Twelve Months Ended September 30, 2016

Historical FHC

Historical APP

Pro forma Adjustments

Pro forma Combined

Net revenues

$

$

$

$

Cost of sales

Gross profit (loss)

 —

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 September 30, 2016



Historical FHC

Historical APP

Pro Forma Adjustments

Pro forma Combined

ASSETS

Current Assets

Cash

$

$

$

 —

$

Accounts receivable, net

 —

 —

Income tax receivable

 —

 —

Inventory, net

(d)

Prepaid expenses and other current assets

 —

Deferred income taxes

 —

 —

TOTAL CURRENT ASSETS



LONG-TERM ASSETS

PLANT AND EQUIPMENT

 —

Equipment, furniture and fixtures

 —

Leasehold improvements

 —

 —

Less accumulated depreciation and amortization

 —

 —

Plant and equipment, net

 —



Other trade receivables

 —

Other assets

 —

 —

Goodwill

 —

 —

(d)

Intangible Assets

 —

 —

(d)

Deferred income taxes

 —

(d)

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

Other Liabilities

 —

Deferred rent

 —

 —

 —

 —

Deferred income taxes

 —

 —

TOTAL LIABILITIES



Commitments and Contingencies



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 September 30, 2016.

 —

 —

(c)

STOCKHOLDERS' EQUITY:

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 September 30, 2016

 —

 —

Common Stock: (FHC) par value $0.01 per share; authorized 38,500,000 shares; issued 31,273,954 and 29,090,250 shares outstanding at September 30, 2016: (APP) $0.01 par value, 11,000,000 shares authorized; 7,970,000 shares issued and 8,010,000 outstanding at September 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





Common stock

$

Series 4 Preferred Stock

Total purchase consideration

$

3.

Pro Forma Adjustments

(a)

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

(b)

September 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, 2015.

·

Issued a warrant (the "Warrant") to FHC's financial advisor for a total of 2,585,379 shares at October 1, 2015 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, 2015.

·

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, 2015, 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 September 30, 2016.

(c)

Reflects the issuance of 2,000,000 shares of Common Stock to APP stockholders and 546,756 shares of Preferred Stock to the APP stockholders.    

(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 $14,800 and to employees of $2,700

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 $542,930 will be expensed immediately.  The Warrant vests immediately upon issuance; however, it is 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 based on the 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 based on the 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 $186,000.  At September 30, 2016 assuming 83,000 shares of Common Stock elected to be paid in cash, the additional accrual/expense required would be $14,800.

5.

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, have a grant date value of $180,500 based on the share price of $0.95 per share using the closing price of the Common Stock on October 31, 2016. The value will be amortized over two years and will be marked to market at each reporting period until FHC is able to (i) increase the number of authorized shares under the 2008 Inventive Plan sufficient to issue such shares or (ii) adopt a new plan under which such shares would be issued.

6.

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, have a grant date value approximately $77,976 based on the exercise price of $0.95 per share using the closing price of the Common Stock on October 31, 2016. The value will be amortized over two years and will be marked to market at each reporting period until FHC is able to (i) increase the number of authorized shares under the 2008 Inventive Plan sufficient to issue such shares or (ii) adopt a new plan under which such shares would be issued.