On January 2, 2014, Biozone sold substantially all its operating assets to Musclepharm Corporation (“Musclepharm”), a public company trading on the OTCBB, in exchange for 1,200,000 shares of Musclepharm common stock. 600,000 shares were placed into escrow for a period of 9 months (the “Escrow Period”) to cover indemnification obligations. Additionally, Musclepharm has the option to purchase the shares held in escrow at a purchase price of $10.00 per share during the Escrow Period (the “Call Option”).  The remaining 600,000 non-escrowed shares were issued to Biozone upon closing.  This transaction occurred immediately prior to the Merger described in Note 1 above.  These 600,000 non-escrowed shares were sold for $9.00 per share in June 2014 in a private sale.

The estimated fair value of the Musclepharm escrowed securities is determined at each balance sheet date. Any decrease or increase in the estimated fair value of the securities since the most recent balance sheet date is recorded as a component of other comprehensive income (loss). Since the shares held in escrow are subject to restrictions on the Company’s ability to sell and are also subject to the Call Option, the fair value of such shares is estimated by applying a discount for lack of marketability and for the Call Option to the quoted market price of unrestricted shares of Musclepharm.  The fair value of the Call Option was estimated to be approximately $1,386,000 as of June 30, 2014 and the discount for lack of marketability was estimated to be approximately $140,000.  As a result, the escrowed Musclepharm shares are recorded on the consolidated balance sheet at their estimated fair value of $5,719,000 as of June 30, 2014, which represents a discount totaling $1,526,000 from the market price of $7,245,000 of those shares.