Blog of Intellectual Capital

Sale of LumaTherm, Inc.

Gerbsman Partners (http://gerbsmanpartners.com) has been retained by LumaTherm, Inc. (http://www.myzeno.com/about-lumatherm/ ) to solicit interest for the acquisition of all, or substantially all of, LumaTherm assets (the “LumaTherm Assets”).

IMPORTANT LEGAL NOTICE:

The information in this memorandum does not constitute the whole or any part of an offer or a contract.

The information contained in this memorandum relating to the LumaTherm’s Assets has been supplied by LumaTherm. It has not been independently investigated or verified by Gerbsman Partners or their respective agents.

Potential purchasers should not rely on any information contained in this memorandum or provided by Gerbsman Partners (or their respective staff, agents, and attorneys) in connection herewith, whether transmitted orally or in writing as a statement, opinion, or representation of fact. Interested parties should satisfy themselves through independent investigations as they or their legal and financial advisors see fit.

Gerbsman Partners, and their respective staff, agents, and attorneys, (i) disclaim any and all implied warranties concerning the truth, accuracy, and completeness of any information provided in connection herewith and (ii) do not accept liability for the information, including that contained in this memorandum, whether that liability arises by reasons of LumaTherm’s or Gerbsman Partners’ negligence or otherwise.

Any sale of the LumaTherm Assets will be made on an “as-is,” “where-is,” and “with all faults” basis, without any warranties, representations, or guarantees, either express or implied, of any kind, nature, or type whatsoever from, or on behalf of LumaTherm and Gerbsman Partners. Without limiting the generality of the foregoing, LumaTherm and Gerbsman Partners and their respective staff, agents, and attorneys,  hereby expressly disclaim any and all implied warranties concerning the condition of the Satiety Assets and any portions thereof, including, but not limited to, environmental conditions, compliance with any government regulations or requirements, the implied warranties of habitability, merchantability, or fitness for a particular purpose.

This memorandum contains confidential information and is not to be supplied to any person without Gerbsman Partners’ prior consent. This memorandum and the information contained herein are subject to the non-disclosure agreement attached hereto as Exhibit A.

Company Profile

LumaTherm, Inc. was created as a new Delaware C corporation in December 2011 to purchase substantially all of the assets of the former Zeno Corporation, which had generated cumulative revenues of almost $90 million on more than 1 million units sold and had raised over $80 million in capital since inception in 2004. Prior investors in Zeno Corporation included Austin Ventures, Catterton Partners, Escalate Capital Partners, Santé Ventures, Viacom Corporation, Enhanced Capital Partners, CIG Capital Partners and Comerica Bank.   LumaTherm’s control investor is Santé Ventures, located in Austin Texas, and its minority investor is Enhanced Capital Partners, located in New York City.

LumaTherm is a Houston-based medical device skincare company leveraging Zeno’s patented ClearPointtm technology platform to developand market a proprietary portfolio of revolutionary handheld devices and topical lotions that are dermatologist recommended and FDA cleared to deliver fast, painless and effective over-the-counter (OTC) therapies for widespread skin maladies like acne, cold sores and fine wrinkles.  ClearPointtm technology delivers precisely controlled doses of heat to destroy microorganisms that cause many common skin lesions, with FDA-reviewed clinical trials proving that 90% of treated blemishes fade or disappear within 24 hours.  LumaTherm’s products are manufactured in Malaysia by the world’s largest third-party contract medical device manufacturer, Sanmina-SCI Corporation, and are distributed through a third-party logistics provider, Exact Packaging, of Deerfield, Illinois.

LumaTherm plays directly into one of the most exciting and disruptive trends the skincare industry—rapidly increasing consumer demand and adoption of home-use aesthetic devices—which has grown at over 25% CAGR from $225 million in 2008 to an estimated $1 billion by 2015. The company has three existing commercial product lines, which combined address large and growing markets of over $2.75 billion in the U.S.and $6 billion worldwide:

1. Acne: Zeno Hot Spot is the first and only device of its kind to receive FDA clearance for the treatment of mild to moderate acne. Hot Spot is clinically proven to be effective and, when compared to existing OTC treatments, offers users substantially better results with none of the typical side effects. The device delivers a precisely controlled dose of heat to an acne lesion over a 2.5 minute treatment interval, which causes P.acnes, the bacteria that creates most acne pimples, to self-destruct via a processcalled heat shock response.  Independent human clinical trials (n=51) showed that 90% of treated blemishes faded or disappeared within 24 hours with no damage to the surrounding tissue. The Zeno acne device began OTC sales in June 2005, initially through dermatologist offices. Today, it has national distribution through U.S. drug and mass retailers and has been the #1 and #2 ranked item in the acne care category according to Neilson data.  In a December 2010 customer satisfaction survey conducted by Ipsos (n=109), 90% of consumers would recommend Zeno Hot Spot to a friend.

LumaTherm also markets the Zeno Heat Treat, launched in August 2010, offering consumers the first device-based preventative acne regimen – a two-part system that combines a hand-held vibrating device with soothing heat and a patent-pending Blemish Prevention Treatment. Heat Treat naturally prevents future breakouts by destroying 99.9% of acne causing bacteria within 1 hour of a five-minute treatment. By tapping into a deeper pool of users, Heat Treat brings the first real innovation in years to consumers’ daily facial regimen and successfully builds on the brand message developed by Hot Spot.  Together, these two products address a $925 million U.S. market for OTC acne treatments within the $2.8 billion worldwide market.

2. Cold Sore: Zeno CS is a handheld medical device utilizing the same technology platform to clear cold sores quickly by delivering a precisely controlled dose of heat directly to a cold sore lesion, which causes Herpes Simplex 1 (HSV-1), the virus that creates cold sores, to self-destruct via the same heat shock response pathway that destroyed P.acnes bacteria in acne. In human clinical trials (n=67), Zeno CS has been shown to shorten a cold sore’s life cycle by 50% compared to placebo with three to four treatment cycles of 4 minutes each, spread over 24 hours. In 2008, the company received European CE Mark and Health Canada approval for Zeno CS.  An estimated 80% of the population is infected with HSV-1, with 38% suffering from one or more outbreaks per year (the other 42% are carriers).  The U.S. alone has over 100 million sufferers (and 30 million frequent sufferers with more than one episode per year) generating an estimated U.S. market potential of $258 million per year.

3. Anti-Aging:  Zeno Line Rewind is a two-step treatment, similar to Heat Treat, which diminishes the fine lines and wrinkles that are visible signs of aging.  The topical Line Rewind serum was designed specifically for use with the handheld device applicator and is enriched with a peptide blend that enhances cellular turnover and supports the collagen structure, as well as the super-antioxidant, Resveratrol, which is known toprovide protection against damaging environmental free radicals that can cause premature aging.   After the serum is applied to the skin, the device delivers a non-therapeutic level of heat, red wavelength light and gentle vibration to massage the serum into the skin.  Regular use of the LineRewind regimen results in radiant, luminous skin that is smoother, healthierand younger looking. Unlike the acne and cold sore products, the Line Rewindanti-aging product is not intended to treat or prevent disease or to affect the structure or function of the human body, and as such does not require FDA premarket clearance.  It does, however, leverage Zeno’s brand and device technology to create a differentiated product offering in the $1.6 billionU.S.anti-aging skincare market.

LumaTherm’s portfolio consists of unique and differentiated products with ASPs of $39-199 and gross margins of 50-65% that have proven safe and effective in both the professional channel (dermatologists, aestheticians, health and beauty spas) and the mass-market retail channel (specialty beauty shops, mass merchants, drug stores, e-commerce).  The Company’s heritage is grounded in the medical professional market, having secured consumer-valued credentialing from leading dermatologists, on-premise sales in over 2,500 physician offices, and marketed to the upscale, beauty-involved consumer.  LumaTherm’s professional market technology and intellectual property extends into its retail portfolio, enabling brand andproduct reach to mainstream consumers with distribution at North America’s leading retailers, including Ulta, Walmart, Target, CVS, and Shoppers Drug.

LumaTherm has immediate growth prospects in both channels, driven by the new professional-focused LumaTherm Pearl Premium Acne Device, ready for shipment in late 2012, and new retail-focused Zeno Hot Spot 2.0 with expanded treatmentcounts and updated, on-trend colors, ready for shipment in Q3 2012.  Longer term, the product portfolio could be expanded by gaining U.S. FDA approval for the Zeno Cold Sore device and by leveraging the core technology platform to create new product lines addressing itch relief, nail bed antifungal and dental health and whitening applications.

LumaTherm believes its assets are attractive to either the consumer or professional channels for a number of reasons:

•  The Zeno Acne device is FDA cleared and has been marketed within the U.S. professional market since 2005 and within the U.S. mass market since 2007. LumaTherm’s 510(k) (K043377) provides over-
the counter (OTC) clearance.

•  The Zeno Cold Sore device is cleared by Health Canada.

•  The acne and cold sore devices are CE-mark approved.

•  LumaTherm’s intellectual property, including 8 issued patents and 13 pending patent applications, represents abroad portfolio targeting the treatment device and method for treating skinlesions
through the application of heat.

•  The company achieved ISO 13485:2003 certification in 2006 and has successfully maintained annual certification through multiple routine FDA audits.

•  Broad distribution base and long standing business partnerships including with mass market leaders Wal-Mart and Target in the U.S. and Shoppers Drug in Canada-currently in distribution at over
12,000 retail outlets.

•  At home skin care devices expected to be the next $1B market with acne devices the fastest growing segment.

•  Top performer within retail skin device category with >1 million devices sold to date.

•  All natural, “chemical free” product that is easy to use.

•  Strong consumer advocacy – over 90% of customers would recommend Zeno to a friend.

•  Recently completed product development will lower current product costs by nearly 15% and provide a premium version able to be launched at $200 retail price point and >65% gross
margin.

•  Leading dermatologists actively support LumaTherm’s acne devices through endorsement.

•  The company has collected a significant amount of pre-clinical and clinical scientific evidence in support of the technology.

•  Only device in the world with specific controls that read the skin’s temperature 10 times per second, adapting to changes in blood flow, skin moisture content and ambient conditions via
A microprocessor similar to the iPod Nano to maintain treatment temperature within +/- 1 degree of target.

•  $5.3 million spent on intellectual property portfolio since inception.

•   9.9 million spent on product technology R&D since inception.

•  $48 million spent on brand advertising since inception.

Impact of Technology on the Market

LumaTherm offers a breakthrough proprietary technology platform in categories that demand innovative and effective products but are dominated by brand-based competition among undifferentiated productofferings.  LumaTherm’s unique acne and cold sore products offer several advantages over currently marketed products.  Zeno Hot Spot is the only acne treatment device with FDA clearance for the claim, “90% of acne blemishes fade or disappear within 24 hours.” No other FDA cleared OTC acne devices are capable of outperforming Zeno based on actual human trials.  More important, the product’s safety and user satisfaction profile is very well established, with over 1 million devices in service.  The Zeno product has received strong performance endorsements from the dermatology community, the beauty community and consumers.

Previous treatment methods for persons who suffer from mild to moderate acne generally include over-the-counter (OTC) topical cleansers, astringents and benzoyl peroxide preparations with occasional prescription of topical or systemic antibiotics provided when more severe flares occur.  These OTC preparations are minimally effective and persons that fall into this category often feel the psychological pain of few effective treatments and of chronic persistence of this disease process.  The majority of these sufferers do not qualify for more drastic treatment with agents such as cis-retinoic acid (prescription Accutane) and more stringentrequirements are being placed on physicians so this treatment regimen is being offered to fewer people. It is also becoming increasingly clear that P. acnes is developing increased resistance to antibiotic treatments making this modality less effective anddesirable.

The device incorporates a proprietary solid-state technology platform that delivers precise heat dosing for effective therapy.  The same microprocessor found in the iPod Nano is used to provide accurate analog-to-digital conversion, reading and adjusting 10 times per second to compensate for increased blood flow, differences in skin thickness and moisture content, as well as changes in ambient temperature.  This is an exceptional level of precision for an over-the-counter consumer product that sells at competitive retail rates while maintaining attractive 50%+ gross margins, and is protected by interlocking IP, regulatory approvals, and proven product design & manufacturing experience.

Intellectual Property Summary

LumaTherm has a unique intellectual property portfolio consisting of direct ownership or exclusive licenses to 12 issued patents: 4 are issued to LumaTherm for the US, 4 are licensed through Dr. Li for the US, and 4 are issued to LumaTherm for International.  LumaTherm has 13 pending applications: 2 pending for the U.S. and 11 pending for International, as described in appendix B.  The portfolio represents a broad array of strategic variables including:

·      Methods and devices for the treatment of skin lesions;
·      Treatment device and method for treating skin lesions through application of heat;
·      Heat element tip for skin heating device;
·      Skin heating device;
·      Heat treatment device;
·      Medical device for treating skin itch and rash;
·      Method and apparatus for treatment of skin itch and disease;
·      Treatment device and method for treating skin lesions through application of heat.

LumaTherm registered marks include 5 trademarks with 61 registrations across 30 countries as described in appendix B:

·      Clearly outsmarts pimples®
·      ClearPoint™
·      ZENO®
·      ZENO® MD
·      ZENO® MD (stylized E)

LumaTherm’s Assets

LumaTherm has developed a solid technology portfolio that delivers a product platform for treating bacterial, viral and fungal skin lesions, including mild to moderate acne and cold sores to address an estimated $4.5 billion global market.  These assets fallinto a variety of categories, including:

·      Patents, patent applications, and trademarks
·      510(k) clearance acne device
·      Cold sore clearance in Canada and Europe
·      CE-mark for acne and cold sore devices
·      Unique and clinically relevant patient data
·      Pre-clinical and clinical trials documents
·      Next generation product designs
·      Product cost reduction designs
·      Manufacturing and design equipment and expertise
·      Raw and finished goods inventory
·      Custom test equipment and hard tooling/plastics molds
·      Intellectual capital and expertise
·      Recognized consumer brand supported by over $100 million in spend since inception

The assets of LumaTherm will be sold in whole or in part (collectively, the “LumaTherm Assets”). The sale of these assets is being conducted with the cooperation of LumaTherm. LumaTherm and its employees will be available to assist purchasers with due diligence and a prompt, efficient transition to new ownership. Notwithstanding the foregoing, LumaTherm should not be contacted directly without the prior consent of Gerbsman Partners.

Management

Scott Almquist—departing CEO—Scott served as CEO of Zeno and then LumaTherm from May 2011 through July 2012. Prior to joining Zeno, Scott was President of North America for Evenflo Company, Inc where he was responsible for a $300 Million business, accounting for 80% corporate net sales and EBITDA. Previously, Scott spent 20 years with Proctor & Gamble, culminating in his appointment as President of The Millstone Coffee Company, a $200 Million independent division within P&G.  Scott holds a Bachelor of Arts in Political Science from the University of Michigan.

Maria Tryan-CFO & COO- Prior to joining Zeno in 2011, Ms. Tryan was the first employee hired by Dyson USA, where she led a nine-year growth path from no established business to $500 million as its VP Finance & Operations.  She has extensive consumer packaged goods industry and public accounting experience.

Joe Mills-VP, Global Operations- Joe has over thirty years of leadership experience across regional and global supply chain management, warehousing and operations, beginning with Proctor and Gamble.  He has led Zeno/LumaTherm operations for five years, most recently driving the development of two newLumaTherm products, the upgraded, lower cost Hot Spot and the premium acne treatment device which was set for launch in the professional dermatological channel in September, 2012.

Leslie Honda-VP, Quality and Regulatory Affairs- Leslie has over thirty years of quality systems, regulatory affairs, and operations experience in the medical manufacturing industry for Class II and Class III devices.  She has led Zeno/LumaTherm efforts in the Quality and Regulatory areas since 2005.

ElaineBobbey-VP, North American Sales- Elaine is a thirty year retail, sales and marketing veteran.  She spent the first ten years of her career in retail merchandising with May Company and the Joseph Horne Company.  Elaine then moved into customer business development and marketing, spanning roles of increasing responsibility across channels at Totes Isotoner and Evenflo Company, Inc. before joining Zeno inJune of 2011.

Board of Directors

Kevin Lalande:  Managing Director- Sante Ventures-Austin, TX

The Bidding Process for Interested Buyers

Interested and qualified parties will be expected to sign a Confidential Disclosure Agreement (attached hereto as Appendix B) to have access to key members of management and intellectual capital teams and the due diligence “war room” documentation (“Due Diligence Access”). Each interested party, as a consequence of the Due Diligence Access granted to it, shall be deemed to acknowledge and represent (i) that it is bound by the bidding procedures described herein; (ii) that it has had an opportunity to inspect and examine the LumaTherm, Inc. assets and to review all pertinent documents and information with respect thereto; (iii) that it is not relying upon any written or oral statements, representations, or warranties of Gerbsman Partners, ortheir respective staff, agents, or attorneys; and (iv) all such documents and reports have been provided solely for the convenience of the interested party, and Gerbsman Partners (and their respective staff, agents, or attorneys) do not make any representations as to the accuracy or completeness of the same.

Following an initial round of due diligence, interested parties will be invited to participate with a sealed bid, for the acquisition of the LumaTherm, Inc. assets. Each sealed bid must be submitted so that it is received by Gerbsman Partners no later than Thursday, August 23, 2012 at 5:00pm Central Daylight Time (the “Bid Deadline”) at LumaTherm, Inc.’s office, located at 12600 Northborough Drive, Suite 220, Houston, TX  77067.  Please also email steve@gerbsmanpartners.com with any bid.

Bids should identify those assets being tendered for in a specific and identifiable way. In particular, please identify separately certain equipment or other fixed assets.  The attached LumaTherm, Inc. fixed asset list may not be complete and bidders interested in the LumaTherm, Inc. equipment  must submit a separate bid for such assets.

Any person or other entity making a bid must be prepared to provide independent confirmation that they possess the financial resources to complete the purchase.  All bids must be accompanied by a refundable deposit in the amount of $200,000 (payable to LumaTherm, Inc.).  The deposit should be wired to LumaTherm, Inc.’s attorneys Murray & Murray, A Professional Corporation.  The winning bidder will be notified within 3 business days of the Bid Deadline. The deposit will be held in trust by LumaTherm’s counsel.  Unsuccessful bidders will have their deposit returned to them within 3 business days of notification that they are an unsuccessful bidder.

LumaTherm, Inc. reserves the right to, in its sole discretion, accept or reject any bid, or withdraw any or all assets from sale.  Interested parties should understand that it is expected that the highest and best bid submitted will be chosen as the winning bidder andbidders may not have the opportunity to improve their bids after submission.

LumaTherm Inc. will require the successful bidder to close within a 7 day period. Any or all of the assets of LumaTherm, Inc. will be sold on an “as is, where is” basis, with no representation or warranties whatsoever.

All sales, transfer, and recording taxes, stamp taxes, or similar taxes, if any, relating to the sale of the LumaTherm, Inc. assets shall be the sole responsibility of the successful bidder and shall be paid to LumaTherm, Inc. at the closing of each transaction.

For additional information, please see below and/or contact:

Steven R. Gerbsman
Gerbsman Partners
(415) 456-0628
steve@gerbsmanpartners.com

Kenneth Hardesty
Gerbsman Partners
(408)591-7528
ken@gerbsmanpartners.com

Philip Taub
Gerbsman Partners/Foundation Ventures
(917) 650-5958
phil@gerbsmanpartners.com   ptaub@foundationventures.com

Stephen O’Neill, Esq.
Murray & Murray
(408) 907-9200
soneill@murraylaw.com

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