COMPANY CONFIDENTIAL

To All FXO Investors:

We were in Boston last week
shooting video footage that will be used on the website for a number of
purposes: recruiting salon owners, training stylists, helping with sell-through
and enhancing credibility for our marketing claims. 

While there, we had a small
reception for Boston-area investors and gave them an oral update.  Here is that report for those of you who
weren’t able to attend:

Product

·     
Market Tests.  In January, we tested two formulations with
fifty unaffiliated, paid volunteers who had not tried the products before.  Forty people completed all six
tests.  We deliberately didn’t tell respondents
anything about how the products work or what to expect, and we asked for extensive
feedback in their own words. Here’s what we learned:

o  
While individuals reported liking one
formulation or the other, there were no statistically significant differences
between them.

o  
The somewhat astringent “feel” of the shampoo
was commented upon by most respondents – it was noticeable, surprising
and sometimes unsettling.  People
who suspended judgment and awaited results connected the unusual “feel” with
the good results, and they liked the products.  People who told themselves a negative story
about what was happening didn’t like the products. 

Our marketing messaging clearly has to prepare people for the different feeling
-- and set expectations accordingly.

o  
Even with no fragrance and no marketing
messaging, 19 of 40 respondents gave the products the highest marks.   3 people gave them the lowest
marks.  Most of the rest were in the
C+ / B- range.

·     
The “Feel” of the Shampoo.  Addressing the “feel” issue, Michael and
Mario have tweaked the formulation (code name “Shampoo C”), and Marketing is
working on new messaging to tell users that the “feel” is a feature, not a
bug.   Mario’s stylists and
users who have tried the new formulation are VERY positive about it.  (Wait until you see what they say on
camera!)  The entire management team
is very excited about Shampoo C.

·     
Microbiological Testing.  We got great results from the
microbiological challenge testing – and we have NO preservatives in any
of the formulations.  (Full
report.)  This can be a major
selling point.

·     
Fragrance.  Last, we commissioned the development of
a new proprietary fragrance from CPL
Aromas, a mid-sized UK company recently arriving in the US.  The result is getting very positive
reviews from virtually everyone associated with our Company.   Let me know if you want a whiff,
and I’ll send a sample.  CPL really
did nail the creative
brief we shared with them.

Production

·     
XO-70.   We solicited manufacturers for XO-70
with a detailed RFP, and we vetted the three finalists with in-plant visits.  We are very happy with the toll manufacturer
we have identified.  We believe we
are now the ONLY company in the world who makes XO-70,
and we intend to protect our sources and our formulation to the maximum extent
of the law.

·     
Bottle.  We have commissioned a proprietary
bottle for the shampoo and the spray conditioner, pictured here.  It nicely communicates the “prestige”
positioning.  Final colors TBD.  Thank you to advisor Rich Howard for the
introduction.

·     
Tubes.  We have identified a tube manufacturer
who will provide elegant 6.8 oz. tubes for the cream conditioner.

·     
Contract Manufacturer; the “Bottler”.  We have identified a contract
manufacturer in New Jersey who can handle our needs at attractive pricing.  Dr. Zasloff has worked with this contract
manufacturer before, and we have already benefited from several suggestions
they have made regarding production.

·     
Quality Control.   We have retained John Shipps, the chemist/microbiologist who worked with Mario
Russo on Mario’s line of shampoos to help us with all aspects of quality
assurance and control.  We are
rigorously testing our raw ingredients (and using only trustworthy American
suppliers), as well as establishing standards and methods for accepting or
rejecting finished goods.  You
wouldn’t believe all the things that could go wrong, and I love having veterans
like John as part of our team helping us avoid the potholes!

·     
Costs of Goods Sold.  I’m happy to report that the costs I had
budgeted appear to be higher than we will likely encounter.  Once we began negotiating prices with
cash in the bank, we got much better pricing.

Marketing

·     
Martha Kepner.   Our new Director of Marketing,
Martha Kepner (bio)
began on February 10 and is already making a big difference.  We are pleased to have her perspective,
her experience and her sure-footed development of our “story.”

·     
Brand.  Martha’s prior company was a high-level
consultancy that focused on bringing new products to
market and establishing a clear brand position.  They worked with major brands and
startups alike.  She and Dave have
been refining our brand story and how we can communicate it.  The results are well beyond the scope of
this update; please wait for the website (May 1 for phase 1), as that will best
show you how we are going to compete.

·     
Name.   As of March 1, we have a new
name.  ILLUMAI -- pronounced ih-LOO-may.  
As a “fanciful name,” Illumai can get strong trademark protection.  Our “Friends of the Firm” liked the
“suggestion” of “illuminate” and “luminous” too.  We will need to train customers and others
re: pronunciation, but we like the short name, the prestige-brand-congruence,
the fact that we own illumai.com outright and that our salon partners like the
name.

·     
Videos, Animations, Logo, Colors, Website
– Dave has this well underway and by the end of April these materials
will be available for the first generation of the website and for Salon
Recruitment (which will commence in May, in preparation for a summertime
launch).   The full e-commerce website will be ready
to go by July.

·     
March Trials.   We are conducting further market
testing in late March -- a “blind” test with a totally unbiased panel.   Martha will use the results to
document the claims we can legally make in our marketing communications.

·     
Salon Channel Development.   Mario has been an important leader for us
on how to recruit, “educate” and motivate salon owners and stylists.   Also, we have retained Ray Mager, the recently retired VP/GM of L’Oreal’s Professional
Division.  (“Professional” in this
context means salons and spas.)  Ray
also is on the board of the Professional Beauty Association, the leading trade
group representing salons, spas and the manufacturers and distributors who
provide the retail products to the salons and spas.   With help from Mario, Ray and several
Advisors from the industry, we are developing a salon
recruitment and onboarding process that we believe will give us good
credibility and early traction.

Finance and Administration

·     
Overhead; Budget.  After two months, all I can say is that
our overhead expenses are a bit lower than budgeted and COGS will be much
better.  But it’s really too early
to get too excited, as the effectiveness of Marketing is the real name of the
game.  And we won’t have much
insight into that until summertime.

·     
Legal.  We have applied for registered trademarks
on Illumai and XO-70.  We are also
filing a petition with the FDA seeking trade-secret status for XO-70, which, if
granted, will be of great value.  
Our patent prosecutions continue to go well.  And now that we’ve abandoned “Luminse”
as our name, there are no legal challenges facing us.

·     
New Investment.  We can accept additional investment on
the same terms as December for about another 4 weeks.   If
you know of accredited investors who could consider an investment, please
introduce them, as having a bit more safety margin would be prudent.

I will be sending updates from
time to time – mainly when there is something material to report (or when
our Investment Agreement calls for reports).    I expect the next one will
be around Labor Day, after commercial launch and we have some insight into
market traction.

Best wishes,

Wayne