Nine Months Ended June 30, 2016

Historical FHC

Historical APP

Pro forma Adjustments

Pro forma Combined

Net revenues

Cost of sales

Gross profit

                 —

Operating expenses:

Research and development

Selling, general, and administrative

Total operating expenses

                 —

Operating income (loss)

                 —

Non-operating expense:

Interest and other expense, net

Foreign currency transaction loss

                    —

Total non-operating expense

                 —

Income (loss) before income taxes

                 —

Income tax expense

                    —

Net income (loss)

                 -  

Preferred stock dividend

                     -  

                  -  

(a)

Net income (loss) attributable to common stockholders

Net income (loss) per basic common share outstanding

Basic weighted average common shares outstanding

(b)

Net income (loss) per diluted common share outstanding

Diluted weighted average common shares outstanding

(b)



As of June 30, 2016



Historical FHC

Historical APP

Pro Forma Adjustments

Pro forma Combined

ASSETS

Current Assets

Cash

$                         -  

Accounts receivable, net

                         —

Income tax receivable

—  

Inventory, net

—  

Prepaid expenses and other current assets

—  

Deferred income taxes

—  

TOTAL CURRENT ASSETS

—  



Other assets

—  

Intangible Assets

(d)



                       —

PLANT AND EQUIPMENT

                       —

Equipment, furniture and fixtures

—  

Leasehold improvements

—  

Less accumulated depreciation and amortization

—  

Plant and equipment, net

—  

—  



Deferred income taxes

—  

TOTAL ASSETS



LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities

Accounts payable

$                         -  

Accrued expenses and other current liabilities

(e)

Accrued compensation

(f)

TOTAL CURRENT LIABILITIES



LONG-TERM LIABILITIES

Deferred rent

—  

Deferred income taxes

—  

TOTAL LIABILITIES



Commitments and Contingencies



STOCKHOLDERS' EQUITY:

Preferred Class A Convertible Series 4 (FHC):    $0.01 par value, liquidated value of $1 per share, 548,000 shares authorized, 546,756 shares issued and outstanding at June 30, 2016.

—  

—  

(c)

Preferred Convertible Series A (APP): $0.01 par value, liquidated value of $25 per share, 1,600,000 shares authorized, 166,000 shares issued and outstanding at June 30, 2016

—  

(c)

                       —

Common Stock: (FHC) par value $0.01 per share; authorized 38,500,000 shares; issued 31,236,371 and 29,035,167 shares outstanding at June 30, 2016: (APP) $0.01 par value, 11,000,000 shares authorized; 8,000,000 shares issued and 7,960,000 outstanding at June 30, 2016

(c)

Additional paid-in-capital

(c)

Accumulated other comprehensive loss

—  

Accumulated deficit

(c),(e),(f)

Treasury stock, at cost

(c)

TOTAL STOCKHOLDERS' EQUITY (DEFICIT)

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

1.

Basis of Presentation

·

Each share of Preferred Stock will automatically convert into 40 shares of Common Stock upon receipt by FHC of approval by the affirmative vote of FHC’s shareholders by the required vote under the Wisconsin Business Corporation Law and the NASDAQ listing rules, as applicable, of (i) an amendment to FHC’s Amended and Restated Articles of Incorporation to increase the total number of authorized shares of Common Stock by a sufficient amount to permit such conversion and (ii) the conversion of Preferred Stock pursuant to applicable NASDAQ rules.

·

Upon a Liquidation Event, the holders of the Preferred Stock will be entitled to a liquidation preference equal to the greater of (a) $1.00 per share (or $546,756 in the aggregate for all of the shares of Preferred Stock), or (b) the amount holders would have received if the Preferred Stock had converted to FHC’s common stock.  A "Liquidation Event" includes any voluntary or involuntary liquidation, dissolution or winding up of FHC and certain transactions involving an acquisition of FHC (which are referred to as Fundamental Changes).

·

The Preferred Stock is redeemable on the first to occur of (i) the 20th anniversary of the date of original issuance or (ii) a Fundamental Change, at a price equal to $1.00 per share, unless converted into Common Stock prior to such redemption.

·

The Preferred Stock is senior to all existing and future classes of FHC’s capital stock upon a Liquidation Event, and no senior or additional pari passu preferred stock may be issued without the consent of the holders of a majority of the outstanding shares of Preferred Stock.

·

The Preferred Stock participates in dividends paid to holders of Common Stock on an as converted basis.

·

The Preferred Stock has one vote per share and will generally vote with Common Stock on a one share to one share basis

2.

Purchase Price



As of

June 30, 2016

Net deficit

Intangible assets

Total purchase price

3.

Pro Forma Adjustments

(a)

Represents the elimination of APP’s accrued preferred stock dividend.

(b)

June 30, 2016 pro forma EPS was computed using the historical FHC basic and diluted weighted average shares outstanding adjusted for the impact of the following:

·

Issued 2,000,000 shares of Common Stock and 546,756 shares of Preferred Stock to the APP stockholders at October 1, 2014.

·

Issued a warrant (the "Warrant") to FHC's financial advisor for a total of 2,585,379 shares at October 1, 2014 with an exercise price of $1.93 per share.

·

Issued restricted stock to David Bethune and an FHC consultant of 140,000 and 50,000 shares, respectively, which vest over one year at October 1, 2014.

·

Issued options to David Bethune and an FHC consultant of 140,000 and 50,000 shares, respectively, which vest over one year at October 1, 2014, assuming an exercise price of $0.95 per share (the closing price of the Common Stock on October 31, 2016).

·

Acceleration of vesting of shares awarded to certain members of the FHC Board of Directors with accelerated vesting rights upon a change of control.  Total shares with accelerated vesting were 283,739 shares.  These shares were all considered vested as of September 30, 2015.

·

Acceleration of vesting of shares awarded to certain employees during the nine months ending June 30, 2016 with accelerated vesting rights upon a change of control.  Total shares with accelerated vesting were 17,000 shares.  These shares were all considered vested as of June 30, 2016.

(c)

Reflects the issuance of 2,000,000 shares of Common Stock to APP stockholders valued at $0.95 per share (the closing price of the Common Stock on October 31, 2016) and 546,756 shares of Preferred Stock to the APP stockholders valued at $20,776,737 for a total of $23,035,493 plus the net deficit of the APP stockholders’ equity of $(358,756).    FHC is in the process of determining whether the preferred stock is equity or liability.  In addition, the preferred stock has been ascribed a value of $0.95 per share as if converted and may change in the future based on the valuation.

(d)

Represents the preliminary allocation of the fair value of the consideration transferred to the APP stockholders.  The allocation will be adjusted once the valuation is completed for the allocation amongst identifiable tangible and intangible assets with any unallocated assigned to goodwill.

(e)

Represents the accrual for the payment to Torreya of its cash fee of $250,000 related to the delivery of its fairness opinion.

(f)

Represents the accrual for the cash portion of the accelerated shares awarded to certain members of the FHC Board of Directors of $46,587 and to employees of $3,623.

4.

Additional Transaction-Related Expenses.

1.

The payment to FHC's financial advisor of its cash fee of $250,000 related to the delivery of its fairness opinion.  The value of the Warrant of $723,906 will be expensed over its term of 5 years, or $144,781 per year.  The Warrant vests immediately upon issuance; however, it is not exercisable for 5 years.

2.

The restricted stock, which vests over one year, to be issued to David Bethune and an FHC consultant of 140,000 and 50,000 shares, respectively, will have total amortization expense of $180,500.  Share price of $0.95 per share using the closing price of the Common Stock on October 31, 2016.

3.

Stock options, which vest over one year, to be issued to David Bethune and an FHC consultant of 140,000 and 50,000 shares, respectively, will have total amortization expense of approximately $77,976.  Assumed exercise price of $0.95 per shares using the closing price of the Common Stock on October 31, 2016.

4.

The shares awarded to certain members of the FHC Board of Directors with accelerated vesting, which totaled 283,739 shares, will have additional amortization expense for the accelerated vesting of $316,198.  At June 30, 2016 assuming 83,000 shares of Common Stock elected to be paid in cash, the additional accrual/expense required would be $46,587.

5.

The shares awarded to certain employees with accelerated vesting, which totaled 17,000 shares, will have additional amortization expense for the accelerated vesting of $16,226. At June 30, 2016, assuming 5,665 shares of Common Stock elected to be paid in cash, the additional accrual/expense required would be $3,623.

5.

Additional Information.

1.

The restricted stock units, which vests over two years, to be issued to David Bethune and an FHC consultant of 140,000 and 50,000 shares, respectively.

2.

The stock appreciation rights, which vests over two years, to be issued to David Bethune and an FHC consultant of 140,000 and 50,000 shares, respectively.