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Acquisition

12 Months Ended

Jun. 30, 2023

Note 3. Acquisitions

VitaMedica Corporation

The Company purchased VitaMedica on August 1, 2021. 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

The business was acquired through an asset purchase agreement, that acquired all the tangible and intangible assets of the VitaMedica business. There was no contingent consideration payable under the asset purchase agreement, although a provision was used to adjust the purchase price based on the final working capital transferred to the Company. The purchase price was increased by $74,589 for the excess working capital that was transferred in the business and the final purchase price allocation was completed by an independent consulting firm and is no longer subject to change.

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 consolidated financial statements for the year ended June 30, 2023 include the actual results for VitaMedica. For the year ended June 30, 2022, the Company’s consolidated financial statements include the actual results of VitaMedica for the period August 1, 2021, to June 30, 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 year ended June 30, 2022.

Interactive Offers, LLC

The Company acquired Interactive Offers, LLC, on October 1, 2021. 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

The business was acquired through an equity interest purchase agreement. The equity purchase agreement provided for an increase in the purchase price of up to $600,000 based on the attainment of certain sales threshold in the first year. Our management believed that the attainment of those sales threshold at the time of acquisition was unlikely and valued the contingency at $0. The sales thresholds were not met, and no consideration was recorded for the contingency. The equity interest purchase agreement has standard provisions to adjust the purchase price based on the final working capital transferred to the Company. The purchase price was decreased by $638,978 and was repaid to the Company with 106,497 of the Company’s common stock valued at $6.00 per share. The final purchase price allocation was completed by an independent consulting firm and is no longer subject to change.

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.

On September 1, 2023, the Company sold Interactive Offers. For the years ended June 30, 2023, and 2022 the operations have been reclassed to discontinued operations and the assets and liabilities reclassed to assets available for sale or current assets and current liabilities of discontinued operations. On June 30, 2023, the Company recorded an impairment of the assets available for sale of $3,746,301.

Cygnet Online, LLC

The Company acquired 55% of Cygnet Online, LLC, on April 1, 2022. The purchase price was $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 55% of the business was acquired through a stock purchase agreement on March 31, 2022. The purchase agreement provided for an increase in the purchase price of up to $700,000 based on the attainment of certain sales threshold in the first year. Our management believed that the attainment of those sales threshold at the time of acquisition was unlikely and valued the contingency at $0. The sales thresholds were not met, and no consideration was recorded for the contingency. The equity interest purchase agreement has standard provisions to adjust the purchase price based on the final working capital transferred to the Company. The purchase price was decreased by $950,000 and was repaid to the Company with the reduction in the loan to the seller. The 55% purchase price allocation is final and is no longer subject to change.

The Company’s consolidated financial statements for the year ended June 30, 2023, include the actual results of Cygnet and for the year ended June 30, 2022 include the results for Cygnet from April 1, 2022 to June 30, 2022.

On September 1, 2023, the Company completed the acquisition of the remaining 45% interest for structured cash payments equaling $800,000 and 90,909 shares of the Company’s common stock valued at $162,727.

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

On August 13, 2022, the Company acquired the pet product brand and the rights to the products 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		484,729
Cash payment, 180 days after close		469,924
Contingent consideration		112,685
Cash payment, working capital adjustment		460,901
	$	3,528,239

Recognized amounts of identifiable assets acquired, and liabilities assumed:

Inventory	$	460,901
Trade name		383,792
Customer list		1,834,692
Total identifiable net assets	$	2,679,385
Goodwill	$	848,854

The business was acquired through an asset purchase agreement, that acquired all elements of a business, including all of the tangible and intangible assets of the LuckyTail business. The purchase agreement provided for an increase in the purchase price based on the attainment of certain sales thresholds in the first six months. The Company estimated the value of this at approximately $150,000 at the time of purchase. The sales calculated to a $112,685 payout and the purchase price was adjusted. The asset purchase agreement has standard provisions to adjust the purchase price based on the final working capital transferred to the Company. The purchase price was increased by $460,901 for the excess working capital that was transferred in the business and the final purchase price allocation was completed by an independent consulting firm and is no longer subject to change.

The Company’s consolidated financial statements for the year ended June 30, 2023, include the actual results of LuckyTail from August 13, 2022, through June 30, 2023. The Company recorded interest on the consideration of $63,282 during the year ended June 30, 2023.

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, Technology Inc. and its subsidiaries

On 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		5,189,718
Note payable 2		4,684,029
Convertible note payable, convertible at $4.81 per common share		2,418,860
Common stock, 1,247,402 shares valued at $4.81 per common share, the calculated closing price on October 21, 2022.		6,000,000
	$	21,039,765

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		1,727,249
Customer relationships		5,080,305
Accrued liabilities		(192,051	)
Line of credit		(7,201,079	)
Total identifiable net assets	$	14,635,673
Goodwill	$	6,404,092

The business was acquired through membership interest purchase agreement on October 21, 2022. There was no contingent consideration payable under the asset purchase agreement, although a provision was used to adjust the purchase price based on the final working capital transferred to the Company. The purchase price was decreased by $33,803, net and was repaid to the Company with an adjustment to the $3,000,000 cash payment. The final purchase price allocation was completed by an independent consulting firm and is no longer subject to change.

The Company’s consolidated financial statements for the year ended June 30, 2023, include the actual results of E-Core from October 21, 2022, through June 30, 2023. The Company recorded interest on the consideration of $969,098 during the year ended June 30, 2023. At June 30, 2023 there was $1,738,295 of unamortized debt discount that will be expensed over the next two years.

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 develops 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 financial statements:

	June 30,
	2023		2022
VitaMedica	$	7,610,949	$	5,124,583
Cygnet		23,996,086		7,934,153
LuckyTail		4,489,384		-
E-Core		36,551,957		-

	$	72,648,376	$	13,058,736

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 year ended June 30, 2023 and the year ended June 30, 2022. The results of operations for VitaMedica and Cygnet are included in the year ended June 30, 2023 and the results of operations for LuckyTail are included from August 13, 2022 to June 30, 2023 and the results of operations for E-Core are included from October 21, 2022 to June 30, 2023.

Operating expenses have been increased for the amortization expense associated with the fair value adjustment of definite lived intangible assets of VitaMedica, Cygnet, LuckyTail and E-Core by approximately $41,363, $175,000, $44,619, and $134,625 per month, respectively.

Pro Forma, Unaudited								Proforma
Year ended June 30, 2023	Upexi, Inc.			LuckyTail		E-Core		Adjustments			Proforma

Net sales	$	80,676,509		$	892,270	$	12,905,836	$			$	94,474,615
Cost of sales	$	47,118,189		$	137,088	$	11,177,032	$			$	58,432,309
Operating expenses	$	41,110,327		$	383,476	$	1,050,602	$	538,116		$	43,083,521
Net income (loss) from continuing operations	$	(15,422,202	)	$	371,706	$	660,860	$	(538,116	)	$	(14,927,752	)
Basic income (loss) per common share	$	(0.86	)	$	-	$	0.53	$			$	(0.83	)
Weighted average shares outstanding		17,877,959			-		1,247,402		(693,001	)		18,432,360

Pro Forma, Unaudited												Proforma
Year ended June 30, 2022	Upexi, Inc.			VitaMedica		Cygnet		LuckyTail		E-Core		Adjustments			Proforma

Net sales	$	23,065,344		$	384,391	$	22,583,781	$	4,596,641	$	50,474,510	$			$	101,104,667
Cost of sales	$	8,195,735		$	93,509	$	19,117,296	$	802,614	$	45,722,296	$			$	73,931,450
Operating expenses	$	21,358,740		$	255,286	$	2,086,722	$	2,873,631	$	3,681,298	$	3,767,291		$	34,022,969
Net income (loss) from continuing operations	$	(5,869,651	)	$	35,596	$	1,147,971	$	920,396	$	1,178,491	$	(3,767,291	)	$	(6,462,064	)
Basic income (loss) per common share	$	(0.36	)	$	0.36	$	2.07	$	-	$	0.86	$			$	(0.36	)
Weighted average shares outstanding		16,224,520			100,000		555,489		-		1,247,402		(565,750	)		18,121,831

VitaMedica amortization expense of $496,356 annually and $41,363 monthly is based on the purchase price allocation report. For the year ended June 30, 2022, the proforma adjustment included $41,363, one month of amortization expense.

The total weighted average shares includes 560,170 shares of common stock outstanding from October 1, 2021 to June 30, 2022 for the acquisition of Interactive Offers.

The Company estimated the annual Cygnet amortization expense at $2,100,000 annually and $175,000 monthly, based on management’s allocation of the purchase price. For the year ended June 30, 2022, the proforma adjustment included $1,575,000, nine months of amortization expense.

The Company estimated the annual LuckyTail amortization expense at $535,428 annually and $44,619 monthly, based on management’s preliminary allocation of the purchase price. For the year ended June 30, 2023, the proforma adjustment included $66,929 of amortization expense for one and a half months. For the year ended June 30, 2022, the proforma adjustment included $648,000 of amortization and for the year.

The Company estimated the annual E-Core amortization expense at $1,615,500 annually and $134,625 monthly, based on management’s preliminary allocation of the purchase price. For the year ended June 30, 2023, the proforma adjustment included $534,721 of amortization expense, three and a half months. For the year ended June 30, 2022, the proforma adjustment included $1,615,500 of amortization expense.

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.