’s commercial products, and its ability to secure equity financing or other financing alternatives are adequate to fund planned operations of the Company for the next 12 months. Such financing alternatives 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 effective shelf registration statement on Form S-3 (File No. 333-221120) (the “Shelf Registration Statement”). The Company intends to be opportunistic when pursuing equity or debt financing which could include selling common stock under the Purchase Agreement with Aspire ~~Capital and/or a marketed deal with an investment bank.~~Capital. See Part II, Item 1A of this Form 10-Q and 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, ~~2018,~~2019, for a description of certain risks related to our ability to raise capital on acceptable terms.

Our operating activities used cash of ~~$4.5~~$4.9 million in the ~~nine~~six months ended ~~June 30, 2019.~~March 31, 2020. Cash used in operating activities included a net loss of ~~$9.0~~$4.1 million, adjustments for noncash items totaling ~~$5.9~~$4.0 million and changes in operating assets and liabilities of ~~$1.5~~$4.8 million. Adjustments for noncash items primarily consisted of ~~$3.6~~$2.3 million of noncash interest expense, ~~and $1.4~~$1.3 million of share-based ~~compensation.~~compensation, and $0.2 million for the write-down of obsolete inventory. The decrease in cash from changes in operating assets and liabilities included an increase in accounts receivable of ~~$0.8~~$1.8 million, ~~and~~ an increase in inventories of ~~$0.9 million. These were partially offset by~~$2.6 million, an increase in prepaid expenses and other current assets of $1.0 million, and a decrease in accrued expenses and other current liabilities of ~~$0.6~~$0.3 million. These were offset by an increase in accounts payable of $1.1 million.

Our operating activities used cash of ~~$8.7~~$4.0 million in the ~~nine~~six months ended ~~June 30, 2018.~~March 31, 2019. Cash used in operating activities included a net loss of ~~$16.0~~$6.2 million, adjustments for noncash items totaling ~~$4.1~~$4.3 million and ~~cash from~~ changes in operating assets and liabilities of ~~$3.2~~$2.1 million. Adjustments for noncash items primarily consisted of ~~a $4.0 million loss on the settlement of net accounts receivable, $3.4 million related to deferred income taxes, $1.7~~$2.5 million of noncash interest expense related to the Credit Agreement and Residual Royalty Agreement, ~~$1.1~~$0.9 million of share-based compensation, and $0.4 million ~~for~~of expense due to the increase in ~~the~~ fair value of the derivative ~~liabilities related to the Credit Agreement and Residual Royalty Agreement.~~liabilities. The ~~increase~~decrease in cash from changes in operating assets and liabilities included ~~a decrease~~decreases in ~~net~~ accounts ~~receivable~~payable and ~~long-term other receivables~~accrued expenses of ~~$2.3~~$1.0 million and an increase in ~~trade accounts payable~~inventories of ~~$0.8~~$0.7 million.

Net cash used in investing activities in the six months ended March 31, 2020 was $55,000 and was primarily associated with capital expenditures at our U.K. and Malaysia locations.

On December 27, 2017, we entered into a settlement agreement with Semina, our distributor in Brazil, pursuant to which Semina made a payment of $2.2 million and was 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 Brazil tender in 2014. Semina did not make its second payment of $1.5 million by February 28, 2018. In July 2018, the Company agreed to accept $1.3 million as settlement of the second payment of $1.5 million that was owed. 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 $4.0 million, which is presented as a separate line item in the accompanying unaudited condensed consolidated statements of operations for the nine months ended June 30, 2018.

Net cash ~~used in investing~~provided by financing activities ~~was $75,000 and $48,000~~ in the ~~nine~~six months ended ~~June 30, 2019~~March 31, 2020 was $1.2 million and ~~2018, respectively,~~consisted of $1.2 million from the sale of shares under the Purchase Agreement with Aspire Capital (see discussion below), proceeds from the Premium Finance Agreement of $0.8 million, which were used to finance the Company’s directors and ~~was primarily associated with capital expenditures at our UK location.~~

~~Financing activities~~officers liability insurance premium, and proceeds from stock option exercises of $0.4 million, less payments on the Credit Agreement (see discussion below) of $0.9 million and payments on the Premium Finance Agreement of $0.3 million.

Net cash provided by financing activities in the ~~nine~~six months ended ~~June 30,~~March 31, 2019 was ~~$8.9~~$6.1 million and ~~primarily~~ consisted of net proceeds from the underwritten public offering of the Company’s common stock of $9.1 million (see discussion below) and ~~$3.6 million from the sale of shares under the Purchase Agreement with Aspire Capital (see discussion below), less payments on the Credit Agreement (see discussion below) totaling $4.0 million.~~

~~Net cash provided by financing activities in the nine months ended June 30, 2018 was $11.1 million and primarily consists of net~~ proceeds from ~~the Credit Agreement~~stock option exercises of ~~$9.7 million and net proceeds from the sale of shares under the Purchase Agreement with Aspire Capital of $1.9~~$0.2 million, less payments on the Credit Agreement ~~of $0.6~~totaling $3.2 million.

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 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 Credit Agreement, 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 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 ~~$4.0~~$0.9 million and ~~$0.6~~$3.2 million during the ~~nine~~six months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ 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, 2019~~March 31, 2020 will be approximately ~~$4.7~~$6.7 million.

On December 29, 2017, the Company entered into the Purchase Agreement with 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 Purchase Agreement, to direct Aspire Capital purchase up to $15.0 million of the Company's common stock in the aggregate. Other than the 304,457 shares of common stock issued to Aspire Capital in consideration for entering into the Purchase Agreement, the Company has no obligation to sell any shares of common stock pursuant to the 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 Purchase Agreement.

During the ~~third quarter of fiscal 2019,~~six months ended March 31, 2020, we sold ~~2,000,000~~300,000 shares of common stock to Aspire Capital under the Purchase Agreement resulting in proceeds to the Company of ~~$3.6~~$1.2 million. ~~During fiscal 2018,~~Since inception of the Purchase Agreement through March 31, 2020, we sold ~~an aggregate~~4,017,010 shares of ~~1,717,010~~common stock to Aspire Capital resulting in proceeds to the Company of $7.8 million. Subsequent to March 31, 2020, we sold 400,000 shares of common stock to Aspire Capital under the Purchase Agreement resulting in proceeds to the Company of ~~$3.0~~$1.3 million. As of ~~June 30, 2019,~~May 11, 2020, the amount remaining under the Purchase Agreement was ~~$8.4~~$5.9 million.

In April 2020, the Company was approved for a loan under the U.S. Small Business Administration’s (the “SBA”) Paycheck Protection Program established by the CARES Act in the amount of $0.5 million (the “PPP Loan”). The PPP Loan proceeds were received on April 20, 2020. The PPP Loan has a maturity of two years and an interest rate of 1%. Payments on the PPP Loan are deferred for six months. Pursuant to the CARES Act, the PPP Loan 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. As of the date of this report, the Company has not terminated any employees in the U.S. due to the COVID-19 pandemic. The Company intends to use the proceeds of the PPP Loan to pay salaries for its U.S.-based employees and to pay rent and utilities. The amount of the PPP Loan that might be forgiven is not known at this time.

As of ~~June 30, 2019~~March 31, 2020 and September 30, ~~2018,~~2019, the Company’s financial liabilities measured at fair value on a recurring basis, which consisted of embedded derivatives, represent the fair value of the change of control provisions in the 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 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, expected cash outflows, expected repayment dates, probability of a change of control, expected volatility, and risk-free interest rates. 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 additional information.

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, 2019. 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.~~such exposures since September 30, 2019.

As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and the Company’s Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended). Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective. It should be noted that in designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. The Company has designed its disclosure controls and procedures to reach a level of reasonable assurance of achieving desired control objectives and, based on the evaluation described above, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective at reaching that level of reasonable assurance.

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

~~In response to the APP Acquisition, two purported derivative and class action lawsuits were filed against the~~Neither the Company ~~and certain~~nor any of its ~~officers and directors in~~subsidiaries is a party to any material pending legal proceedings at the ~~Circuit Court~~date of ~~Cook County, Illinois, 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. These lawsuits were originally filed~~filing of this Quarterly Report on or about October 21, 2016 and November 7, 2016, respectively. 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 alleged, among other things, that the 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 alleged that Dr. Steiner, a director and the Chairman, President and Chief Executive Officer of Veru and a co-founder of APP, and Dr. Fisch, a director and Vice Chairman 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.

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, ~~2018.~~2019. 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, ~~2018,~~2019, except for the following additional risk ~~factor.~~factors. Additional risks that we do not yet know of or that we currently think are immaterial may also impair our business operations, and there is significant uncertainty regarding the COVID-19 pandemic and its impact on the economic environment and our business which could affect the risk factors set forth below and in the Form 10-K.

Due to the COVID-19 pandemic, we may find it difficult to effectively recruit new clinical trial patients in a timely manner and to partner with clinical trial investigators and sites, which could delay or prevent us from proceeding with, or otherwise adversely affect, clinical trials of our drug candidates.

Identifying and qualifying patients to participate in, and partnering with investigators and sites to run, clinical trials of our drug candidates is critical to the timely completion of our clinical trials. Patients may be unwilling to participate in our clinical trials because of the ongoing COVID-19 pandemic. The severe burden on healthcare systems caused by the COVID-19 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. For these and other reasons, the Company has made the decision to postpone initiation of the first Phase 3 trial for zuclomiphene citrate until at least the end of calendar year 2020 or until such time as there is additional clarity and certainty surrounding the impact of the COVID-19 pandemic on the healthcare system. We plan to continue the Phase 1b portion of our ongoing VERU-111 clinical trial, which is fully enrolled, and to continue enrolling for the Phase 2 portion of the VERU-111 clinical trial as discontinuation would disrupt treatment of patients' advanced prostate cancer. Patients enrolling in our VERU-111 clinical trial have not been able to access hospitals for imaging scans due to COVID-19. If they continue to lack such access, our VERU-111 clinical trial could be delayed.

There is a risk that changing circumstances relating to the COVID-19 pandemic may not allow our healthcare clinical trial investigators, their healthcare facilities or other necessary parties to continue to participate in our clinical trials through completion or may delay the initiation of planned clinical trials. Any delays related to clinical trials could result in increased costs, delays in advancing our drug candidates, delays in testing the effectiveness of our drug candidates or termination of the clinical trials altogether.

Disruptions at the FDA caused by the COVID-19 pandemic could delay or prevent new drugs from ~~an exit~~being developed, approved or commercialized in a timely manner or at all, or otherwise prevent the FDA from performing normal business functions on which the operation of our business may rely, which could negatively impact our business.

Disruptions at the ~~United Kingdom from~~FDA caused by the ~~European Union could~~COVID-19 pandemic may slow the time necessary for new drugs to be reviewed and/or approved, which would adversely affect our ~~business~~business. In response to the COVID-19 pandemic, on March 10, 2020 the FDA announced its intention to postpone most inspections of foreign manufacturing facilities and ~~results~~products through April 2020. On March 18, 2020, the FDA announced its intention to temporarily postpone routine surveillance inspections of ~~operations.~~domestic manufacturing facilities. The FDA has also prioritized the review of submissions relating to COVID-19. The FDA may adopt other restrictions or policy measures in response to the COVID-19 pandemic or issue guidance materially affecting the conduct of clinical trials. If global health concerns continue to prevent the FDA from conducting its regular inspections, reviews, or other regulatory activities, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a material adverse effect on our business.

On June 23, 2016, the United Kingdom held a referendum in which voters approved an exit from the European Union, commonly referred to as “Brexit.” At this time, the exact timing of Brexit and the terms of the United Kingdom’s relationship with the European Union after Brexit takes effect are uncertain. We have operations and government oversight in the United Kingdom relating to our FC2 business and a modest amount of sales of FC2 in the European Union. It is possible that changes made as a result of Brexit could subject us to heightened risks in that region, including disruptions to trade, increased foreign exchange volatility with respect to the British pound and additional legal and economic uncertainty. Such changes may adversely affect our business and results of operations.

The COVID-19 pandemic has disrupted, and may continue to disrupt, our operations and the operations of our suppliers and customers.

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. Theoutbreak and government measures taken in response have had a significant impact, both direct and indirect, on businesses and commerce, as worker shortages have occurred; supply chains have been disrupted; facilities and production have been suspended; and demand for certain goods and services, such as medical services and supplies, has spiked, while demand for other goods and services, such as travel, has fallen.

If COVID-19 continues to spread and to affect economic activity in the United States and other markets in which we conduct business, we may experience disruptions that could severely impact our business, including:

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. We do not yet know the full extent of any impact on our business or our operations, and it is possible that its effect on our business and operations will significantly worsen in the future.

COVID-19 and its impact on the economic environment and capital markets could adversely affect our access to capital when needed.

We expect to incur significant expenditures over the next several years to support our preclinical and clinical development activities, particularly with respect to clinical trials for certain of our drug candidates and to commence the commercialization of our drug candidates. Market volatility resulting from the COVID-19 pandemic or other factors could adversely affect our ability to access capital as and when needed and could also adversely affect the terms of a financing. If sales of FC2 decline due to the current economic environment, supply constraints or other issues, we may need additional financing to make up for reduced cash flows from our FC2 business. If adequate funds are not available on commercially acceptable terms when needed, we may be forced to delay, reduce or terminate some of our research and development activities or we may be unable to take advantage of future business opportunities.

Our pursuit of a COVID-19 treatment candidate is at an early stage. We may be unable to produce a drug that successfully treats the virus in a timely manner, if at all.

We recently announced that we have received FDA permission to initiate a Phase 2 clinical trial to assess the efficacy of VERU-111, a microtubule depolymerization agent, in combating COVID-19. Our development of a COVID-19 treatment is in its early stages, and we may be unable to produce a drug that successfully treats the virus in a timely manner, if at all. We are also committing 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 surrounding the longevity and extent of coronavirus as a global health concern. Our business could be negatively impacted by our allocation of significant resources to a global health threat that is unpredictable and could rapidly dissipate or against which our treatment, if developed, may not be partially or fully effective.

Government entities may take actions that directly or indirectly have the effect of limiting opportunities for VERU-111 as a COVID-19 treatment.

Various government entities, including the U.S. government, are offering incentives, grants and contracts to encourage additional investment by commercial organizations into preventative and therapeutic agents against COVID-19, which may have the effect of increasing the number of competitors and/or providing advantages to competitors. Accordingly, there can be no assurance that we will be able to successfully establish a competitive market share if we develop a COVID-19 treatment. COVID-19 treatments may also be subject to government pricing controls, which could adversely affect the profitability of any COVID-19 treatment we are able to develop and commercialize.

We may not be entitled to forgiveness of our recently received PPP Loan, and our application for the PPP Loan could in the future be determined to have been impermissible or could result in damage to our reputation.

In April 2020, we received proceeds of approximately $540,000 from a loan under the Paycheck Protection Program of the CARES Act, a portion of which may be forgiven, which we intend to use to retain employees, maintain payroll and make lease and utility payments. The PPP Loan matures in April 2022 and bears annual interest at a rate of 1.0%. Commencing in November 2020, we are required to pay the lender equal monthly payments of principal and interest as required to fully amortize by April 2022 any principal amount outstanding on the PPP Loan as of October 2020. A portion of the PPP Loan may be forgiven by the SBA upon our application beginning 60 days but not later than 120 days after loan approval and upon documentation of expenditures in accordance with the SBA requirements. Under the CARES Act, loan forgiveness is available for the sum of documented payroll costs, covered rent payments, covered mortgage interest and covered utilities during the eight-week period beginning on the date of loan approval. Not more than 25% of the forgiven amount may be for non-payroll costs. The amount of the PPP Loan eligible to be forgiven is reduced if our full-time headcount declines or if salaries and wages for employees with salaries of $100,000 or less annually are reduced by more than 25%. We will be required to repay any portion of the outstanding principal that is not forgiven, along with accrued interest, in accordance with the amortization schedule described above, and we cannot provide any assurance that we will be eligible for loan forgiveness or that any amount of the PPP Loan will ultimately be forgiven by the SBA.

In order to apply for the PPP Loan, we were required to certify, among other things, that the current economic uncertainty made the PPP Loan request necessary to support our ongoing operations. We made this certification in good faith after analyzing, among other things, our financial situation and access to alternative forms of capital, and believe that we satisfied all eligibility criteria for the PPP Loan, and that our receipt of the PPP Loan is consistent with the broad objectives of the Paycheck Protection Program of the CARES Act. The certification described above does not contain any objective criteria and is subject to interpretation. However, on April 23, 2020, the SBA issued guidance stating that it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith. The lack of clarity regarding loan eligibility under the Paycheck Protection Program has resulted in significant media coverage and controversy with respect to public companies applying for and receiving loans. If, despite our good-faith belief that we satisfied all eligible requirements for the PPP Loan, we are later determined to have violated any of the laws or governmental regulations that apply to us in connection with the PPP Loan, such as the False Claims Act, or it is otherwise determined that we were ineligible to receive the PPP Loan, we may be subject to penalties, including significant civil, criminal and administrative penalties, or damages or could be required to repay the PPP Loan in its entirety. In addition, our receipt of the PPP Loan may result in adverse publicity and damage to our reputation, and a review or audit by the SBA or other government entity or claims under the False Claims Act could consume significant financial and management resources.

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.



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

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


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


Large accelerated filer ☐		Accelerated filer ☐
Non-accelerated filer ☒		Smaller reporting company☒
		Emerging growth company☐



	PAGE

Forward Looking Statements	3

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements	5

Unaudited Condensed Consolidated Balance Sheets -
~~June 30, 2019 and September 30, 2018~~	5

Unaudited Condensed Consolidated Statements of Operations -	6
~~Three and nine months ended June 30, 2019 and 2018~~	6

Unaudited Condensed Consolidated Statements of Stockholders’ Equity -	7
~~Nine months ended June 30, 2019 and 2018~~	7

Unaudited Condensed Consolidated Statements of Cash Flows -	8
~~Nine months ended June 30, 2019 and 2018~~	8

Notes to Unaudited Condensed Consolidated Financial Statements	9

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	30 27

Item 3. Quantitative and Qualitative Disclosures About Market Risk	38

Item 4. Controls and Procedures	38

PART II. OTHER INFORMATION

Item 1. Legal Proceedings	39

Item 1A. Risk Factors	40

��Item 6. Exhibits	41 44


		Weighted Average (range, if applicable)
Valuation Methodology	Significant Unobservable Input	~~Weighted Average~~ ~~(range, if applicable)~~March 31, 2020	September 30, 2019

Monte Carlo Simulation	Estimated change of control dates	~~March~~December 2020 to December 2021	September 2020 to December 2021
	Discount rate	~~16.3%~~16.7% to ~~19.7%~~21.0%	14.4% to 16.8%
	Probability of change of control	0%10% to 90%	10% to 90%


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


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


					Six Months Ended
	Nine Months Ended June 30,				March 31,
	2019		2018		2020		2019

Beginning balance	$	2,426,000	$	—	$	3,625,000	$	2,426,000
Additions		—		3,319,000
Change in fair value of derivative liabilities		246,000		399,000		(75,000)		403,000
Ending balance	$	2,672,000	$	3,718,000	$	3,550,000	$	2,829,000


	Nine Months Ended June 30,				Six Months Ended March 31,
	2019		2018		2020		2019

Beginning balance	$	36,201	$	38,103	$	33,143	$	36,201
Charges to expense		—		3,058		—		—
Charge-offs		(3,058)		(5,000)		(7,500)		—
Ending balance	$	33,143	$	36,161	$	25,643	$	36,201



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


	June 30,		September 30,		Estimated	March 31,		September 30,
	2019		2018		Useful Life	2020		2019

Equipment, furniture and fixtures	$	3,535,560	$	4,018,284
Plant and equipment:
Manufacturing equipment					5 - 8 years	$	2,748,604	$	2,716,647
Office equipment, furniture and fixtures					3 - 10 years		817,951		795,228
Leasehold improvements		287,686		287,686	3 - 8 years		298,886		298,886
		3,823,246		4,305,970
Total plant and equipment							3,865,441		3,810,761
Less: accumulated depreciation and amortization		(3,508,556)		(3,901,418)			(3,533,079)		(3,458,866)
Plant and equipment, net	$	314,690	$	404,552		$	332,362	$	351,895


	Gross Carrying		Accumulated		Net Book		Gross Carrying		Accumulated		Net Book
	Amount		Amortization		Value		Amount		Amortization		Value
Intangible assets with finite lives:
Developed technology - PREBOOST®	$	2,400,000	$	463,721	$	1,936,279	$	2,400,000	$	645,641	$	1,754,359
Covenants not-to-compete		500,000		190,476		309,524		500,000		244,048		255,952
Total intangible assets with finite lives		2,900,000		654,197		2,245,803		2,900,000		889,689		2,010,311
Acquired in-process research and development assets		18,000,000		—		18,000,000		18,000,000		—		18,000,000
Total intangible assets	$	20,900,000	$	654,197	$	20,245,803	$	20,900,000	$	889,689	$	20,010,311


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

Outstanding at September 30, 2018	5,645,312	$	1.59
Outstanding at September 30, 2019							7,027,989	$	1.58
Granted	2,255,282	$	1.53				2,228,827	$	1.97
Exercised	(283,333)	$	1.19				(436,748)	$	1.67
Forfeited	(480,847)	$	1.89				(176,028)	$	1.51
Outstanding at June 30, 2019	7,136,414	$	1.56	8.17	$	4,082,982
Exercisable at June 30, 2019	2,240,384	$	1.48	7.10	$	1,460,499
Outstanding at March 31, 2020							8,644,040	$	1.68	8.25	$	13,781,911
Exercisable at March 31, 2020							3,342,581	$	1.48	7.36	$	5,973,380


	Three Months Ended		Six Months Ended
	March 31, 2020		March 31, 2020
Finance lease cost:
Amortization of right-of-use assets	$	2,179	$	4,357
Interest on lease liabilities		1,379		2,859
Operating lease cost		121,106		253,680
Short-term lease cost		1,863		3,726
Variable lease cost		33,671		67,136
Sublease income		(44,845)		(89,689)
Total lease cost	$	115,353	$	242,069


	March 31, 2020
Operating Leases
Weighted-average remaining lease term	4.3
Weighted-average discount rate	12.01%
Finance Leases
Weighted-average remaining lease term	1.9
Weighted average discount rate	13.86%


	Operating		Finance		Sublease
	Leases		Leases		Income
Fiscal year ended September 30,
2020	$	211,163	$	10,812	$	97,081
2021		428,848		22,199		198,668
2022		347,841		9,496		203,584
2023		293,045		—		190,749
2024		189,335		—		—
Thereafter		162,672		—		—
Total lease payments		1,632,904		42,507	$	690,082
Less imputed interest		(362,819)		(5,498)
Total lease liabilities	$	1,270,085	$	37,009


Period	2019	2018	2017	2016	2015	2020	2019	2018	2017	2016

October 1 — December 31	7,382,524	4,399,932	6,389,320	15,380,240	12,154,570	10,070,700	7,382,524	4,399,932	6,389,320	15,380,240
January 1 — March 31	9,792,584	4,125,032	4,549,020	9,163,855	20,760,519	6,884,472	9,792,584	4,125,032	4,549,020	9,163,855
April 1 — June 30	10,876,704	10,021,188	8,466,004	10,749,860	14,413,032	—	10,876,704	10,021,188	8,466,004	10,749,860
July 1 — September 30	—	6,755,124	6,854,868	6,690,080	13,687,462	—	9,842,020	6,755,124	6,854,868	6,690,080
Total	28,051,812	25,301,276	26,259,212	41,984,035	61,015,583	16,955,172	37,893,832	25,301,276	26,259,212	41,984,035


Exhibit Number	Description

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 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, 3.7 and 3.8).

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

10.1	Veru Inc. 2018 Equity Incentive Plan (as amended and restated effective March 24, 2020) (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K (File No. 1-13602) filed with the SEC on March 26, 2020.*

10.2	Form of Non-Qualified Stock Option Grant Agreement under Veru Inc. 2018 Equity Incentive Plan. , *

10.3	Form of Non-Qualified Stock Option Grant Agreement under Veru Inc. 2017 Equity Incentive Plan. , *

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

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

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 ~~June 30, 2019,~~March 31, 2020, formatted in XBRL (Extensible Business Reporting Language): (1) the Unaudited Condensed Consolidated Balance Sheets, (2) the Unaudited Condensed Consolidated Statements of Operations, (3) the Unaudited Condensed Consolidated Statements of Stockholders’ Equity, (4) the Unaudited Condensed Consolidated Statements of Cash Flows and (5) the Notes to the Unaudited Condensed Consolidated Financial Statements.


*	Management contract or compensatory plan or arrangement
**	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.