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Item 9A. Controls and Procedures

2022-09-28 compared with 2021-09-28 · 113 added, 134 removed, 296 unchanged (45% of the section changed)

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Management’s Report on Internal Control Over Financial Reporting

Management’s Report on Disclosure Controls and Procedures

Under the supervision and with the participation of our senior management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the ““Exchange Act””), as of the end of the period covered by this Annual Report on Form 10-K (the ““Evaluation Date””).

Based on this evaluation, our chief executive officer and chief financial officer concluded as of the Evaluation Date that our disclosure controls and procedures were effective such that the information relating to us required to be disclosed in our Securities and Exchange Commission (““SEC”” or “Commission”) reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

Management’s Report on Disclosure Controls and Procedures

Management is responsible for establishing and maintaining adequate internal control over the Company’s financial reporting.

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This assessment included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and a conclusion on this evaluation.

Based on this evaluation, management concluded that our internal control over financial reporting was not effective as of June 30, 2021.

The ineffectiveness of the Company’s internal control over financial reporting was due to the following material weaknesses, which are indicative of many small companies with small staff:

inadequate segregation of duties consistent with control objectives;

lack of multiple levels of supervision and review.

We are currently reviewing our disclosure controls and procedures related to these material weaknesses and expect to implement changes in the current fiscal year, including identifying specific areas within our governance, accounting and financial reporting processes to add adequate resources to potentially mitigate these material weaknesses.

Our management will continue to monitor and evaluate the effectiveness of our internal controls and procedures and our internal controls over financial reporting on an ongoing basis and is committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.

Based on this evaluation, management concluded that our internal control over financial reporting were effective as of June 30, 2022.

Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements.

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Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Management’s Remediation Plan

The weaknesses and their related risks are not uncommon in a company of our size because of the limitations in the size and number of staff.

Due to our size and nature, segregation of all conflicting duties has not always been possible and may not be economically feasible.

However, we plan to take steps to enhance and improve the design of our internal control over financial reporting.

During the period covered by this annual report on Form 10-K, we have not been able to remediate the material weaknesses identified above.

To remediate such weaknesses, we plan to implement the following changes in the current fiscal year as resources allow:

Appoint additional qualified personnel to address inadequate segregation of duties and implement modifications to our financial controls to address such inadequacies;

We will attempt to implement the remediation efforts set out herein by the end of the 2022 fiscal year.

Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within our company have been detected.

These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake.

Management believes that despite our material weaknesses set forth above, our financial statements for the year ended June 30, 2021 are fairly stated, in all material respects, in accordance with U.S.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal controls over financial reporting that occurred during the year ended June 30, 2022, that have materially or are reasonably likely to materially affect, our internal controls over financial reporting.

The Company has added significant qualified resources to ensure proper segregation of duties and proper review of the financial reporting policies and procedures.

Other Information

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

Directors, Executive Officers and Corporate Governance

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Allan Marshall

Chief Executive Officer,

Chairman of the Board

Chief Executive Officer, Chairman of the Board

Robert Hackett(1)

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January 1, 2021

(1) Robert Hackett resigned all positions with the Company on September 26, 2022.

Business Experience

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Allan Marshall , 55, Chief Executive Officer, Director.

Marshall was retired prior to joining the Company working as a serial entrepreneur with a focus on development stage companies in hyper growth industries, with the past several years focusing on the technology and cannabis industries.

Marshall joined the Company as CEO in May of 2019 and was previously retired prior to joining the Company working as a serial entrepreneur with a focus on development stage companies in hyper growth industries, with the past several years focusing on the technology and cannabis industries.

Marshall is often the driving force behind the organization for its initial growth and funding strategies.

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Traffic Ltd, a Canadian company, where he founded their United States logistics division and had previously founded a successful driver leasing company in Toronto, Ontario, Canada.

Robert Hackett , 35, President.

Hackett has been actively building consumer lifestyle businesses for 15 years.

In 2004, he opened a hookah lounge in Whittier, California.

Prior to joining as an executive of the Company, Mr.

Hackett was an equity holder, managing member and/or officer of Steam Distribution, LLC, One Hit Wonder, Inc., Havz, LLC, d/b/a Steam Wholesale, and One Hit Wonder Holdings, LLC, collectively known as “HAVZ Consolidated”, which filed voluntary petitions for relief under Chapter 11 (Chapter 11 Proceedings) of the U.S.

Bankruptcy Code in the U.S.

Bankruptcy Court for the District of Nevada and was subsequently acquired by the Company in 2019.

By 2010 he had opened three lounges and had started a distribution business for related products to other lounges and retailers throughout California.

In 2011, his firm entered into an exclusive contract to distribute a tobacco-free hookah alternative invented in Germany, called Shiazo.

He retained full rights to North America.

Over the next few years, as the retail footprint of customers purchasing the Shiazo product increased, Mr.

Hackett’s Company added products to its distribution portfolio which could be sold into the expanding customer base.

Hackett’s Company started formulating and manufacturing its own vape liquid line, “One Hit Wonder”, which over the next two years, became a globally recognized vape eliquid brand.

Over the next few years, Mr.

Hackett led the development of several additional brands and more than 100 SKU’s, including the launch of cannabidiol (hemp derived CBD) products.

Hackett recognized the need for a more efficient sourcing and distribution model, and the potential of building one online.

He hired a team of programmers and developers and built a dropship platform that would enable vendors and buyers to seamlessly transact.

CBD.io was created as a singular destination for vendors operating in the burgeoning CBD market to source, private-label, wholesale and retail.

The platform design is a response to solving the issues of inefficiency and cost that he had experienced in the vape and CBD supply chain over the past several years.

Norstrud , 49, Chief Financial Officer, Director.

Norstrud joined Grove, Inc.

Norstrud joined Upexi, Inc.

in July of 2019 as a consultant and became the Chief Financial Officer in April of 2020 and a Director as of January 2020.

Norstrud is also the Chief Financial Officer and Director of nDivsion Inc.

since January of 2019 and working with nDivsion Inc.

since March of 2018.

Prior to joining Grove, Inc., Mr.

Prior to joining Upexi, Inc., Mr.

Norstrud worked as a consultant through his own consulting firm.

Norstrud served as the Chief Financial Officer for Gee Group Inc.

from April 1, 2015 until June 15, 2018.

Norstrud joined the Company in March 2013 as CFO and served as CEO and CFO from March 7, 2014 until April 1, 2015.

from March 2013 until June 2018.

Norstrud also served Gee Group as CEO from March 7, 2014 until April 1, 2015.

Norstrud served as a director of GEE Group Inc.

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Gene Salkind, M.D.

has been a practicing neurosurgeon for greater than 35 years outside of Philadelphia, PA.

has been a practicing neurosurgeon for more than 35 years outside of Philadelphia, PA.

He graduated from the University of Pennsylvania in 1974 with a B.A., Cum Laude, and received his medical degree from the Lewis Katz School of Medicine in 1979.

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Salkind currently sits on the boards of Cure Pharmaceuticals, a leader in the biotechnology field through its continual pursuit of redefining traditional drug delivery, and Mobiquity Technologies, Inc., a digital engagement provider.

The company owns and operates a national location based mobile advertising network.

Mobiquity owns and operates a national location based mobile advertising network.

The company’s suite of technologies allows clients to execute personalized and relevant experiences, driving brand awareness and incremental revenue.

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He facilitated the sale to Am Trust, a New York publicly traded company in 2009.

Williams has served on the Board of two public companies:

Williams has served on the board of directors of two public companies:

GEE Group, an American Stock Exchange Company from 2008 to 2018.

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Dugan is a Florida licensed Certified Public Accountant.

Employment Agreements

On March 15, 2021, the Company entered a new employment agreement that superseded all previous agreements with Allan Marshall, Chairman and Chief Executive Officer (the “Marshall Employment Agreement”).

The Marshall Employment Agreement provides for a three-year term ending on March 15, 2025, unless employment is earlier terminated in accordance with the provisions thereof and after the initial term has a standard 1-year automatic extension clause if there is no notice by the Company of termination.

Marshall received a starting base salary at the rate of $460,000 per year which can be adjusted by the Compensation Committee.

In the previous contract Mr.

Marshall was granted an option to purchase 1,111,112 shares of Common Stock at a price of $1.53 per share with 555,556 shares vesting immediately and 555,556 shares vesting ratably over a two-year period.

The options are exercisable for 10 years and provide for cashless exercise.

Marshall is entitled to receive an annual bonus based on criteria to be agreed to by Mr.

Marshall and the Compensation Committee.

The Marshall Employment Agreement contains standard termination, change of control, non-compete and confidentiality provisions.

On July 1, 2020, the Company entered an employment agreement with Nate Weinberg, Chief Sales and Marketing Officer (the “Weinberg Employment Agreement”).

The Weinberg Employment Agreement provides for a two-year term ending on July 1, 2022, unless employment is earlier terminated in accordance with the provisions thereof.

Weinberg received a starting base salary at the rate of $120,000 per year which can be adjusted by the Compensation Committee and can achieve bonuses during the term of the agreement.

Weinberg was granted an option to purchase 55,556 shares of Common Stock at a price of $1.53 per share vesting ratably over a two-year period.

The options are exercisable for 10 years and provide for cashless exercise.

The Weinberg Employment Agreement contains standard termination, change of control, non-compete and confidentiality provisions.

On July 1, 2020, the Company entered an employment agreement with Joseph Reid, Director of Operations (the “Reid Employment Agreement”).

The Reid Employment Agreement provides for a two-year term ending on July 1, 2022, unless employment is earlier terminated in accordance with the provisions thereof.

Reid received a starting base salary at the rate of $90,000 per year which can be adjusted by the Compensation Committee and achieve bonuses during the term of the agreement.

Reid was granted an option to purchase 55,556 shares of Common Stock at a price of $1.53 per share vesting ratably over a two-year period.

The options are exercisable for 10 years and provide for cashless exercise.

The Reid Employment Agreement contains standard termination, change of control, non-compete and confidentiality provisions.

On February 1, 2021, the Company entered an employment agreement with Andrew Norstrud, Chief Financial Officer (the “Norstrud Employment Agreement”).

The Norstrud Employment Agreement provides for a three-year term ending on February 1, 2023, unless employment is earlier terminated in accordance with the provisions thereof and after the initial term has a standard 1-year automatic extension clause if there is no notice by the Company of termination.

Norstrud received a starting base salary at the rate of $250,000 per year which can be adjusted by the Compensation Committee.

Norstrud was granted an option to purchase 388,889 shares of Common Stock at a price of $1.53 per share vesting ratably over a two-year period.

The options are exercisable for 10 years and provide for cashless exercise.

Norstrud is entitled to receive an annual bonus based on criteria to be agreed to by Mr.

Norstrud and the Chief Executive Officer and the Compensation Committee.

The Norstrud Employment Agreement contains standard termination, change of control, non-compete and confidentiality provisions.

On May 3, 2021, the Company entered into an employment agreement with Robert Hackett, President (the “Hackett Employment Agreement”).

The Hackett Employment Agreement provides for a two-year term ending on May 3, 2023, unless employment is earlier terminated in accordance with the provisions thereof.

Hackett received a starting base salary at the rate of $125,000 per year which can be adjusted by the Chief Executive Officer and the Compensation Committee.

Hackett is eligible to receive bonuses as determined by the Chief Executive Officer and the Compensation Committee, which may be paid in stock, stock options, or cash, within the discretion of the Chief Executive Officer and Compensation Committee.

The Hackett Employment Agreement contains standard termination, change of control, non-compete and confidentiality provisions.

Family Relationships

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The Company has adopted a Code of Business Conduct and Ethics which is filed as Exhibit 14.1 of Form S1 as filed with the SEC on May 21, 2021.

Whistleblower Policy

The Company has adopted a Whistleblower Policy which is filed as Exhibit 14.2 of Form S1 as filed with the SEC on May 21, 2021.

Limitations on Liabilities and Indemnification of Directors and Officers

For information concerning limitations of liability and indemnification and advancement rights applicable to our directors and officers, see “Description of Capital Stock-Limitations on Liability, Indemnification of Directors and Officers, and Insurance.”

We have adopted a Code of Business Conduct and Ethics applicable to all of our directors, officers, employees and all persons performing similar functions.

A copy of that code is attached as Exhibit 14.1 to the Company’s Registration Statement on Form S-1 filed with the SEC on May 21, 2021.

We expect that any amendments to the code, or any waivers of its requirements, will be disclosed in our public filings with the Commission.

Term of Office of Directors

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(1) the integrity of the Company’s financial statements, (2) the effectiveness of the Company’s internal control over financial reporting, (3) the Company’s compliance with legal and regulatory requirements, (4) the independent registered public accounting firm’s qualifications and independence, (5) and the performance of the Company’s independent registered public accountants and (6) preparation of the audit committee report as required to be included in the Company’s annual proxy statement.

The Audit Committee Charter is filed as Exhibit 10.8 of Form S1 as filed with the SEC on May 21, 2021.

The Audit Committee Charter is filed as Exhibit 10.8 to the Company’s Form S-1 as filed with the SEC on May 21, 2021.

The audit committee met five times during the year ended June 30, 2022

Compensation Committee

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The Compensation Committee Charter is filed as Exhibit 10.9 hereto.

The compensation committee met twice during the year ended June 30, 2022.

Nomination and Governance Committee

On January 27, 2021, our Board established a nomination and governance committee that operates under a written charter as approved by our Board.

The members of our compensation committee are Dr.

The members of our nomination committee are Dr.

Gene Salkind, Mr.

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Our nomination and corporate governance committee is responsible for assisting the Board in (1) proposing a slate of qualified nominees for election to the Board by the shareholders or in the event of a Board vacancy, (2) evaluating the suitability of potential nominees for membership on the Board, (3) determining the composition of the Board and its committees, (4) monitoring a process to assess Board, committee and management effectiveness, (5) aiding and monitoring management succession planning and (6) developing, recommending to the Board, implementing and monitoring policies and processes related to the Company’s corporate governance guidelines.

The Nominating Committee Charter is filed as Exhibit 10.10 of Form S1 as filed with the SEC on May 21, 2021.

The Nominating Committee Charter is filed as Exhibit 10.10 to the Company’s Form S-1 as filed with the SEC on May 21, 2021.

The nomination committee met twice during the year ended June 30, 2022.

Nominations to the Board of Directors

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Compensation ($)

Change in Pension

Value and Nonqualified Deferred Compensation Earnings

Nonqualified Deferred Compensation Earnings

Allan Marshall, CEO, and Director

1 unchanged sentence

Robert Hackett, President(1)

_____________

(1) Robert Hackett resigned all positions with the Company on September 26, 2022.

There are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers.

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Represents equity-based compensation expense calculated in accordance with the provisions of Accounting Standards Codification Section 718 – Compensation – Stock Compensation, using the Black-Scholes option pricing model as set forth in Notes to our consolidated financial statements in Item 13.