Acquisition

9 Months Ended

Mar. 31, 2024

Acquisition

Acquisition

Note 2. Acquisitions

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 Cygnet Online, LLC 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

55% of the business was acquired through a stock purchase agreement on April 1, 2022. The purchase agreement provided for an increase in the purchase price of up to $700,000 based on the attainment of certain sales thresholds 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 a reduction in the loan to the seller.  The 55% purchase price allocation is final and is no longer subject to change.

On September 1, 2023, the Company completed the acquisition of the remaining 45% interest for structured cash payments equaling $800,000, the forgiveness of advances of $89,416 and 90,909 shares of the Company’s common stock valued at $162,727.   As of June 24, 2024, the Company has not released the 90,909 shares or paid the remaining $300,000 owed related to this additional acquisition. 

Fair value of consideration transferred:

Cash	$	800,000
Noncontrolling interest		505,147
Forgiveness of advances		89,416
Common stock, 90,909 shares valued at $1.79 per common share, the closing price on September 1, 2023.		162,727
	$	1,557,290

The additional consideration was recorded as goodwill by management and will be subject to change based on the final purchase price allocation.

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.  The Company’s management is evaluating the intangible assets of this acquisition and had not reached a conclusion on any impairment of these intangible assets at the time of this report. 

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 the business, including all 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 consolidated financial include the actual results of LuckyTail from August 13, 2022 through March 31, 2024. 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.  The purchase price allocation was performed by a third party and is no longer subject to change. 

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 a 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 include the actual results of E-Core from November 1, 2022 to March 31, 2024. The Company recorded interest on the consideration of $969,098 during the year ended June 30, 2023 and $900,339 during the nine months ended March 31, 2024. At June 30, 2023 there was $1,738,295 of unamortized debt discount that will be expensed over the next two years.   At March 31, 2024 there was $810,545 of unamortized debt discount that will be expensed over the following nineteen months. 

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.  The purchase price allocation was performed by a third party and is no longer subject to change. 

Revenue from acquisitions included in the financial statements.

	Nine months ended March 31,
	2024		2023
Cygnet	$	10,629,121	$	20,806,317
LuckyTail		2,219,111		3,573,727
E-Core		38,625,335		25,822,931
	$	51,473,567	$	50,202,975

	Three months ended March 31,
	2024		2023
Cygnet		1,956,310		7,359,955
LuckyTail		673,738		1,394,459
E-Core		9,221,715		13,647,412
	$	11,851,763	$	22,401,826

Consolidated pro-forma unaudited financial statements.

The following unaudited pro forma combined financial information is based on the historical financial statements of the Company, LuckyTail and E-Core after giving effect to the Company’s acquisitions as if the acquisitions occurred on July 1, 2022.  

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, 2022, 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 nine months ended March 31, 2023, as if the acquisitions occurred on July 1, 2022.  The results of operations for Cygnet, LuckyTail and E-Core are included in the three and nine months ended March 31, 2024.  The results of operations for include LuckyTail from August 13, 2022 to March 31, 2023 and E-Core from October 21, 2022 to March 31, 2023. 

Operating expenses for the nine months ended March 31, 2023 have been increased for the amortization expense associated with the fair value adjustment of definite lived intangible assets of LuckyTail and E-Core by approximately $44,619, and $134,625, per month respectively and $363,415 of interest expense. 

Pro Forma, Unaudited								Proforma
Nine months ended March 31, 2023	Upexi, Inc.			LuckyTail		E-Core		Adjustments			Proforma
Net sales	$	56,282,542		$	892,270	$	12,905,836	$	-		$	70,080,648
Cost of sales	$	35,555,746		$	137,088	$	11,177,032	$	-		$	46,869,866
Operating expenses	$	26,635,582		$	383,476	$	1,050,602	$	567,721		$	28,637,381
Net income (loss) from continuing operations	$	(263,119	)	$	371,706	$	660,860	$	(567,721	)	$	201,726
Basic income (loss) per common share	$	(0.02	)	$	-	$	0.53	$	-		$	0.01
Weighted average shares outstanding		17,418,877			-		1,247,402		(693,001	)		17,973,278