NOTE 5.- Discontinued Operations.

On September 3, 2013, the Company entered into an Asset Purchase Agreement, (the “APA”), by and among the Company, BioZone Laboratories, Inc., the Company’s wholly owned subsidiary (“BZL”) (and Lautus Pharmaceuticals LLC, a New Jersey limited liability company (“Lautus” or the “Buyer”). (The Company and BZL are referred to herein as the “Sellers”).

Pursuant to the APA, the Buyer purchased from the Sellers certain assets relating to the Glyderm® brand of skin care products currently manufactured and sold by BZL. Specifically, the Sellers sold all of their interests in (A) the Glyderm® trademark, the Glyderm® patents, the Glyderm® product formulations, the domain names, www.glydermonline.com and www.glydermskincare.com, and the Glyderm® internet website; and (B) the Sellers’ entire inventory of Glyderm® products held for resale (the “Purchased Assets”).

The purchase price for the Purchased Assets is an aggregate amount equal to: (A) one million dollars ($1,000,000), payable as follows: (i) six hundred thousand dollars ($600,000) payable at the closing of the APA (the “Closing Date”), (ii) two hundred thousand dollars ($200,000) payable six (6) months after the Closing Date, and (iii) two hundred thousand dollars ($200,000) payable twelve (12) months after the Closing Date; plus (B) the purchase price for the inventory, calculated based on the amount of units of Glyderm® products purchased on the Closing Date at the price per unit that BZL charges its non-retail customers for similar products.  The Buyer will pay the purchase price for the inventory as the Glyderm® products contained in the inventory are sold by the Buyer to third parties.

Simultaneous with the closing of the APA, BZL and the Buyer entered into a Supply Agreement providing for the manufacture of Glyderm® products by BZL on behalf of the Buyer. The term of the Supply Agreement is five years and is subject to termination upon various events set forth in the Supply Agreement, including termination at the Buyer’s option upon ninety days prior written notice. The Supply Agreement contains a schedule of the price per unit that the Buyer has agreed to pay BZL for the manufacture of Glyderm® products. The Buyer is not obligated to purchase any minimum amount of Glyderm® products from BZL during the term of the Supply Agreement.

In addition, BZL and the Buyer entered into a Services Agreement on the Closing Date pursuant to which BZL will provide to Buyer certain ongoing operational support on behalf of Buyer for a period of twelve months from the Closing Date.

The analysis of the total gain on disposal, carrying values of the assets and liabilities disposed, and also the net cash inflow from the disposal were as follows:

The results of the disposal of the Glyderm brand, and the cash flows from discontinued operations are disclosed under discontinued operations in the nine months ended September 30, 2013 and 2012, and the comparative results have been restated accordingly.

The results of the discontinued operations are as follows: