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Acquisition

9 Months Ended

Mar. 31, 2023

Note 2. Acquisitions

VitaMedica Corporation

Effective August 1, 2021, the Company purchased VitaMedica through Grove Acquisition Subsidiary, Inc., a Nevada corporation and wholly owned subsidiary of the Company from VitaMedica Corporation, a California corporation, David Rahm and Yvette La-Garde. VitaMedica Corporation is a leading online seller of supplements for surgery, recovery, skin, beauty, health and wellness.

The following table summarizes the consideration transferred to acquire VitaMedica and the amount of identified assets acquired, and liabilities assumed at the acquisition date.

Fair value of consideration transferred:

Cash	$	2,000,000
Cash, working capital adjustment		74,589
Common stock, 100,000 shares valued at $4.82 per common share, the closing price on August 4, 2021.		482,000
Note payable		500,000
	$	3,556,589

Recognized amounts of identifiable assets acquired and liabilities assumed:

Accounts receivable	$	107,446
Inventory		619,837
Prepaid expenses		117,268
Property and equipment		13,220
Trade name		463,000
Customer list		1,329,000
Non-compete		143,000
Right of use asset		112,612
Accounts payable		(140,068	)
Operating lease		(56,894	)
Operating lease		(112,612	)
Total identifiable net assets	$	2,595,809
Goodwill	$	960,780

No contingent consideration was recorded with this acquisition.

The goodwill is deductible for tax purposes and attributable to the Company’s added ability to enter the online seller’s market for surgery supplements, recovery, skin, beauty, health and wellness and provided improved gross margins through synergies recognized with the consolidation of manufacturing and distribution operations.

The Company’s condensed consolidated financial statements for the three and nine months ended March 31, 2023 include the actual results for VitaMedica. For the three and nine months ended March 31, 2022, the Company’s condensed consolidated financial statements include the actual results of VitaMedica for the period August 1, 2021 to March 31, 2022.

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 nine months ended March 31, 2022.

Interactive Offers, LLC

Effective October 1, 2021, the Company acquired Interactive Offers, LLC, a Delaware limited liability company (“Interactive”) from 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. 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 following table summarizes the consideration transferred to acquire Interactive and the amount of identified assets acquired, and liabilities assumed at the acquisition date.

Fair value of consideration transferred:

Cash	$	2,100,000
Common stock, 100,000 shares valued at $4.88 per common share, the closing price on October 1, 2021.		2,733,630
	$	4,833,630

Recognized amounts of identifiable assets acquired and liabilities assumed:

Cash	$	245,247
Accounts receivable		23,791
Prepaid expenses		32,543
Property and equipment		3,212
Trade name		146,000
Customer list		763,000
Software		1,590,000
Non-compete		132,000
Accounts payable		(174,943	)
Accrued liabilities		(313,800	)
Accrued compensation		(24,193	)
Deferred revenue		(478,385	)
Total identifiable net assets	$	1,944,472
Goodwill	$	2,889,158

No contingent consideration was recorded with this acquisition.

The goodwill is deductible for tax purposes and attributable to the Company having 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.

The Company’s condensed consolidated financial statements for the three and nine months ended March 31, 2023, include the actual results of Interactive.

Cygnet Online, LLC

Effective April 1, 2022, the Company acquired 55% of Cygnet Online, LLC, a Delaware limited liability company (“Cygnet”). The Company purchased 55% of the equity in the business with a purchase price of $5,515,756, as amended.

The following table summarizes the consideration transferred to acquire Interactive and the amount of identified assets acquired, and liabilities assumed at the acquisition date.

Fair value of consideration transferred:

Cash	$	1,500,000
Convertible note payable, convertible at $6.00 per common share		1,050,000
Earnout payment		-
Common stock, 555,489 shares valued at $5.34 per common share, the closing price on April 1, 2022.		2,965,756
	$	5,515,756

Recognized amounts of identifiable assets acquired and liabilities assumed:

Cash	$	471,237
Accounts receivable		860,882
Inventory		2,337,208
Prepaid expenses		6,900
Property and equipment		7,602
Right to use asset		410,365
Other asset		6,545
Online sales channels		1,800,000
Vendor relationships		6,000,000
Accrued liabilities		(701,606	)
Notes payable		(7,298,353	)
Operating lease		(422,479	)
Total identifiable net assets	$	3,478,301
Goodwill	$	2,037,455

The Company’s condensed consolidated financial statements for the three and nine months ended March 31, 2022, include the actual results of 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. The Company did not exercise its right to purchase Seller’s remaining membership interests in Cygnet.

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.

On April 12, 2023, the Company entered into an agreement to acquire the remaining 45% interest for structured cash payments equaling $1.95 million over the subsequent 12 months. The deal is expected to close the week of May 15, 2023. If the deal does not close, the Seller’s right to cause the Company to purchase all of the Seller’s remaining membership interest would still be available to the Seller.

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

Effective August 13, 2023, the Company acquired the business of LuckyTail from GA Solutions, LLC.

The following table summarizes the consideration transferred to acquire LuckyTail and the amount of identified assets acquired, and liabilities assumed at the acquisition date.

Fair value of consideration transferred:

Cash	$	2,000,000
Cash payment, 90 days after close		500,000
Cash payment, 180 days after close		500,000
Contingent consideration		130,620
Cash payment, working capital adjustment		490,822
	$	3,621,442

Recognized amounts of identifiable assets acquired and liabilities assumed:

Inventory	$	490,822
Trade name		360,000
Customer list		2,304,000
Total identifiable net assets	$	3,154,822
Goodwill	$	466,620

The Company’s condensed consolidated financial statements for the three and nine months ended March 31, 2023, include the actual results of LuckyTail from August 13, 2022, through March 31, 2023.

The Company agreed to purchase certain inventory from the Seller upon its valuation having been determined, at close the inventory and other current assets were agreed to be $490,822, consisting of inventory and prepaid inventory. 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 March 31, 2023. The Company adjusted its estimate of $150,000 for this contingent consideration to $130,320 with the offset to goodwill.

The acquisition of LuckyTail provided the Company with 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

Effective October 21, 2022, the Company acquired E-Core Technology, Inc. (“E-Core”) d/b/a New England Technology, Inc., a Florida corporation (“New England Technology”).

The following table summarizes the consideration transferred to acquire E-core and the amount of identified assets acquired, and liabilities assumed at the acquisition date.

Fair value of consideration transferred:

Cash	$	100,000
Cash payment, 120 days		3,000,000
Note payable		5,750,000
Note payable 2		5,750,000
Convertible note payable, convertible at $4.81 per common share		3,500,000
Common stock, 1,247,402 shares valued at $4.81 per common share, the calculated closing price on October 21, 2023.		6,000,000
	$	24,100,000

Recognized amounts of identifiable assets acquired and liabilities assumed:

Cash	$	1,014,610
Accounts receivable		6,699,945
Inventory		7,750,011
Prepaid expenses		75,721
Trade name		1,250,000
Customer relationships		6,000,000
Accrued liabilities		(192,051	)
Line of credit		(7,201,079	)
Total identifiable net assets	$	15,397,157
Goodwill	$	8,702,843

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 Company’s condensed consolidated financial statements for the three and nine months ended March 31, 2023, include the actual results of E-Core from October 21, 2022 through March 31, 2023.

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 nine months ended:

	March 31,
	2023		2022
VitaMedica	$	5,525,651	$	3,571,237
Interactive		1,054,935		1,543,651
Cygnet		20,806,317
LuckyTail		3,579,727		-
E-Core		25,822,931		-

	$	56,789,561	$	5,114,888

Net revenue included in the three months ended:

	March 31,
	2023		2022
VitaMedica	$	1,964,387	$	1,164,971
Interactive		371,613		690,634
Cygnet		6,199,137		-
LuckyTail		1,360,493		-
E-Core		12,175,519		-

	$	22,017,149	$	1,855,605

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 nine months ended March 31, 2023 and the three and nine months ended March 31, 2022, as if the acquisitions occurred on July 1, 2021. The results of operations for VitaMedica, Interactive and Cygnet are included in the three and nine months ended March 31, 2023 and the results of operations for LuckyTail are included from August 13, 2022 to March 31, 2023.

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
Nine months ended March 31, 2023	Upexi, Inc.			LuckyTail		E-Core		Adjustments			Proforma

Net sales	$	62,863,128		$	892,270	$	12,905,836	$			$	76,661,234
Cost of sales	$	36,904,527		$	137,088	$	11,177,032	$			$	48,218,647
Operating expenses	$	33,469,868		$	383,476	$	1,050,602	$	561,721		$	35,465,667
Net income (loss) from continuing operations	$	(1,879,818	)	$	371,706	$	660,860	$	(561,721	)	$	(1,408,973	)
Basic income (loss) per common share	$	(0.11	)	$	-	$	0.53	$			$	(0.08	)
Weighted average shares outstanding		17,418,877			-		1,247,402		(693,001	)		17,973,278

Pro Forma, Unaudited										Proforma
Three months ended March 31, 2022	Upexi, Inc.			Cygnet		LuckyTail		E-Core		Adjustments			Proforma

Net sales	$	4,426,898			7,527,927	$	1,389,012	$	11,191,296	$			$	24,535,133
Cost of sales	$	1,098,137			6,372,432	$	274,175	$	9,947,860	$			$	17,692,604
Operating expenses	$	4,866,492			695,574	$	766,952	$	638,501	$	1,124,499		$	8,092,018
Net income (loss) from continuing operations	$	(200,250	)		382,657	$	347,885	$	604,475	$	(1,124,499	)	$	10,268
Basic income (loss) per common share	$	(0.01	)		0.69	$	-	$	-	$			$	0.00
Weighted average shares outstanding		16,426,399			555,489		-		1,247,402					18,229,290

Pro Forma, Unaudited															Proforma
Nine months ended March 31, 2022	Upexi, Inc.			VitaMedica		Interactive			Cygnet		LuckyTail		E-core		Adjustments			Proforma

Net sales	$	13,280,565		$	384,391	$	1,329,522		$	22,583,781	$	3,316,325	$	33,675,631	$			$	74,570,215
Cost of sales	$	3,081,112		$	93,509	$	-		$	19,117,296	$	836,530	$	29,793,652	$			$	52,922,099
Operating expenses	$	15,152,270		$	255,286	$	1,816,464		$	2,086,722	$	1,738,091	$	2,718,407	$	3,128,348		$	26,895,588
Net income (loss) from continuing operations	$	(3,591,368	)	$	35,596	$	(376,987	)	$	1,147,971	$	741,703	$	1,178,491	$	(3,128,348	)	$	(3,992,942	)
Basic income (loss) per common share	$	(0.22	)	$	0.36	$	(0.67	)	$	2.07	$	-	$	0.94	$			$	(0.22	)
Weighted average shares outstanding		16,080,699			100,000		560,170			555,489		-		1,247,402		(462,336	)		18,081,424

VitaMedica amortization expense of $496,356 annually and $41,363 monthly is based on the purchase price allocation report. For the nine months ended March 31, 2022, 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 nine months ended March 31, 2022, 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 nine months ended March 31, 2022, the proforma adjustment included $1,575,000, nine months of amortization expense and $525,000, three months of amortization expense for the three months ended March 31, 2022.

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 nine months ended March 31, 2023, the proforma adjustment included $27,000 of amortization expense for half a month. For the three months ended March 31, 2022, the proforma adjustment included $162,000 of amortization and for the nine months ended March 31, 2022, the proforma adjustment included $486,000 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 nine months ended March 31, 2023, the proforma adjustment included $534,721 of amortization expense for the six months, three and two third a month. For the three months ended March 31, 2022, the proforma adjustment included $437,499 of amortization and for the nine months ended March 31, 2022, the proforma adjustment included $1,312,497 of amortization expense.

For the three and nine months ended March 31, 2023, the Company incurred acquisition related expenses of $15,517 and $358,300 respectively. For the three and nine months ended March 31, 2022, the Company incurred acquisition related expenses of $22,507 and $240,234 respectively.

These costs are primarily external legal, accounting and consulting services directly related to completed acquisitions, due diligence, and review of possible target acquisitions. These acquisition-related costs are included in the general and administrative expenses on the Company’s condensed consolidated statements of operations.