Exhibit 99.2

Unaudited Pro Forma Condensed Combined Statements of Operations



Nine Months Ended June 30, 2016

 

   

Historical FHC

 

Historical APP

 

Pro forma Adjustments

Pro forma Combined

   

 

 

 

 

 

 

 

 

Net revenues

$18,564,236 

 

$12,825 

 

 

 

$18,577,061 

 

Cost of sales

7,083,311 

 

5,490 

 

 

 

7,088,801 

 

Gross profit

11,480,925 

 

7,335 

 

                 —

 

11,488,260 

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

96,138 

 

879,793 

 

 

 

975,931 

 

Selling, general, and administrative

8,073,288 

 

842,021 

 

 

 

8,915,309 

 

Total operating expenses

8,169,426 

 

1,721,814 

 

                 —

 

9,891,240 

 

Operating income (loss)

3,311,499 

 

(1,714,479)

 

                 —

 

1,597,020 

 

Non-operating expense:

 

 

 

 

 

 

 

 

Interest and other expense, net

(54,551)

 

(29,812)

 

 

 

(84,363)

 

Foreign currency transaction loss

(128,442)

 

                    —

 

 

 

(128,442)

 

Total non-operating expense

(182,993)

 

(29,812)

 

                 —

 

(212,805)

 

Income (loss) before income taxes

3,128,506 

 

(1,744,291)

 

                 —

 

1,384,215 

 

Income tax expense

1,032,840 

 

                    —

 

 

 

1,032,840 

 

Net income (loss)

2,095,666 

 

(1,744,291)

 

                 -  

 

351,375 

 

Preferred stock dividend

                     -  

 

119,626 

 

(119,626)

 

                  -  

(a)

Net income (loss) attributable to common stockholders

$2,095,666 

 

$(1,863,917)

 

$119,626 

 

$351,375 

 

Net income (loss) per basic common share outstanding

$0.07 

 

$(0.23)

 

 

 

$0.01 

 

Basic weighted average common shares outstanding

28,647,275 

 

7,960,000 

 

 

 

52,791,944 

(b)

Net income (loss) per diluted common share outstanding

$0.07 

 

$(0.23)

 

 

 

$0.01 

 

Diluted weighted average common shares outstanding

29,058,576 

 

7,960,000 

 

 

 

53,436,928 

(b)




 

Unaudited Pro Forma Condensed Combined Balance Sheet



As of June 30, 2016



Historical FHC

 

Historical APP

 

Pro Forma Adjustments

Pro forma Combined

ASSETS

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

Cash

$3,210,684 

 

$468,997 

 

$                         -  

 

$3,679,681 

Accounts receivable, net

18,636,643 

 

 

 

                         —

 

18,636,643 

Income tax receivable

29,000 

 

 

 

—  

 

29,000 

Inventory, net

2,337,436 

 

21,506 

 

—  

 

2,358,942 

Prepaid expenses and other current assets

544,265 

 

7,594 

 

—  

 

551,859 

Deferred income taxes

244,105 

 

 

 

—  

 

244,105 

TOTAL CURRENT ASSETS

25,002,133 

 

498,097 

 

—  

 

25,500,230 



 

 

 

 

 

 

 

Other assets

191,071 

 

 

 

—  

 

191,071 

Intangible Assets

 

 

 

 

23,035,493 

(d)

23,035,493 



 

 

 

 

 

 

                       —

PLANT AND EQUIPMENT

 

 

 

 

 

 

                       —

Equipment, furniture and fixtures

4,621,351 

 

 

 

—  

 

4,621,351 

Leasehold improvements

323,147 

 

 

 

—  

 

323,147 

Less accumulated depreciation and amortization

(4,028,291)

 

 

 

—  

 

(4,028,291)

Plant and equipment, net

916,207 

 

—  

 

—  

 

916,207 



 

 

 

 

 

 

 

Deferred income taxes

14,509,000 

 

 

 

—  

 

14,509,000 

TOTAL ASSETS

$40,618,411 

 

$498,097 

 

$23,035,493 

 

$64,152,001 



 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

Accounts payable

$1,059,410 

 

$629,788 

 

$                         -  

 

$1,689,198 

Accrued expenses and other current liabilities

3,692,367 

 

227,065 

 

250,000 

(e)

4,169,432 

Accrued compensation

235,457 

 

 

 

50,210 

(f)

285,667 

TOTAL CURRENT LIABILITIES

4,987,234 

 

856,853 

 

300,210 

 

6,144,297 



 

 

 

 

 

 

 

LONG-TERM LIABILITIES

 

 

 

 

 

 

 

Deferred rent

4,801 

 

 

 

—  

 

4,801 

Deferred income taxes

115,554 

 

 

 

—  

 

115,554 

TOTAL LIABILITIES

5,107,589 

 

856,853 

 

300,210 

 

6,264,652 



 

 

 

 

 

 

 

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.

—  

 

—  

 

20,771,269 

(c)

20,771,269 

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

—  

 

2,660 

 

(2,660)

(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

312,364 

 

80,000 

 

(54,532)

(c)

337,832 

Additional paid-in-capital

69,486,856 

 

2,575,128 

 

(695,128)

(c)

71,366,856 

Accumulated other comprehensive loss

(581,519)

 

 

 

—  

 

(581,519)

Accumulated deficit

(25,900,274)

 

(3,016,524)

 

2,716,314 

(c),(e),(f)

(26,200,484)

Treasury stock, at cost

(7,806,605)

 

(20)

 

20 

(c)

(7,806,605)

TOTAL STOCKHOLDERS' EQUITY (DEFICIT)

35,510,822 

 

(358,756)

 

22,735,283 

 

57,887,349 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$40,618,411 

 

$498,097 

 

$23,035,493 

 

$64,152,001 

2


 

Notes to Unaudited Pro Forma Condensed Combined Financial Statements

1.

Basis of Presentation

On October 31, 2016, FHC completed the Merger with APP, pursuant to the Amended Merger Agreement, among FHC, Blue Hen Acquisition, Inc. and APP. Consummation of the Merger did not require the current approval of FHC's shareholders.



Under the terms of the Amended Merger Agreement, the outstanding shares of APP common stock and preferred stock were converted into the right to receive in the aggregate 2,000,000 shares of FHC’s common stock (Common Stock) and 546,756 shares of FHC’s Class A Convertible Preferred Stock - Series 4 (Preferred Stock).



The terms of the Preferred Stock include the following:

·

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



The Merger will be accounted for under the acquisition method of accounting in accordance with ASC 805, Business Combinations.  Under the acquisition method, the total estimated purchase price, or consideration transferred, will be measured at the closing date of the Merger.  Currently, the assets of APP are in the process of being re-measured.  Therefore, there is no allocation of the consideration transferred to identified tangible or intangible assets.



The process for estimating the fair values of identifiable intangible assets and certain tangible assets requires the use of significant estimates and assumptions, including estimating future cash flows and developing appropriate discount rates.  The applicable accounting guidance defines fair value as the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date (an exit price).  Market participants are assumed to be buyers and sellers in the principal or most advantageous market for the asset or liability.  Additionally, under the applicable accounting guidance, fair value measurements for an asset assume the highest and best use of that asset by market participants.  As a result, FHC may be required to value assets of APP at fair value measures that do not reflect FHC’s intended use of those assets.  Use of different estimates and judgments could yield different results.  Currently FHC has begun the valuation process and it is expected to be completed during the first quarter of fiscal 2017.  Once the valuation process is complete, the excess of the purchase price over the estimated amounts of identifiable assets and intangibles of APP as of October 31, 2016 will be allocated to goodwill in accordance with the accounting guidance.  The acquisition accounting is subject to finalization of FHC’s analysis of the fair value of the assets and liabilities of APP as of October 31, 2016.  The acquisition accounting in the unaudited pro forma combined financial statements is preliminary and will be adjusted upon completion of the valuation. 



2.

Purchase Price

The unaudited pro forma condensed combined financial information reflects the purchase price as follows:







3


 



As of

June 30, 2016

Net deficit

$(358,756)

Intangible assets

23,035,493 

Total purchase price

$22,676,737 



FHC has not completed the valuation process.  In the unaudited pro forma combined balance sheet as of June 30, 2016, the excess of the aggregate purchase price over the assets and liabilities in the amount of approximately $23,035,493 was classified as intangible assets.  FHC will allocate the excess purchase price to identifiable tangible and intangible assets and the excess to goodwill once the valuation is complete.  The fair value of identifiable intangible assets that are subject to amortization after the acquisition will be determined once the valuation is completed.



The total estimated purchase price of approximately $22,676,737 is based on the closing price of Common Stock of $0.95 per share on October 31, 2016 and the issuance to the APP stockholders of a total of 2,000,000 share of Common Stock and 546,756 shares of Preferred Stock.  After giving effect to the conversion of the Preferred Stock to Common Stock, which is wholly dependent upon future shareholder approval, the former APP Stockholders will own 23,870,249 shares of Common Stock in total, constituting approximately 45% of the outstanding shares of Common Stock as of October 31, 2016.



3.

Pro Forma Adjustments

The pro forma adjustments included in the unaudited pro forma condensed combined financial statements are as follows:



(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.

The resulting basic and fully diluted weighted average shares outstanding at June 30, 2016 were used to compute the June 30, 2016 pro forma EPS based on the June 30, 2016 pro forma net income attributable to common stockholders.

(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


 

4.

Additional Transaction-Related Expenses.



The following transactions will be recorded upon the closing of the Merger:



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.



The following transactions will be recorded if, prior to the vesting date FHC receives shareholder approval under the NASDAQ listing rules 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:



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.



5