In June 2014, the Company acquired a mortgage note from a bank for $2,626,290 which is collateralized by, among other things, the underlying real estate and related improvements. The property subject to the mortgage is owned by 580 Garcia Properties, an entity managed by Daniel Fisher, one of the founders of Biozone, and is currently under lease to MusclePharm Corporation (“MusclePharm”). At September 30, 2016, the carrying amount of the mortgage note receivable was $2,507,000. The mortgage note has a maturity date of August 1, 2032 and bears an interest rate of 7.24%. The Company records its mortgage note receivable at the amount advanced to the borrower, which includes the stated principal amount and certain loan origination and commitment fees that are recognized over the term of the mortgage note. Interest income is accrued as earned over the term of the mortgage note. The Company evaluates the collectability of both interest and principal of the note to determine whether it is impaired. The note would be considered to be impaired if, based on current information and events, the Company determined that it was probable that it would be unable to collect all amounts due according to the existing contractual terms. If the note were considered to be impaired, the amount of loss would be calculated by comparing the recorded investment to the value determined by discounting the expected future cash flows at the note’s effective interest rate or to the fair value of the Company’s interest in the underlying collateral, less the cost to sell. No impairment loss has been recognized in connection with the mortgage note receivable.

On December 23, 2015, the Company issued notice of default letters to 580 Garcia Properties, Daniel Fisher and Sharon Fisher for failure to remit certain payments on the promissory note. The Company also exercised a failure to pay provision within that note to escalate the interest rate from 7.24% to 11.24%.  On September 27, 2016, The Notice of Default and Election to Sell under Deed of Trust was formally filed and recorded in Contra Costa County California. As of September 8, 2016, the additional amounts due the Company total approximately $206,000. Due to the contingent nature of this default action, the Company has not recorded a receivable for this amount in its financial statements. The Company is no longer accepting scheduled payments from the defendants until this matter is resolved.