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Acquisition

6 Months Ended

Dec. 31, 2022

Note 2. Acquisitions

VitaMedica Corporation

Effective August 1, 2021, the Company entered into and closed an asset purchase agreement (the “VitaMedica Agreement”) with Grove Acquisition Subsidiary, Inc., a Nevada corporation and wholly owned subsidiary of the Company and VitaMedica Corporation, a California corporation, David Rahm and Yvette La-Garde (“Seller”). VitaMedica Corporation is a leading online seller of supplements for surgery, recovery, skin, beauty, health and wellness.

The Company agreed to purchase substantially all of the assets of the Seller as of August 1, 2021. The transaction was valued at an estimated fair value of $3,556,589. The purchase price consisted of 100,000 shares of the Company’s common stock valued at $482,000, $4.82 per common share, the closing price on August 4, 2021 (close date of the transaction), a non-negotiable promissory note from the Company in favor of the Seller in the original principal amount of $500,000, a non-negotiable convertible promissory note from the Company in favor of the Seller in the original principal amount of $500,000, convertible at $5.00 per share for a total of 100,000 shares of the Company’s Common Stock and a cash payment of $2,000,000 which was paid on August 5, 2021. In addition, a $74,589 cash payment was made on October 29, 2021, for excess working capital acquired.

A finder’s fee of $103,740 was paid by the Company, $70,000 in cash and 7,000 shares of common stock, valued at $33,740, $4.82 per common share, the closing market price on August 4, 2021 (close date of the transaction). These fees were expensed during the three and six months ended December 31, 2021.

The assets and liabilities of VitaMedica are recorded at their respective fair values and the following table summarizes these values based on the balance sheet on August 1, 2021, the effective closing date.

Tangible Assets	$	860,738
Intangible Assets		1,935,000
Goodwill		960,780
Liabilities Acquired		(199,929	)
Total Purchase Price	$	3,556,589

The Company’s condensed consolidated financial statements for the three and six months ended December 31, 2022 include the actual results for VitaMedica. For the three and six months ended December 31, 2021, the Company’s condensed consolidated financial statements include the actual results of VitaMedica for the period August 1, 2021 to December 31, 2021.

The acquisition of VitaMedica provided the Company with entrance into the online seller’s market for supplements for surgery, recovery, skin, beauty, health and wellness and provided improved gross margins through synergies recognized with the consolidation of manufacturing and distribution operations. These are the factors of goodwill recognized in the acquisition.

Interactive Offers, LLC

Effective October 1, 2021, the Company entered into an equity interest purchase agreement (the “I/O Agreement”) with Gyprock Holdings LLC, a Delaware limited liability company, MFA Holdings Corp., a Florida corporation and Sherwood Ventures, LLC, a Texas limited liability company (each an “I/O Seller” and collectively the “I/O Sellers”). The I/O Sellers owned all the membership interests in Interactive Offers, LLC, a Delaware limited liability company (“Interactive”). The Company’s CEO and Chairman, Allan Marshall, was the controlling stockholder and the president of MFA Holdings Corp, which owned 20% of the outstanding membership interests in Interactive. Interactive provides programmatic advertising with its SaaS platform which allows for programmatic advertisement placement automatically on any partners’ sites from a simple dashboard.

The Company purchased all the outstanding membership interests of Interactive as of October 1, 2021. The purchase price for the sale was $4,833,630, as amended, which consisted of 560,170 shares of common stock of the Company valued at $2,733,630, $4.88 per share, the stock price on October 1, 2022, and a cash payment of $2,100,000.

The assets and liabilities of Interactive are recorded at their respective fair values and the following table summarizes these values based on the balance sheet on October 1, 2021, the effective closing date.

Tangible Assets	$	413,465
Intangible Assets		2,631,000
Goodwill		2,889,158
Liabilities Acquired		(1,099,993	)
Total Purchase Price	$	4,833,630

The Company’s condensed consolidated financial statements for the three and six months ended December 31, 2022 include the actual results of Interactive.

The acquisition of Interactive provided the Company with a solid entry into the programmatic ad space and added a unique in-house advertising platform to leverage and scale its current and future brands. Access by sellers to Interactive’s ad platform provides further product sales growth and advertising efficiencies. These are the factors of goodwill recognized in the acquisition.

Cygnet Online, LLC

The Company entered into a securities purchase agreement to purchase Cygnet Online, LLC, a Delaware limited liability company effective as of April 1, 2022. The Company purchased 55% of the equity in the business with a purchase price of $5,100,000, as amended. The consideration consisted of $1,500,000 in cash, $2,550,000 or 555,489 shares of restricted common stock and a non-negotiable convertible promissory note in the original principal amount of $1,050,000, which can be converted into common stock of the Company at a price of $6.00 per share and is payable in full, to the extent not previously converted, on April 15, 2023. The purchase price is subject to a two-way adjustment based on the amount of Closing Working Capital, as defined in the agreement.

Additionally, Seller will be paid up to $700,000 in the form of an earn-out payment based on 7% of Cygnet’s net revenue during the earn-out period, in accordance with and subject to the terms and conditions of the agreement. The earn-out payment, if any, will be paid 50% in immediately available funds and 50% in Company restricted common stock.

The Agreement contains customary confidentiality, non-competition, and non-solicitation provisions for the Seller and Seller’s affiliates.

In addition, the Company has the right to purchase Seller’s remaining membership interests in Cygnet. Commencing on October 10, 2022 and continuing for 180 days thereafter, the Company has the right, but not the obligation, to cause the Seller to sell 15% of the membership interests in Cygnet for $1,650,000 in immediately available funds. Commencing on the date that the Company completes its financial statements for the year ended December 31, 2023, and continuing for 120 days thereafter, the Company has the right, but not the obligation, to cause the Seller to sell the remaining 30% of the membership interests in Cygnet for 30% of the amount equal to four times Cygnet’s Adjusted EBITDA (as defined in the Call Agreement) for calendar year 2023, payable by wire transfer of immediately available funds equal to at least 50% of said purchase price with the balance payable through the issuance to Seller of shares of restricted common stock of the Company.

The Seller has the right, but not the obligation, at any time commencing on the date that is 120 days after the date the Company completes Cygnet’s financial statements for the year ended December 31, 2023, and continuing for 90 days thereafter, to cause the Company to purchase all of the Seller’s remaining membership interests in Cygnet for a purchase price equal to the product of (i) four times Cygnet’s Adjusted EBITDA (as defined in the Put Agreement) for calendar year 2023, and (ii) the percentage of Cygnet membership interests being sold, payable in shares of restricted common stock of the Company.

The assets and liabilities of Cygnet are recorded at their preliminary respective fair values as of the closing date of the Cygnet Agreement, and the following table summarizes these values based on the balance sheet on April 1, 2022, the effective closing date.

Tangible Assets	$	3,683,829
Intangible Assets		7,800,000
Goodwill		2,037,455
Liabilities Acquired		(8,421,284	)
Total Purchase Price	$	5,100,000

The Company’s condensed consolidated financial statements for the three and six months ended December 31, 2022, include the actual results of Cygnet.

The acquisition of Cygnet provided the Company with the opportunity to expand its operations as an Amazon and eCommerce seller. The resulting combination increased Cygnet’s product offerings through the Company’s distributors and partnerships as it continues to focus on over-the -counter supplements and beauty products. Cygnet will be the anchor company for Upexi’s Amazon strategy. These are the factors of goodwill recognized in the acquisition.

LuckyTail

The Company entered into an asset purchase agreement with GA Solutions, LLC to acquire substantially all assets of the business. The base consideration totals $3,000,000 plus the amount of working capital transferred to the Company. The consideration for the purchase consisted of $2,000,000, paid into escrow and released when certain assets were transferred to the Company, (ii) $500,000 payable on the latter of the release from escrow and 90 days post-closing, and (iii) $500,000 payable on the latter of the release from escrow and 180 days post-closing. In addition, the Company has agreed to purchase certain inventory from the Seller upon its valuation having been determined, at close the inventory and other current assets were estimated at $490,822. The asset purchase agreement also provides for a two-way post-closing adjustment based on a target adjusted revenue for the business acquired of $1,492,329 for the period of August 1, 2022 through December 31, 2022.

The Agreement contains customary confidentiality, non-competition, and non-solicitation provisions for the Seller and Seller’s affiliates.

The assets and liabilities of LuckyTail are recorded at their preliminary respective fair values as of the closing date of the asset purchase agreement, and the following table summarizes these values based on the balance sheet on August 12, 2022, the effective closing date.

Tangible Assets	$	490,822
Intangible Assets		2,664,000
Goodwill		336,000
Liabilities Acquired		-
Total Purchase Price	$	3,490,822

The Company’s condensed consolidated financial statements for the three and six months ended December 31, 2022, include the actual results of LuckyTail from August 13, 2022, through December 31, 2022.

The acquisition of LuckyTail provided the Company a foothold in the pet care industry and a strong presence on Amazon and its eCommerce store, offering nutritional and grooming products domestically and internationally. The acquisition provided both top line growth and improved EBITDA for the Company. These are the factors of goodwill recognized in the acquisition.

E-Core, Inc. and its subsidiaries

On October 31, 2022, Upexi, Inc. (the “Company”), and its wholly owned subsidiary Upexi Enterprises, LLC entered into a securities purchase agreement, effective October 21, 2022, to purchase 100% of E-Core Technology, Inc. (“E-Core”) d/b/a New England Technology, Inc., a Florida corporation (“New England Technology”), for $24,100,000, subject to adjustments. The consideration consisted of $3,100,000 in cash, 1,247,402 shares of the Company’s restricted common stock with a value equal to $6,000,000, two promissory notes in the original principal amount of $5,750,000 each, payable upon maturity and a convertible promissory note in the original principal amount of $3,500,000, convertible in full on the two-year anniversary of the issuance of the note at a conversion price of $4.81 per share. If the conversion right is not exercised, the principal balance will be paid in twelve monthly installments beginning on the two-year anniversary of the executed promissory note. The principal amount of the convertible promissory note is subject to a two-way adjustment based on the Company’s Adjusted EBITDA for the three-year period commencing on the closing date.

In addition, on October 31, 2022, the Company issued options to purchase up to 360,000 shares of the Company’s common stock at an exercise price of $5.30 per share.

The agreement contains customary confidentiality, non-competition, and non-solicitation provisions for E-Core and its affiliates.

Within 90 days after the closing date, Buyer shall prepare and deliver to E-Core a statement, setting forth Buyer’s calculation of closing working capital and the purchase price resulting therefrom. The two-way post-closing adjustment based on target working capital shall be an amount equal to the closing working capital minus the target closing working capital.

The assets and liabilities of E-Core are recorded at their preliminary respective fair values as of the closing date of the asset purchase agreement, and the following table summarizes these values based on the balance sheet on October 21, 2022, the effective closing date.

Tangible Assets	$	15,540,288
Intangible Assets		7,250,000
Goodwill		8,988,076
Liabilities Acquired		(7,712,168	)
Total Purchase Price	$	24,066,196

The Company’s condensed consolidated financial statements for the three and six months ended December 31, 2022, include the actual results of E-Core from October 21, 2022, through December 31, 2022.

The acquisition of E-Core provided the Company with an entrance into the children’s toy sector as well as national retail distribution for owned and non-owned branded products. The acquisition expands the Company’s ability to leverage direct-to-consumer distribution and further develop the broad distribution capabilities of E-Core. These are the factors of goodwill recognized in the acquisition.

Revenue from acquisitions included in the financial statements.

Net revenue included in the six months ended:

	December 31,
	2022		2021
VitaMedica	$	3,561,264	$	2,406,266
Interactive		683,322		853,017
Cygnet		14,607,180		-
LuckyTail		2,219,234		-
E-core		13,647,412		-

	$	34,718,412	$	3,259,283

Net revenue included in the three months ended:

	December 31,
	2022		2021
VitaMedica	$	1,943,955	$	1,417,483
Interactive		345,110		-
Cygnet		7,359,661		-
LuckyTail		1,394,459		-
E-core		13,647,412		-

	$	24,690,597	$	1,417,483

Consolidated pro-forma unaudited financial statements.

The following unaudited pro forma combined financial information is based on the historical financial statements of the Company, VitaMedica, Interactive, Cygnet, LuckyTail and E-Core after giving effect to the Company’s acquisitions as if the acquisitions occurred on July 1, 2021.

The following unaudited pro forma information does not purport to present what the Company’s actual results would have been had the acquisitions occurred on July 1, 2021, nor is the financial information indicative of the results of future operations. The following table represents the unaudited consolidated pro forma results of operations for the three and six months ended December 31, 2022 and the three and six months ended December 31, 2021, as if the acquisitions occurred on July 1, 2021. The results of operations for VitaMedica, Interactive and Cygnet are included in the three and six months ended December 31, 2022 and the results of operations for LuckyTail are included from August 13, 2022 to December 31, 2022.

Operating expenses have been increased for the amortization expense associated with the fair value adjustment of definite lived intangible assets of VitaMedica, Interactive, Cygnet, LuckyTail and E-Core by approximately $41,363, $50,329, $175,000, $54,000, and $145,833 per month, respectively.

Pro Forma, Unaudited					Proforma
Three months ended December 31, 2022	Grove, Inc.		E-Core		Adjustments			Proforma

Net sales	$	27,086,672	$	3,483,909	$			$	30,570,581
Cost of sales	$	16,773,493	$	2,968,750	$			$	19,742,243
Operating expenses	$	12,451,600	$	414,994	$	97,222		$	12,963,816
Net income (loss) from continuing operations	$	2,877,005	$	82,823	$	(97,222	)	$	2,862,606
Basic income (loss) per common share	$	0.16	$	0.27	$			$	0.16
Weighted average shares outstanding		17,540,427		311,851					17,852,278

Pro Forma, Unaudited
Six months ended December 31, 2022	Grove, Inc.		LuckyTail		E-Core		Adjustments			Proforma

Net sales	$	38,643,683	$	892,270	$	12,905,836	$			$	52,441,789
Cost of sales	$	22,289,773	$	137,088	$	11,177,032	$			$	33,603,893
Operating expenses	$	21,466,482	$	383,476	$	1,050,602	$	561,721		$	23,462,281
Net income (loss) from continuing operations	$	176,996	$	371,706	$	660,860	$	(561,721	)	$	647,841
Basic income (loss) per common share	$	0.01	$	-	$	-	$			$	0.04
Weighted average shares outstanding		17,126,886		-		779,626					17,126,886

Pro Forma, Unaudited											Proforma
Three months ended December 31, 2021	Grove, Inc.			Cygnet		LuckyTail		E-core			Adjustments			Proforma

Net sales	$	4,983,557			7,527,927	$	936,289	$	13,062,408		$			$	18,045,965
Cost of sales	$	711,246			6,372,432	$	265,506	$	11,637,510		$			$	12,348,756
Operating expenses	$	6,808,272			695,574	$	475,502	$	1,424,898		$	1,124,499		$	9,357,669
Net income (loss) from continuing operations	$	(3,078,437	)		382,657	$	195,281	$	(4,021	)	$	(1,124,499	)	$	(4,206,957	)
Basic income (loss) per common share	$	(0.32	)		0.69	$	-	$	-		$			$	(0.38	)
Weighted average shares outstanding		9,755,663			555,489		-		1,247,402						11,003,065

Pro Forma, Unaudited															Proforma
Six months ended December 31, 2021	Grove, Inc.			VitaMedica		Interactive			Cygnet		LuckyTail		E-core		Adjustments			Proforma

Net sales	$	8,853,667		$	384,391	$	1,329,522		$	15,055,854	$	1,927,313	$	22,484,335	$			$	50,035,082
Cost of sales	$	1,982,975		$	93,509	$	-		$	12,744,864	$	562,355	$	19,845,792	$			$	35,229,495
Operating expenses	$	10,285,779		$	255,286	$	1,816,464		$	1,391,148	$	971,139	$	2,079,906	$	2,441,348		$	19,241,070
Net income (loss) from continuing operations	$	(3,391,118	)	$	35,596	$	(376,987	)	$	765,314	$	393,818	$	574,016	$	(2,441,348	)	$	(4,440,709	)
Basic income (loss) per common share	$	(0.22	)	$	0.36	$	(0.57	)	$	1.38	$	-	$	0.46	$			$	(0.26	)
Weighted average shares outstanding		15,452,453			100,000		666,667			555,489		-		1,247,402					17,255,344

VitaMedica amortization expense of $496,356 annually and $41,363 monthly is based on the purchase price allocation report. For the six months ended December 31, 2021, the proforma adjustment included $41,363, one month of amortization expense.

Interactive amortization expense at $603,948 annually and $50,329 monthly is based on the purchase price allocation report. For the six months ended December 31, 2021, the proforma adjustment included $150,987, three months of amortization expense.

The Company estimated the annual Cygnet amortization expense at $2,100,000 annually and $175,000 monthly, based on management’s preliminary allocation of the purchase price. For the three months ended December 31, 2021, the proforma adjustment included $525,000, three months of amortization expense.

The Company estimated the annual LuckyTail amortization expense at $648,000 annually and $54,000 monthly, based on management’s preliminary allocation of the purchase price. For the six months ended December 31, 2022, the proforma adjustment included $27,000 of amortization expense for half a month. For the three months ended December 31, 2021, the proforma adjustment included $162,000 of amortization of three months and for the six months ended December 31, 2021, the proforma adjustment included $324,000, six months of amortization expense.

The Company estimated the annual E-Core amortization expense at $1,750,000 annually and $145,833 monthly, based on management’s preliminary allocation of the purchase price. For the six months ended December 31, 2022, the proforma adjustment included $437,499 of amortization expense of three months. For the three months ended December 31, 2021, the proforma adjustment included $437,499 of amortization of three months and for the six months ended December 31, 2021, the proforma adjustment included $874,998 of amortization expense for six months.