Mosaic Distributors, LLC, (the “Issuer”, “The Company”, or “Borrower”) is issuing up to $4,000,000 in Series B Participating Preferred Membership Interests (the “Equity” or “Securities”) to grow sales through demand-generation marketing.
1) Purpose of the Financing
The proceeds will be invested in Chella’s Sales Force, they will support marketing to its existing 250+ Salon/Spas and they will go to expanding the Sales Force to open more of these accounts.
To launch the Chella Pro Incentive Program – their “Complimentary Brow Enhancement” solution and incentive program to Spas and Salons through their existing services that combine Rewards and Commissions in a Tier based structure and enhanced sell-through education and support. This sets Chella apart as the much-needed solution and brand for this underserved and growing market.
Buildout of Chella’s in-house social media team to drive organic traffic and build community through user generated content.
Fund Chella’s growth and innovation to position for a sale in the fragmented beauty sector.
2) Issuer – Mosaic Distributors, LLC (“Chella”)
Since 2012, Chella has supplied eye and brow cosmetics to US and international customers. Products are sold both online (B2C) and through specialty retail, spa, salon, hospitality outlets, and independent distributors (B2B)
Chris Kolodziejski, founder and CEO, a 17+ year beauty industry entrepreneur.
Extensive product line comprised of 65+ SKU’s, with a strong customer reviews and social media following
3,000,000+ customers have received Chella products and provided exceptional reviews and ratings
3) Security Description – Series B Participating Preferred
Up to $4,731,050 of 6% Series B Participating Preferred Equity. The effective pre-money valuation for this offering is $8,000,000 with a post-money valuation of $12,731,050 representing 36.16% of the Company’s fully diluted ownership.
All dividends and Investment Principal must be returned before distributions are made to holders of common equity.
Once dividends and Investment Principal are received by investors, the Preferred Equity continues to participate in Common Equity distributions.
4) Investment Return and Principal Repayment (Returns are not Guaranteed)
5) Investment Risks
The Company must execute the Spa and Salon sales strategy and pivot, as necessary, when consumer purchasing trends change, as well as to identify and grow new channels along with its existing ones.
It must also continue to innovate its product line and deliver in a timely manner its high-quality products.
AN INVESTMENT IN THESE PREFERRED INTERESTS IS SPECULATIVE AND IS SUITABLE ONLY FOR PERSONS OF SUBSTANTIAL FINANCIAL MEANS WHO CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT AND HAVE NO NEED FOR LIQUIDITY IN THIS INVESTMENT. RETURNS CANNOT BE GUARANTEED.
Eyebrow and eye makeup products are one of the fastest growing categories within the prestige makeup sector ($8.1B in 2018) and generates high gross margins – U.S. and worldwide sales are expected to grow at 6% annually through 2025 or longer.
Due to increased use of protective masks during the COVID-19 pandemic, eye and eyebrow appearance has become even more emphasized during personal interactions and this his persisted post-COVID-19.
Spa and salon retailers have broadly reopened to strong customer demand and growth after COVID-19 with a self-described objective of adding enhanced services to their basic service offerings. They have identified eye and brow product offerings as an effective new service which can drive further sales growth. Spa and salon industry trends are strong and there is a large addressable market as represented by the statistics offered below.
Mosaic Distributors, LLC (dba “Chella”) now offers 65+ product SKUs with exceedingly strong and consistent levels of consumer appeal.
3,000,000+ consumers around the world have received Chella products, many delivering enthusiastic, highly rated reviews.
Products are sold across 250+ salons and spas internationally (individual owner operated businesses, Ritz Carlton, JW Marriott, Hyatt, Four Seasons, Spavia, and other notable accounts), online on Chella.com, Amazon Exclusives product offering in 13 countries, Macys.com, Belk.com. QVC.com, Costco.com, Target.com and via “Glam Bags” (Ipsy, Birchbox, Boxycharm, Fab Fit Fun, and many others).
Consumer and beauty professional use is supported by Chella’s industry leading “How to Brow in 3 Easy Steps,” Chella Pro website instructional and education programs, and Chella Bellas Affiliate Program.
Chella has become a highly regarded brand with a growing presence in the eye and brow category of the beauty industry.
Chris Kolodziejski, founder and CEO, has gathered a team of beauty industry specialists focused on product development and customer support, for both beauty treatment professionals “make-up artists” and end use consumers.
Sales are poised to grow substantially from a just-launched Chella Pro Incentive Program and expanding domestic and international distribution channels.
Led by founder and CEO Chris Kolodziejski, Mosaic Distributors, LLC (“Mosaic” or the “Company”) was established in Southern California in October 2012 to acquire all assets associated with the Chella brand. Mr. Kolodziejski has over thirty years of experience in business as an entrepreneur, the last 19 within the beauty industry with a focus on product development, branding, marketing, and sales.
Under the Chella brand, Mosaic formulates its proprietary line of products across the brow and eye care product spectrum. The Company prides itself on its ability to distribute its prestige cosmetic brands to leading retailers throughout the United States and around the world. The Company also provides a comprehensive level of product development, marketing, sales, wholesale customer training and other support for all Chella beauty products. This line is promoted as the Chella Brow & Eye Collection. This brand has been actively and successfully sold into the “Prestige” target market since its development and launch in 2011.
Building a Successful Brand
Success in the beauty industry is centered around building a strong brand:
Consumer loyalty to a brand generates sales even during economic downturns – Skincare and beauty product sales grew from 2008 to 2010 during the recession.
Makeup products have a long shelf life and must be consistently replenished by the consumer.
Cosmetics consumers are increasingly inclined to try Indie brand niche products.
What Sets Chella Apart
Superior quality, long lasting, multifunctional products which also meet market demands for eco-friendly specifications.
Packaging aesthetic design is based upon targeted affinity group analysis.
Personalized attention and education, both online and in salons.
Numerous industry awards as well as consistently positive consumer satisfaction ratings.
Accessed Amazon’s UK, EU, Singapore, Canada, and Australia platforms.
Achieved a total 1.8x Return on Advertising Spend (ROAS) on Google platforms.
Revitalizing B2B sales with GD & Associates, the largest cosmetics distributor in North America.
Concerted focus on the Spa/Salon market Chella has very little competition and where they are embedding themselves into both the “BackBar” of professional service side and also the retail inside the Salon/Spa retail area.
Chella’s Brow & Eye Collection of products is over 65+ SKUs, including:
Chella Pro Focus: Spa and Salons
In the U.S., the salon industry saw a collective revenue of $18 billion in 2021, a 49% increase from 2020’s $12 billion. This growth was facilitated by the presence of more than 21,000 operating salons and strong recovering consumer demand post COVID-19.
Additionally, the following data was shared by Square:
"Square Appointments saw more than 60M completed reservations with beauty and personal care sellers in 2021 alone. Out of millions of appointments, brow specials and vacuum therapy were the fastest-growing trends among consumers."
The market lacks established competition, allowing for opportunities. Prominent competitors like Anastasia and Benefit have established distribution channels primarily through Ulta and Sephora, avoiding the thousands of fragmented smaller spas and salons. The minimal competition lacks a comprehensive product selection and a specific focus on brow and eye products, making Chella's unique offerings stand out.
Chella possess a diverse range of shades to cater to all skin tones and brow colors, along with comprehensive training, education, and event support. It promotes a "Clean Beauty that cares" ethos, exhibited by its commitment to carbon and plastic neutrality and the use of Prop65 and EU-approved ingredients in all formulas, with an aim towards recyclability.
The incentive for Spa and Salons
Through Chella’s value-added services, spa and salons will retain and attract new businesses. The implementation of the Brow Fill service elevates the value proposition, resulting in a boost to revenue streams. This affords spa owners a competitive advantage as they will be able to offer a unique experience, capitalizing on the current trend in the industry of offering enhanced services that instantly improve a client’s appearance. The Brow Fill service is easy to implement without requiring any major investments like re-designing a spa space, buying expensive equipment, or hiring specialists.
In addition to enhancing the value proposition and driving revenue growth, Chella provides the following for Spa and Salons:
Chella's Sales and Growth Strategy
To achieve quick sales and attractive financial performance, Chella will focus on implementing the following:
Upsell new products to an active network of 125+ active Chella Pro accounts.
Introduce a new Chella Pro Incentives Plan to new and existing customers.
Utilize 1,100+ tradeshow leads.
Reactivate hundreds of past customers.
Respond to weekly reverse inquiries.
Drive new customer growth – historical new account growth has exceeded 35 new accounts per salesperson, per year.
Eye Makeup is a Source of Growth Despite Market Volatility
The impact of COVID-19 is still being measured, but a few clear pockets of growth have been identified at this stage of the pandemic. The consumer sector has broadly declined peak to trough, but eye makeup sales experienced +6% growth during that time. The introduction of masks into routines and more time to master and express creativity through eye techniques and have created an environment conducive to continued eye makeup growth.
Brick & Mortar vs eCommerce in Cosmetics
In the wake of the COVID-19 pandemic, eCommerce has skyrocketed as the primary sales method in the beauty industry. Online sales of self-care products were strong in Q1 2020, up 24% from 2019, according to market research firm NDP Group, with double-digit increases for makeup, skincare, fragrance, and hair products. L’Oreal, the leading global beauty company, reported an increase of 52% in ecommerce sales in its first quarter financial results.²
There is expected to be a bifurcation among beauty brands: those with online sales infrastructure pre-COVID and those who were not. Some brick-and-mortar dependent brands are being forced to adopt eCommerce from concept to cart in a compressed timeline, resulting in missteps and unfavorable terms. Companies that have preemptively invested in fully integrated, scalable eCommerce platforms will be positioned to absorb this spike in demand and gain market share from their competitors.
Cosmetics are Resilient Across Cycles
The often-cited indicator of beauty’s recession resilience is the “Lipstick Index.” This is a reference to cosmetics sales increasing through previous recessions. This time around many like Chris Ventry, SSA’s Consumer and Retail consultant, see indications it will now be referred to as the “Mascara Index.” Specifically, “as more and more people are wearing masks, they’re emphasizing other forms of makeup... People have gotten very creative with how they accessorize their eyes.”³
The beauty sector has experienced steady, secular growth throughout economic cycles. This is attributed to the products providing a source of comfort or normalcy for a relatively small share of consumers’ discretionary spending, even during times of financial stress. It is a consumable product that lends itself to recurring purchases and customer loyalty. This track record has made cosmetics an active sector during the pandemic, specifically those companies with a strong marketing and eCommerce presence
Innovation is Rewarded in Cosmetics
The cosmetics sector experiences large amounts of innovation and is subject to quickly changing trends. For example, color cosmetics have gained traction as consumers are more willing to experiment with bold colors and as product innovation has resulted in higher-quality pigments. Companies that can be early adopters, or even starters, of these trends are able to secure more consumers. This sector is highly competitive and has relied on effective marketing, increasing as a share of revenue over the five years to 2020.
When innovation gains traction with the consumer, M&A will be prevalent. Larger cosmetics suppliers are not expecting organic growth until discretionary spending recovers, so those large suppliers will purchase growth through smaller, growing brands. R&D will be invested in these companies as they are scaled throughout the acquirer’s customer base.
The successful implementation of business strategies within the Spa & Salon segment, achieving performance outcomes that are in line with realistic and conservative forecasts.
Mosaic’s revenues fall broadly into three categories; Direct via chella.com (85% gross margin), through online and traditional retailers (85% margin, based upon wholesale sales revenues) and glam bags (3% gross margin).
No additional equity financings are projected after the Series B Preferred.
Ongoing customer receptivity to Chella product line.
Consumer trends for eyebrow enhancement.
Product fulfillment is not materially disrupted, particularly from overseas suppliers and associated costs (e.g. transportation, tariffs, etc.)
Uncertainty around the effects of Covid-19 and its overall impact on brick and mortar retail stores as well as on cosmetics and beauty product purchases.
The preceding financial projections reflect the Company’s best estimated forecasts and are not guaranteed to be accurate. The timing of performance is estimated post-funding. These figures are forward-looking statements and reflect the Company’s views about various future events or expectations. These figures take into account known and unknown risks, uncertainties and other factors and assumptions which may cause the Company’s actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by this forward-looking financial projection. Please see the note regarding forward-looking statements. A full version of this pro-forma financial model is available through carofin.com.
On April 16, 2018 Audra Cooper filed a complaint in the Superior Court of the State of California in the County of Ventura against Mosaic Distributors, LLC and Christopher Kolodziejski on counts of breach of promissory note and pierce corporate veil. Ms. Cooper claimed that when Mosaic Distributors and Mr. Kolodziejski presented her with a notice of reorganization on or about December 11, 2013, Mr. Kolodziejski “unilaterally and errantly implied” that Ms. Cooper had authorized the conversion of her financial interest though a promissory note in Mosaic Distributors into preferred equity.
The case was settled on July 31, 2019, with a total of $95,000 being settled through a $5,000 payment on August 1, 2019, and a $7,000 payment on September 1, 2019. The balance of $83,000 will be repaid over forty-two monthly installments of $2,000 commencing on October 1, 2019.
Chris Kolodziejski is the subject of two California state tax liens, filed on March 3, 2011, and May 13, 2015, in the amounts of $105,672 and $18,913, respectively.
On January 22, 2014, Chris Kolodziejski filed for Chapter 11 voluntary bankruptcy in the state of California. The case was dismissed on November 7, 2014.
This Summary of Terms represents only the current thinking of the parties with respect to certain of the major issues relating to the proposed private offering and does not constitute a legally binding agreement. The final Summary of Terms appearing in the Company’s Private Placement Memorandum and as described in the Company’s 4th Amended & Restated Operating Agreement shall take precedence.
Mosaic Distributors, LLC (“Mosaic” or the “Company”), a California limited liability company.
Series B Participating Preferred Units in Mosaic Distributors, LLC (the “Securities”) representing an equity ownership interest in the Company; the Securities will entitle investors to the rights and benefits described in this Summary of Terms and the Company’s 4th Amended & Restated Operating Agreement, including a 6.0% compounding annual return on investment (the “Preferred Return”) and a full return of all invested capital (the “Investment Principal”) before automatically converting to common membership interests of the Company and participating pro-rata with other common shareholders in future Company distributions.
Up to $4,731,050 of Securities will be issued on a continuous basis.
The minimum subscription amount is $5,000, subject to exception by the Company.
The effective pre-money valuation for this offering is $8,000,000. The implied post-money valuation is $12,731,050, with the Series B ownership representing 37.16% of the Company on a fully diluted basis.
The proceeds from this Offering will be used to fund the Company’s “Spa & Salon” growth strategy, to pay outstanding payables, to fund working capital requirements, and to pay offering expenses.
Investors qualified as an “Accredited Investor” as defined within Regulation D as promulgated by the U.S. Securities Exchange Commission.
To generate capital gains for Investors.
This Offering will remain open until (1) full subscription for the Securities, or (2) an election, at the Company's sole discretion, to terminate the Offering.
The Company currently has 5,908,758 units of Series A Participating Preferred Membership Interests (the “Series A”) representing $5,025,953 of investment. The Series B Preferred Units will be Pari passu with the Series A for all distributions made to investors. The Series A Preferred Units and Series B Preferred Units are referred herein collectively as the “Preferred” or “Preferred Units”.
The Securities will entitle Investors to a 6.0% compounding annual return on investment on any outstanding invested capital (the “Preferred Return”) from quarterly distributions made by the Company. These returns cannot be guaranteed.
Investors in the Securities will receive a return of all of their invested capital (the “Investment Principal”) before distributions are made to holders of Common Interests. This repayment of Investment Principal will be made pro-rata to all investors having any Investment Principal which remains outstanding from this offering. These returns cannot be guaranteed.
When the Company management has determined that funds are available for distribution to Series B Preferred Units investors, distributions will be apportioned as set forth below. The Company does not guarantee that funds will be available for these distributions.
First, to all Series A and B Preferred investors, pro-rata, to pay any accrued, unpaid Preferred Return;
Second, to all Series A and B Preferred investors, pro-rata, to reduce the balance of any outstanding Investment Principal, until such balance is reduced to zero;
Third, pro-rata to all common shareholders, including Series A and B Preferred investors in amounts equal to their common membership percentage on an “as converted” basis.
Distribution will be made to all Members (both investors and other common shareholders) on a quarterly basis, to the extent cash is available, to provide Members with sufficient funds to pay their federal income tax liability where proportionate cash distributions have not been otherwise made, assuming that all Members are taxed at the maximum federal and state income tax rates applicable to individuals (see the Company’s 3rd Amended & Restated Operating Agreement for details).
The Securities will automatically convert to common membership interests in the Company once the Investors have received distributions sufficient to return all of their accrued, outstanding Preferred Return and their Investment Principal.
The Securities will have an indefinite life. However, on or after December 31, 2024 Investors will be able to demand the redemption of their Securities at a price equal to the Investor’s unpaid Preferred Return plus the Investor’s unreturned Investment Principal, provided that the Company has funds legally available.
No investor may withdraw as an investor or sell, assign or transfer its Interests, except for certain transfers to affiliated parties. The Securities are also subject to resale restrictions under applicable securities laws.
So long as the Securities are outstanding, the Company will obtain the consent of a majority of the Preferred Investors (as measured by their Preferred membership percentage) for any merger or sale of all or part of the Company at a price resulting in a return to the Investor Members of less than two times their Investment Principal, inclusive of all Preferred Returns received by the Preferred Investors. The Company will also grant Preferred Investors other approval rights/negative covenants customary in transactions of this type.
Members owning the Securities will have pro-rata voting rights with the owners of common membership interests on an “as if converted” basis.
Standard financial reporting, including monthly, year-to-date and annual income, balance sheet and cash flow statements as compared to the current budget and compared to results for the comparable period for the prior year. Annual financial review to be performed within 120 days of year-end by the Company’s outside accounting firm. The coming year’s annual budget will be provided to each Investor prior to each fiscal year-end. Financial statements will be provided so long as the Investors own Preferred Units in the Company.
Holders of the Securities (based upon each such Investor’s pro rata ownership of common Interests on an “as if converted basis”) shall have preemptive rights, until such time as a sale or merger of the Company occurs, subject to customary exclusions, including without limitation, for (i) issuances of management/employee incentive equity, (ii) equity securities issued in connection with a stock split of stock dividend of the company to holders on a pro rata basis, (iii) equity securities issuable upon exercise of any options or other capital stock equivalents, (iv) equity securities issued in connection with bona fide third party financing transactions and (v) equity securities issues in connection with acquisitions and other strategic transactions.
Should any investor or common shareholder owning five percent or more of the Company’s equity make a private sale of its membership interests (to someone other than another employee, officer or director, or then current shareholder or a transfer pursuant to estate planning), then the Investors would be entitled to participate, pro-rata, in the sale of such Interests (i.e., a Tag-Along Right).
If a shareholder or group of shareholders owning more than seventy five percent of the Company’s common membership interests (on an “as if converted basis”) decides to (i) sell his or her membership interests to an unrelated third party, (ii) sell or license all of substantially all of the Company’s assets to an unrelated third party or (iii) consummate a similar “sale of the company” transaction, then he or she shall have the right (i.e., a Drag-Along Right) to require the remaining Investors and common shareholders to sell their Interests at the same price and on the same terms as offered for their membership interests.
Standard weighted average anti-dilution protection against additional equity being issued or options granted at a value lower than that implied at the time of the closing of this offering. Options or warrants approved by the Board of Directors for issuance to Management and Key Employees shall not trigger anti-dilution adjustment.
The Board of Moanagers shall initially consist of five members (the “Directors” or “Managers”). Holders of the Preferred Units shall be entitled to designate two voting Directors. The Board will elect an Audit Committee that will have three members including a representative of the holders of the Preferred Units. The Board shall appoint and maintain a Compensation Committee that will have three members (one of whom shall be approved by a majority of the holders of the Preferred Units. Compensation issues will be approved unanimously by the Compensation Committee. The Company shall pay for or reimburse reasonable out-of-pocket expenses for all Directors.
Management is granted options based upon realized return performance of the Investors as follows:
Carolina Financial Securities, LLC (CFS) will receive a placement fee equal to 6.0% of new equity funds raised from investors. Additionally, CFS will receive warrants to purchase common equity of the Company equal to 6.0% of the membership units purchased by the Series B Preferred investors, for a purchase price of $100 and with an exercise price equal to 1/3 of the price per unit of the Securities.
Carofin is a FINRA broker dealer, an investment bank headquartered in Brevard, North Carolina, that specializes in financing smaller businesses. Carofin’s parent company Carolina Financial Group, LLC, was established in 1995 and its affiliates have privately placed over $1 billion of debt and equity securities.
No. It is being privately placed under Rule 506c of Regulation D of the S.E.C.
Yes. They must have household income of $300,000 (for married couples) OR a net worth of $1,000,000, excluding the value of their primary residence, OR qualify for an institutional category of investor.
Dividends and investment principal will be distributed from Chella’s operating income at the discretion of the board and additional return may be achieved from the acquisition of Mosaic by a strategic or private buyer.
So long as an Investor holds a Preferred Share in the Issuer, the Investor will receive standard financial reporting, including monthly, year-to-date, and annual income, balance sheet, and cash flow statements as compared to the current budget and compared to results for the comparable period for the prior year, and annual audited financial statements and his/her/its Schedule K-1 to the Issuer’s tax return.
Approval Rights/ Negative Covenants
So long as Series B Preferred shares are outstanding, the Company will obtain the consent of a majority of the Series B Preferred for any merger or sale of all or part of the Company at a price resulting in a return to the Series B Preferred shareholders (inclusive of all prior distributions received by the Series B Preferred shareholders) of less than two times their Investment Principal.
Note: Other rights included in the term sheet.
Given its role as the administrative agent, CFG Financial Services is able to keep Investors informed about any unexpected changes in the Issuer's business and general operational updates.
Carofin will distribute updates to investors at least quarterly, including account statements. You should feel free to also email Carofin at [email protected] or telephone us at 828.393.0088.
AN INVESTMENT IN THE PREFERRED MEMBERSHIP INTERESTS IS SPECULATIVE AND IS SUITABLE ONLY FOR PERSONS OF SUBSTANTIAL FINANCIAL MEANS WHO CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT AND HAVE NO NEED FOR LIQUIDITY IN THIS INVESTMENT. AN INVESTMENT IN THE SECURITIES OFFERED HEREIN SHOULD NOT BE A MAJOR PART OF YOUR INVESTMENT PORTFOLIO. YOU SHOULD REVIEW THE RISKS OF THIS INVESTMENT WITH YOUR LEGAL OR FINANCIAL ADVISORS.
THIS OFFERING INVOLVES SUBSTANTIAL RISKS. THESE RISKS INCLUDE, BY WAY OF ILLUSTRATION AND NOT LIMITATION, THE FOLLOWING: RISKS ASSOCIATED WITH THE FACT THAT THE MEMBERS WILL NOT HAVE THE RIGHT TO VOTE ON OR APPROVE MOST DECISIONS REGARDING THE BUSINESS AND, AS SUCH, WILL NOT BE IN CONTROL OF THEIR INVESTMENTS IN SECURITIES OF THE COMPANY AND THE BUSINESS; AND THE OPERATION OF THE COMPANY INVOLVES TRANSACTIONS BETWEEN THE COMPANY, THE MANAGER, AND THE OWNER WHICH MAY INVOLVE CONFLICTS OF INTEREST.
THE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT, AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM, AND WITH THE PRIOR CONSENT OF THE MANAGER, WHICH CONSENT MAY BE WITHHELD IN THE MANAGER’S SOLE DISCRETION. PROSPECTIVE INVESTORS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
SOME OF THE INFORMATION IN THIS PRESENTATION MAY CONTAIN “FORWARD-LOOKING” STATEMENTS. YOU CAN IDENTIFY SUCH STATEMENTS BY THE USE OF FORWARD-LOOKING WORDS SUCH AS “MAY,” “ANTICIPATE,” “ESTIMATE,” “COULD,” “SHOULD,” “WOULD,” “EXPECT,” “BELIEVE,” “WILL,” “PLAN,” “INTEND,” “PROJECT,” “PREDICT,” “POTENTIAL” OR OTHER SIMILAR WORDS. THESE TYPES OF STATEMENTS DISCUSS FUTURE EXPECTATIONS OR CONTAIN PROJECTIONS OR ESTIMATES WHICH MAY OR MAY NOT HAPPEN AS PROJECTED HEREIN. WHEN CONSIDERING SUCH FORWARD-LOOKING STATEMENTS, YOU SHOULD KEEP IN MIND THE RISK FACTORS LISTED BELOW, WHICH COULD CAUSE THE COMPANY’S ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTAINED IN ANY FORWARD-LOOKING STATEMENT.
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS IN CONJUNCTION WITH THE OTHER INFORMATION ABOUT THE SECURITIES BEFORE PARTICIPATING IN THIS OFFERING. THE RISKS DISCUSSED IN THIS PRESENTATION CAN ADVERSELY AFFECT THE COMPANY’S OPERATION, OPERATING RESULTS, FINANCIAL CONDITION AND PROSPECTS FOR SUCCESS. THIS COULD CAUSE THE VALUE OF THE SECURITIES OFFERED HEREIN TO DECLINE AND COULD CAUSE YOU TO LOSE PART OR ALL OF YOU INVESTMENT. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE ONLY ONES THE COMPANY FACES BUT DO REPRESENT THOSE RISKS AND UNCERTAINTIES KNOWN TO THE COMPANY AND THAT THE COMPANY BELIEVES ARE MATERIAL TO THE COMPANY’S FUTURE OPERATING PERFORMANCE.
The Company has a limited history of operations upon which an evaluation of the Company’s business and prospects can be based. No assurances can be given that the Company will ever be profitable or generate revenues sufficient to make distributions. This makes evaluating the Company’s business operations and validating its financial projections difficult. In assessing the Company’s prospects, a potential investor must consider the risks and difficulties frequently encountered by early-stage companies. These risks include the Company’s ability to: raise sufficient capital to fund operations, and other general corporate purposes; manage changing and expanding operations; establish and increase awareness of the Company’s brand and strengthen loyalty among prospective customers; implement and successfully execute the Company’s business and marketing strategies; respond effectively to competitive pressures and developments; continue to enhance the Company’s products and services; and attract, retain and motivate qualified personnel. The Company’s failure in any of these areas could adversely affect the Company’s financial condition and results of operation.
The Series B Preferred being offered should be considered a speculative investment. The ability of the Company to achieve its objectives may be determined by factors beyond its control that cannot be predicted at this time. Consequently, there can be no assurance that the Company’s efforts to continue its business operations will prove to be sufficient to enable the Company to generate the funds required to make distributions. Anyone investing in the Series B Preferred should do so only if they are financially able to sustain the loss of their entire investment and should recognize that such a possibility exists.
As the issuance and sale of the Series B Preferred is a private transaction, there is currently no public market for the Issuer’s securities being offered herein. The Series B Preferred are not a publicly registered security and will have no secondary sale liquidity.
The Company currently has existing senior secured promissory notes in the amount of $663,500, governed by a Loan and Security Agreement. Some of this debt is intended to be repaid with the proceeds of this offering. Should the Company default on any of the payments owed to the senior secured lenders, they may take actions which could affect the Company’s ability to make distributions.
Peter S. Milhaupt, the chairman of Carolina Financial Securities, the placement agent for this offering, currently owns senior secured notes issued by Mosaic Distributors, with the initial principal value of these notes totaling $423,500. If at some point in the future the Company elected to prepay Mr. Milhaupt’s notes, this action may create a conflict of interest.
As compensation for acting as a Placement Agent in the Offering, Carolina Financial Securities is receiving warrants to purchase common equity in the Company in an amount that is dependent on how many units of Series B Preferred are sold. As such warrants traditionally require a “change of control” or liquidity event before they can be exercised, Carolina Financial Securities may have an interest in the Company being subject to such event at a time that may not maximize return for investors. Such risk is mitigated by the warrants carrying no voting rights until they are exercised. In addition to this conflict, the warrants also carry a strike price lower than those paid by investors in the Offering to reflect such need for a “change of control” or liquidity event.
The Company has outstanding Incremental Revenue Royalty Notes of $532,000, which require the Company to make royalty payments equal to 8% of revenues above $300,000 per quarter, until 1.95x the principal has been paid. Peter S. Milhaupt, Chairman of Carolina Financial Securities, the placement agent for this offering, currently owns $432,000 of the Revenue Royalty Notes. The Company may prepay the Revenue Royalty Notes; however, it has no plans currently to do so. Were it to do so, this action may create a conflict of interest.
Additionally, the Company, through the Asset Purchase Agreement between it and Mosaic Marketing Partners, LLC (MMP), a predecessor company, is committed, at its sole election as to the timing of same, to make royalty payments on full-margin revenues above $140,000 each month, payable quarterly. This payment obligation of the Company could affect the Company’s cash flow and ability to make distributions through this offering. Furthermore, should the Company default on the terms of the current royalty payments to MMP, MMP could take actions which would further affect the Company’s ability to make distributions.
The Company may require funds in excess of its existing cash resources to fund operating deficits, develop new products or services, establish and expand its marketing capabilities, and finance general and administrative activities.
Due to market conditions at the time the Company may need additional funding, or due to its financial condition at that time, it is possible that the Company will be unable to obtain additional funding as and when it needs it. If the Company is unable to obtain additional funding, it may not be able to repay debts when they are due and payable. If the Company is able to obtain capital it may be on unfavorable terms or terms which excessively dilute then-existing equity holders. If the Company is unable to obtain additional funding as and when needed, it could be forced to delay its development, marketing and expansion efforts and, if it continues to experience losses, potentially cease operations.
The Company competes with others in the industry cosmetics and beauty industry. Competitors include companies that may have greater financial and other resources than the Company. Additionally, these competitors could use pricing or other strategies to prevent the Company from achieving its objectives and may gain market share. This may have a material adverse impact on the financial position of the Company.
Success depends on the ability to anticipate and react in a timely and cost-effective manner to changes in consumer tastes for skin care, makeup, brow and lash products, consumer attitude toward the industry and brands, as well as where consumers shop for those products. The Company must continually work to develop, manufacture and market new products. The Company must also maintain and enhance the recognition of the brand, achieve a favorable mix of products, and refine an approach as to how and where to market and sell products. While the Company will devote considerable effort to analyze and respond to consumer preferences, the Company recognizes that consumer tastes cannot be predicted with certainty and can change rapidly. The issue is compounded by the increasing use of social digital media by consumers and the speed by which information and opinions are shared. An inability to anticipate and respond to sudden challenges in the marketplace and changing consumer demands will negatively impact financial results.
Success depends, in part, on the quality and safety of the Company’s products. If the products are found to be defective or unsafe, or if they otherwise fail to meet consumer’s standards, relationships with customers or consumers could suffer. Furthermore, the appeal of the brand could be diminished, and the Company could lose sales and/or become subject to liability claims, any of which could result in a material adverse effect on the business.
The Issuer’s activities are subject to international, federal, and state laws. The Issuer’s activities are expected to have a variety of regulatory oversight as development proceeds. Development of any of the Issuer’s operations will be dependent on the Issuer satisfying regulatory guidelines and, where required, being approved by governmental authorities. The Issuer intends to conduct their business activities in a compliant manner and in accordance with all applicable laws but may still be subject to accidents or other unforeseen events which may compromise its performance, and which may have adverse financial implications
Changes in the laws, regulations and policies including the interpretation or enforcement thereof, that are germane to the Company’s industry, can affect its business including changes in accounting standards, tax laws, data privacy as well as anti-corruption laws. Additionally, as the Company continues to sell and expand its international business, it may be subject to laws relating to selective distribution, trade accords and customs regulations could adversely affect the Company’s distribution endeavors.
Any negative changes in economic conditions could have a material adverse effect on the Company’s business.
Due to the size of the organization, the Company has a significant reliance on certain key personnel, particularly Chris Kolodziejski. If the Company is unable to retain key personnel it could jeopardize the Company’s ability to implement its business plan, its relationships with its customers, and its financial stability.
The Company may experience a period of growth that could place a significant strain on its resources. The Company’s ability to manage growth successfully will require the Company to continue to improve its operational, management and financial systems and controls, expand its work force, and require substantial other resources.
The Company’s officers and managers will not be liable for the obligations of the Company solely by reason of being officers or managers or participating in the management and control of the Company’s business and affairs.
The Company reserves the right to accept or reject any proposed investment in its sole discretion. Subject to this discretion, it intends to accept investments on a “first-come, first-served” basis, with the consequence that Investors will be allocated a portion of the total Offering, based upon the amounts they have committed, in the order in which such commitments have been accepted. The Company is not required to accept all commitments tendered to it. There is no assurance, therefore, that your commitment will necessarily be accepted in whole or in part by it should it raise more or less funds than are needed to make its investments.
The financial projections contained in this Offering Summary and any supplements represent the Company’s estimated results of operations. These projections are dependent on the successful implementation of management’s business strategies and are based on assumptions and events over which the Company only has partial or no control and may prove to be inaccurate. The financial projections have been prepared upon the basis of assumptions and estimates which may differ from actual events and/or circumstances.
This Offering is associated with a plan to grow the sales and marketing capability of the Company, provide working capital, and to add staff as necessary to serve a growing customer base. Any inability to manage this process effectively would have a material adverse effect on the Company’s business.
Management will have some flexibility in applying the net proceeds from this Offering and may apply the proceeds in ways with which investors may disagree. The failure to apply these funds effectively could materially harm the Company’s business.
The Company is not subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Potential investors should not rely exclusively on one aspect of the security structure, such as the royalty service capacity of the Company, when making an investment decision in order to participate in this Offering.
The Company has not requested and will not request any tax ruling from the IRS regarding the tax consequences of the Company’s activities. Accordingly, there is no certainty as to the tax consequences of participating in the Offering. The Company has not sought or obtained a legal opinion with respect to the tax treatment of the offering proceeds or issuance of the Series B Preferred. Accordingly, Investors are urged to consult your own tax advisor with respect to the federal and state tax consequences arising from participation in this Offering.
There is a possibility that the IRS will audit the Company’s income tax returns. If the Company’s income tax returns are audited, your return might also be audited.
No assurance can be given that the current Congress or any future Congress will not enact federal income tax legislation that could adversely affect the tax consequences of participating in the Offering.
The Company has not requested and will not request any tax ruling from the IRS regarding the tax consequences of the Company’s activities. Accordingly, there is no certainty as to the tax consequences of participating in the Series B Preferred. The Company has not sought or obtained a legal opinion with respect to the tax treatment of the offering proceeds or issuance of the Series B Preferred. Accordingly, Investors are urged to consult your own tax advisor with respect to the federal and state tax consequences arising from participation in this Offering.
Potential investors should not rely exclusively on one aspect of the security structure when making an investment decision on whether or not to participate in this Offering.
In addition to the above risks, businesses are often subject to risks not foreseen or fully appreciated by management. Prospective investors reviewing this Offering Summary should keep in mind other possible risks that could be important to the success of their investment in the Securities.
These securities have not been registered with the Securities and Exchange Commission (the “SEC” or the “Commission”), or with any state securities commission or any other regulatory authority. The securities are being offered in reliance upon an exemption from the registration requirement of federal and state securities laws and cannot be resold unless the securities are subsequently registered under such laws or unless an exemption from registration is available. Neither the SEC nor any other agency has passed on, recommended or endorsed the merits of this offering (this “Offering”) or the accuracy or adequacy of these confidential offering documents (the “Offering Package”). Any representation to the contrary is unlawful.
These securities are offered through Carofin, LLC, Member of FINRA/SIPC. Carolina Financial Securities is an affiliate of Carofin and both Broker-Dealers are affiliates of Carolina Financial Group, LLC. Documents have been prepared by Carolina Financial Securities and have been reviewed and approved by the management of the Company. The information contained herein has not been independently verified and is dependent on information provided by the Company to Carolina Financial Securities, LLC.
Our firms seek to present vital capital with meaningful investment opportunities through the fundamental analysis of the businesses we seek to finance. Such analysis is usually conducted through a First Principles approach.
When we provide you with a recommendation, we have to act in your best interest and not put our interest ahead of yours. At the same time, the way we make money creates some conflicts with your interests. You should understand and ask us about these conflicts because they can affect the recommendations we provide you. Here are some examples to help you understand what this means:
Proprietary Products: Our firms will often present investments that are only available though them, which may result in a higher placement fee. The Firms will receive the placement fee regardless of your investment performing as expected.
Previous Services to Mosaic Distributors, LLC; The firms previously served as placement agents for other offerings of securities by Mosaic Distributors, LLC. Due to these previous services, the firms may have a conflict of interest arising from its duties to the investors in this offering, the investors in previous securities issued by Mosaic Distributors, LLC, and Mosaic Distributors, LLC itself.
Our firms offer brokerage services to accredited investors, exclusively through the sale of private placements. the offerings we bring to market are carefully selected, and any recommendation you may receive from us will be limited to these offerings. Therefore, we may be unable to adequately compare the risks and benefits of the offerings we bring to offerings presented by other financial professionals. While our firms will often present new investments and discuss such investment’s risks and benefits with you, the ultimate authority to make such investment rests solely with you.
Our firms do not hold any investor cash or securities, and securities offered by us often have no easily assessable market value, so our firms will not monitor the market value of your investment on an ongoing basis. The investments we present often require a minimum investment of $5,000 for equity offerings and $10,000 for debt offerings.
Fees and costs may reduce any amount of money you make on your investments over time. Our firms are mostly compensated through placement fees, which are payable by the issuer, meaning that the firms will be compensated by receiving a percentage of the funds raised in an offering, regardless of the investment performing as expected. Such placement fee is usually between 3% and 7% (please find the specific Placement Fee for this offering in the “Fees & Expenses” section of the “ Key Investment Terms”. Given that different investments have different placement fees, we may often have a conflict of interest when presenting these investments to you. The Firms’ bankers are often compensated by receiving a percentage of the placement fee, and may have their own conflict of interest when presenting you with offerings they structure.
The information contained herein is for informational purposes only and is not intended for further distribution. The information does not constitute a complete description of any investment or investment performance. This document is in no way a solicitation nor is it an offer to sell securities nor is it advice or recommendation regarding any investment. The information is not directed to any person who is not believed to qualify under the definition of an Accredited Investor under the rules of Regulation D of the 1933 Securities and Exchange Act. No security listed in this document or otherwise offered through Carolina Financial Securities, LLC or Carofin, LLC may be purchased without prior receipt of a complete Private Placement Memorandum or other official offer to sell.
Due diligence materials related to this Borrower and the Offering are available to you through Carolina Financial Securities’ affiliated marketplace, Carofin. If you have not received your login information to access Carofin.com, please contact your company representative to have access granted.
The Company will not offer, sell or issue any Securities in any jurisdiction where it is unlawful to do so or where laws, rules, regulations or orders would require the Company, in its sole discretion, to incur costs, obligations or time delays disproportionate to the net proceeds the Company will realize from such offers, sales or issuances. Neither this Offering Package nor any subscription agreement shall constitute an offer to sell or a solicitation of an offer to purchase any Securities in any jurisdiction in which such transactions would be unlawful.
Private placements are high risk and illiquid investments. As with other investments, you can lose some or all of your investment. Nothing in this document should be interpreted to state or imply that past results indicate future performance, nor should it be interpreted that FINRA, the SEC or any other securities regulator approves of any of these securities. Additionally, there are no warranties expressed or implied as to accuracy, completeness, or results obtained from any information provided in this document. Investing in private securities transactions bears risk, in part due to the following factors: there is no secondary market for the securities; there is credit risk; where there is collateral as security for the investment, its value may be imped if it is sold. Please see the Private Placement Memorandum (PPM), and the complete list of contents of this Offering Package for a more detailed explanation of the securities Summary of Terms, Investor Suitability Standards, Confidentiality, Securities Matters and Risk Factors.
Caution Regarding Forward-Looking Statements
Certain statements in this Summary Offering Material may be “Forward-looking” in that they do not discuss historical facts but instead note future expectations, projections, intentions, or other items relating to the future. We caution you to be aware of the speculative nature of forward-looking statements as these statements are not guarantees of performance or results.
Forward-looking statements, which are generally prefaced by the words “may,” “anticipate,” “estimate,” “could,” “should,” “would,” “expect,” “believe,” “will,” “plan,” “project,” “intend,” and similar terms, are subject to known and unknown risks, uncertainties and other facts that may cause our actual results or performance to differ materially from those contemplated by the forward-looking statements.
Although these forward-looking statements reflect our good faith belief based on current expectations, estimates and projections about, among other things, the industry and the markets in which we operate, they are not guarantees of future performance. Whether actual results will conform to our expectations and predictions is subject to several known and unknown risks and uncertainties, including risks and uncertainties discussed in this Summary Offering Material.
Consequently, all the forward-looking statements made in this Summary Offering Material are qualified by these cautionary statements and there can be no assurance that the actual results anticipated by us will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, us or our business or operations. Risks, uncertainties, and factors that could cause actual results to differ materially from those projected are discussed in the “Risk Factors” section of this Summary Offering Material. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Considering these risks, uncertainties, and assumptions, the forward-looking events discussed in the Summary Offering Material might not occur.
State Securities Laws
The Company will not offer, sell or issue any securities in any jurisdiction where it is unlawful to do so or where laws, rules, regulations or orders would require the Company, in its sole discretion, to incur costs, obligations or time delays disproportionate to the net proceeds the Company will realize from such offers, sales or issuances. Neither this Offering Package nor any subscription agreement shall constitute an offer to sell or a solicitation of an offer to purchase any securities in any jurisdiction in which such transactions would be unlawful.
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