NUVVE
HOLDING CORP. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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|
|
|
|
|
|
|
|
|
|
Private
Warrants
|
|
Non-controlling
redeemable preferred shares - derivative liability
|
Balance
at December 31, 2020
|
$
|
—
|
|
|
$
|
—
|
|
Assumed
at closing of merger
|
1,253,228
|
|
|
—
|
|
Total
(gains) losses for period included in earnings
|
(421,830)
|
|
|
—
|
|
Balance
at March 31, 2021
|
831,398
|
|
|
—
|
|
Total
(gains) losses for period included in earnings
|
351,602
|
|
|
—
|
|
Balance
at June 30, 2021
|
1,183,000
|
|
|
—
|
|
Initial
fair value
|
—
|
|
|
497,606
|
|
Total
(gains) losses for period included in earnings
|
(557,000)
|
|
|
12,179
|
|
Balance
at September 30, 2021
|
$
|
626,000
|
|
|
$
|
509,785
|
|
The fair value
of the level 3 Private Warrants was estimated at September 30, 2021 using the Black-Scholes model which used the following inputs:
term of 4.5
years, risk free rate of 0.9%,
no dividends, volatility of 54.0%,
and strike price of $11.50.
The fair value
of the level 3 derivative liability - non-controlling redeemable preferred shares are estimated at September 30, 2021 using the Monte
Carlo Simulation model which
used the following inputs: terms range from 3.0
years to 7.0
years, risk free rate of 1.0%,
no dividends, volatility of 51.0%
and probability of redemptions triggered of 65.0%.
There
were no transfers between Level 1 and Level 2 of the fair value hierarchy in 2021 and 2020.
Cash,
accounts receivable, accounts payable, and accrued expenses are generally carried on the cost basis, which management believes approximates
fair value due to the short-term maturity of these instruments.
The
following table presents the significant unobservable inputs and valuation methodologies used for the Company’s fair value measurements
of non-recurring (level 3) Stonepeak and Evolve warrants and securities purchase agreement to purchase shares of the Company’s common
stock (see Note
9
for details) at the date of issuance of May 17, 2021:
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Series
B Warrants
|
Series
C Warrants
|
Series
D Warrants
|
Series
E Warrants
|
Series
F Warrants
|
Options
|
Fair
value (in millions)
|
$12.8
|
$5.6
|
$4.8
|
$3.8
|
$3.2
|
$12.6
|
Valuation
methodology
|
Black
Scholes
|
Monte
Carlo Simulation & Black Scholes
|
Monte
Carlo Simulation & Black Scholes
|
Monte
Carlo Simulation & Black Scholes
|
Monte
Carlo Simulation & Black Scholes
|
Black
Scholes
|
Terms
(years)
|
10
|
10
|
10
|
10
|
10
|
7.50
|
Risk
free rate
|
1.6%
|
1.6%
|
1.6%
|
1.6%
|
1.6%
|
1.4%
|
Strike
price
|
$10.0
|
$15.0
|
$20.0
|
$30.0
|
$40.0
|
$50.0
|
|
|
|
|
|
|
|
Volatility
|
55.0%
|
55.0%
|
55.0%
|
55.0%
|
55.0%
|
57.0%
|
Capital
expenditure forecast (in millions)
|
N/A
|
$125.0
|
$250.0
|
$375.0
|
$500.0
|
N/A
|
Probability
of warrants vesting
|
100.0%
|
96.9%
|
87.7%
|
78.2%
|
69.9%
|
N/A
|
Note 5 - Derivative
Liability - Non-Controlling Redeemable Preferred Stock
The
Company has determined that the redemption features embedded in the non-controlling redeemable preferred stock is required to be accounted
for separately from the redeemable preferred stock as a derivative liability. Separation of the redemption features as a derivative liability
is required because its economic characteristics and risks are considered more akin to a debt instrument, and therefore, not considered
to be clearly and closely related to the economic characteristics of the redeemable preferred stock. The economic characteristics of the
redemption features are considered more akin to an debt instrument because the minimum redemption value could be greater than the face
amount, the redemption features are contingently exercisable, and the shares carry a fixed mandatory dividend.
Accordingly,
the Company has recorded an embedded derivative liability representing the estimated fair value of the right of the holders to exercise
their redemption option upon the occurrence of a redemption event. The embedded derivative liability is adjusted to reflect fair value
at each period end with changes in fair value recorded in the “Change in fair value of derivative liability” financial statement
line item of the company’s consolidated statements of operations. For additional information on the non-controlling redeemable preferred
stock, see
Note 17.
NUVVE
HOLDING CORP. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The
following table display the fair value of derivatives by balance sheet line item at September 30,
2021
and December 31, 2020:
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|
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September
30, 2021
|
|
December
31, 2020
|
Other
long term liabilities:
|
|
|
|
Derivative
liability - non-controlling redeemable preferred shares
|
$
|
509,785
|
|
|
$
|
—
|
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Note
6 – Investment
in Dreev
In
October 2018, the Company entered into a Cooperation Framework Agreement and in February 2019, the Company invested in an enterprise (the
“Investment”) with EDF Pulse Croissance Holding (“EDF”), a related party (see Note 13), in which the companies
incorporated an entity under the name of Dreev S.A.S., a société par actions simplifiée, organized in France (“Dreev”)
in order to jointly develop and market V2G products in France, the UK, Belgium, and Italy (the “G4”). The Company licensed
certain of its patents, know-how, and software copyrights (the “IP”) to Dreev to develop and commercialize the IP in the G4,
with a promise to transfer the patents to Dreev in the future, in exchange for an initial 49%
ownership stake in Dreev.
The
Company determined that Dreev is a VIE; however, the Company determined that it was not the primary beneficiary of and therefore did not
control Dreev. Although the Company did not maintain control over Dreev, it determined it was able to exercise significant influence concerning
the Investment. Hence, the Company initially accounted for the Investment on the equity method of accounting.
In
October 2019, the Company sold 36%
of its 49%
equity interest in Dreev to EDF. The sale reduced the Company’s equity ownership in Dreev to approximately 13%.
Accordingly, the Company discontinued accounting for its investment in Dreev under the equity method at that time, as the Company was
no longer able to exercise significant influence over the operations of Dreev.
Commencing
in October 2018 and continuing through August 2020, the Company performed consulting services to Dreev related to transferring the IP,
software development, and operations of Dreev. The consulting services were zero
for each of
the three and nine months ended September 30, 2021. The consulting services were
$24,675
and $278,887
for the three
and nine months ended September 30, 2020, respectively. The consulting services were provided to Dreev at the Company’s cost
and is recognized, net of consulting costs, as other income, net in the condensed consolidated statements of operations.
Note
7 – Intangible
Assets
At
both September 30, 2021 and December 31, 2020, the Company had recorded a gross intangible asset balance of $2,091,556,
which is related to patent and intangible property rights acquired. Amortization expense of intangible assets was
$34,860
and $104,578
for the three and nine months ended September 30, 2021, respectively. Amortization expense of intangible assets was $51,471
and $104,578
for the three and nine months ended September 30, 2020, respectively. Accumulated amortization totaled $575,620
and $471,042
at September 30, 2021 and December 31, 2020, respectively.
The
net amount of intangible assets of $670,951
at September 30, 2021, will be amortized over the weighted average remaining life of 11.1
years.
Total
estimated future amortization expense is as follows:
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2021
(remaining three months)
|
$
|
34,860
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2022
|
139,437
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2023
|
139,437
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|
2024
|
139,437
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|
2025
|
139,437
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|
Thereafter
|
923,328
|
|
|
$
|
1,515,936
|
|
NUVVE
HOLDING CORP. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note
8 – Debt
The
following is a summary of debt as of September 30, 2021 and December 31, 2020:
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September
30,
2021
|
|
December
31,
2020
|
6%
Senior Secured Convertible Debenture
|
$
|
—
|
|
|
$
|
4,000,000
|
|
Payroll
Protection Plan loan
|
—
|
|
|
492,100
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|
|
—
|
|
|
4,492,100
|
|
Less:
discount on convertible debenture
|
—
|
|
|
(198,046)
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|
Total
debt - current
|
$
|
—
|
|
|
$
|
4,294,054
|
|
6%
Senior Secured Convertible Debenture
Concurrently
with the execution of the Merger Agreement between Nuvve Corp., the Company and Newborn (Note 2), on November 12, 2020, entered into a
6%
Senior Secured Convertible Debenture (the “Debenture” or “Bridge Loan”) and a related Securities Purchase Agreement,
whereby Nuvve received a loan in the amount of $4,000,000
from a single investor (the “Investor”). The Bridge Loan was funded on November 17, 2020, and the Company received net proceeds
of $3,736,435,
after deduction of issuance costs of $263,565,
which were recorded as debt discount. The maturity date of the Bridge Loan was May 17, 2021. Interest on the Bridge Loan of 6%
per annum was due at maturity or conversion of the Note. At the consummation of the Business Combination and the related PIPE financing
(Note 2), the principal and interest earned on the Bridge Loan was automatically converted into shares of common stock of the Company
based on a conversion price of $1.56,
which was exchanged in the Business Combination transaction for shares of the Company. The Debenture was collateralized by all assets
of the Company and each Subsidiary pursuant to the Security Agreement, dated as of November 17, 2020 between the Company, the Subsidiaries
of the Company and the Investor.
Interest
expense on the Debenture for the three and nine months ended September 30, 2021 is
zero
and $52,402,
respectively.
There was no
interest expense on the Debenture for the three and nine months ended September 30, 2020.
Convertible
Notes Payable
Beginning
in July 2018 and at various dates thereafter, the Company issued convertible notes payable ("Notes"). The Notes accrued interest at 5%
per annum. The Notes were due at various dates ranging from January 31, 2019 to December 1, 2021 (Maturity Dates) (if called) or earlier
upon the closing of a qualified next equity financing, as defined in the agreement ("Next Equity Financing"), or an IPO or liquidation
event. In the event of a Next Equity Financing, the Notes balance, including accrued interest, would convert into shares of common or
preferred stock issued in connection with the financing, at the lower of a price equal to (a) 80%
of the price paid by investors participating in the Next Equity Financing or (b) a fixed dollar amount stated in the Notes contract divided
by the fully diluted shares outstanding. In the event of conversion at maturity, a liquidation event or an IPO, the Notes balance, including
accrued interest, would be converted to equity securities at a conversion rate based on a fixed dollar amount stated in the Notes contract
divided by the fully diluted shares outstanding. On November 17, 2020, the Company entered into the 6%
Senior Secured Convertible Debenture, which met the definition of a Next Equity Financing. Accordingly, as of November 17, 2020, the total
principal and accrued interest on the Notes then outstanding were converted into a total of 1,529,225
shares of the Company's common stock. As a result, at both September 30, 2021 and December 31, 2020, the outstanding balance
on the Notes was zero.
The
Next Equity Financing conversion options were identified as redemption features for accounting purposes. Accordingly, the redemption feature
was bifurcated and recorded at estimated fair value. Since the Notes converted in November 2020, no amounts associated with the redemption
feature are reflected in the condensed consolidated balance sheets as of September 30, 2021 and December 31, 2020.
Interest
expense recognized on the Convertible Notes during the three and nine months ended September 30, 2021 was zero.
Interest expense recognized on the Convertible Notes during the three and nine months ended September 30, 2020 was
$8,314
and $12,402,
respectively.
NUVVE
HOLDING CORP. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PPP
and EIDL Loans
In
April 2020, the Company applied for, and in May 2020, the Company received a loan in the amount of $482,100
as a part of the Coronavirus Aid, Relief, and Economic Security ("CARES") Act. The loan is also known as a Payroll Protection Program
("PPP") loan. The loan had a term of 2
years at an interest rate of 1%
with principal and interest deferred for 6 months. The loan also was eligible for forgiveness if certain criteria were met. The Company
applied for forgiveness of the PPP loan in
June 2021, and it was fully forgiven.
Interest
expense recognized on the PPP loan for the three and nine months ended September 30, 2021 was zero
and $1,607,
respectively. Interest expense recognized on the PPP loan for the three and nine months ended September 30, 2020 was
$1,205
and $2,009,
respectively.
In
March 2020, the Company applied for, and in May 2020, the Company received an Economic Injury Disaster Loan Emergency Advance ("EIDL")
loan from the Small Business Administration in the amount of $149,900,
along with a $10,000
advance. The terms of the loan were as follows: 1) interest rate of 3.75%
per year, 2) repayment over a 30-year
term, and 3) a deferment of payment of principal and interest for one year. On November 16, 2020, the Company repaid the principal and
interest balance due on the EIDL loan from the SBA, therefore the balance of the EIDL loan at both September 30, 2021 and December 31,
2020 was zero.
There was no
interest expense recognized during the three and nine months ended September 30, 2020.
NUVVE
HOLDING CORP. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note
9 – Stockholders’
Equity
As
of September 30, 2021, the Company has authorized two
classes of stock to be designated, respectively, common stock, and preferred stock. The total number of shares of all classes of capital
stock which the Company has authority to issue is 101,000,000,
of which 100,000,000
authorized shares are Common Stock with a par value of $0.0001
per share (“Common Stock”), and 1,000,000
authorized shares are Preferred Stock of the par value of $0.0001
per share (“Preferred Stock”).
Preferred
Stock
The
Board of Directors is expressly granted authority to issue shares of the Preferred Stock, in one or more series, and to fix for each such
series such voting powers, full or limited, and such designations, preferences and relative, participating, optional or other special
rights and such qualifications, limitations or restrictions thereof as shall be stated and expressed in the resolution or resolutions
adopted by the Board of Directors providing for the issue of such series (a “Preferred Stock Designation”) and as may be permitted
by the General Corporation Law of the State of Delaware. The number of authorized shares of Preferred Stock may be increased or decreased
(but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the voting power
of all of the then outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors,
voting together as a single class, without a separate vote of the holders of the Preferred Stock, or any series thereof, unless a vote
of any such holders is required pursuant to any Preferred Stock Designation. No preferred stock of Nuvve Holding have been issued and
outstanding.
Common
Stock
General:
The voting, dividend, liquidation, conversion, and stock split rights of the holders of the Common Stock are subject to and qualified
by the rights of the holders of the Preferred Stock of any series as may be designated by the Board of Directors upon any issuance of
the Preferred Stock of any series. The number of authorized shares of Common Stock may be increased or decreased (but not below the number
of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the stock of the Company entitled to vote.
Voting:
Each holder of Common Stock shall be entitled to one vote for each share of Common Stock held by such holder. Each holder of Common Stock
shall be entitled to notice of any stockholders’ meeting in accordance with the Bylaws of the
Company
(as in effect at the time in question) (the “Bylaws”) and applicable law on all matters put to a vote of the stockholders
of the Company.
Dividends:
Subject to the rights of any holders of any shares of Preferred Stock which may from time to time come into existence and be outstanding,
the holders of Common Stock shall be entitled to the payment of dividends when and as declared by the Board of Directors in accordance
with applicable law and to receive other distributions from the Company. Any dividends declared by the Board of Directors to the holders
of the then outstanding shares of Common Stock shall be paid to the holders thereof pro rata in accordance with the number of shares of
Common Stock held by each such holder as of the record date of such dividend.
Liquidation:
Subject to the rights of any holders of any shares of Preferred Stock which may from time to time come into existence and be outstanding,
in the event of any liquidation, dissolution, or winding up of the Corporation, whether voluntary or involuntary, the funds and assets
of the Corporation that may be legally distributed to the Corporation’s stockholders shall be distributed among the holders of the
then outstanding shares of Common Stock pro rata in accordance with the number of shares of Common Stock held by each such holder.
Warrants
- Stonepeak and Evolve
On
May 17, 2021, in connection with the signing of a letter of agreement relating to the formation of a venture, Levo Mobility LLC, the Company
issued to Stonepeak and Evolve a ten
years warrants to purchase common stock (allocated 90%
to Stonepeak and 10%
to Evolve). See Note
16
for details. The grant-date fair value of the warrants issued to Stonepeak and Evolve were; series B $12.8
million, series C $5.6
million, series D $4.8
million, series E $3.8
million and series F $3.2
million. The fair values of the warrants are recorded in the condensed consolidated balance sheet as equity in additional-paid-in capital
as it is indexed to the Company’s common stock and meets the conditions for equity classification, and deferred financing costs.
The carrying amount of the deferred financing costs is reduced as the commitment amount is funded, and the amount is charged to additional-paid-in
capital.
NUVVE
HOLDING CORP. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Warrants
- Public and Private
In
connection with its initial public offering on February 19, 2020, Newborn sold 5,750,000
units, which included one
warrant to purchase Newborn’s common stock (the “Public Warrants”). Also, on February 19, 2020, NeoGenesis Holding
Co., Ltd., Newborn’s sponsor (“the Sponsor”), purchased an aggregate of 272,500
private units, each of which included one
warrant (the “Private Warrants”), which have the same terms as the Public Warrants. Upon completion of the merger between
Nuvve and Newborn, the Public Warrants and Private Warrants were automatically converted to warrants to purchase Common Stock of the Company.
Each
of the Public Warrants and Private Warrants entitles the holder to purchase one-half of a share of Nuvve’s Common Stock at a price
of $11.50
per share. The term of the warrants commenced on March 19, 2021, the date of completion of the Business Combination, and expire on March
19, 2026. The Company may redeem the Public Warrants at a price of $0.01
per warrant upon 30
days’ notice, only in the event that the last sale price of the ordinary shares is at least $16.50
per share for any 20
trading days within a 30-trading
day period ending on the third day prior to the date on which notice of redemption is given, provided there is an effective registration
statement and current prospectus in effect with respect to the ordinary shares underlying such Warrants during the 30
day redemption period. If the Company decides to redeem the warrants as described above, management will have the option to require all
holders that wish to exercise warrants to do so on a “cashless basis.” In accordance with the warrant agreement relating to
the Public Warrants sold and issued in Newborn’s IPO, the Company is only required to use its best efforts to maintain the effectiveness
of the registration statement covering the warrants. If a registration statement is not effective within 90
days following the consummation of a Business Combination, warrant holders may, until such time as there is an effective registration
statement and during any period when the Company shall have failed to maintain an effective registration statement, exercise warrants
on a cashless basis pursuant to an available exemption from registration under the Securities Act of 1933, as amended. In the event that
a registration statement is not effective at the time of exercise or no exemption is available for a cashless exercise, the holder of
such warrant shall not be entitled to exercise such warrant for cash and in no event (whether in the case of a registration statement
being effective or otherwise) will the Company be required to net cash settle the warrant exercise. If an initial Business Combination
is not consummated, the Public Warrants will expire and will be worthless.
The
terms of the Private Warrants are identical to the Public Warrants as described above, except that the Private Warrants are not redeemable
so long as they are held by the Sponsor or its permitted transferees. Concurrently with the execution of the Merger Agreement (Note 2),
on November 11, 2020, Newborn entered into subscription agreements with certain accredited investors pursuant to which the investors
agreed to purchase 1,425,000
of Newborn’s common stock, at a purchase price of $10.00
per share, for an aggregate purchase price of $14,250,000
(the PIPE). Upon closing of the PIPE immediately prior to the closing of the Business Combination (Note 2), the PIPE investors also received
1.9
PIPE Warrants to purchase the Company’s Common Stock for each share of Common Stock purchased. The PIPE Warrants are each exercisable
for one-half of a common
share
at $11.50
per share and have the same terms as described above for the Public Warrants. The PIPE investors received demand and piggyback registration
rights in connection with the securities issued to them.
The
following table is a summary of the number of shares of the Company’s Common Stock issuable upon exercise of warrants outstanding
at September 30, 2021 (there were no warrants outstanding at December 31, 2020):
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Number
of
Warrants
|
|
Number
of
Warrants Exercisable
|
|
Exercise
Price
|
|
Expiration
Date
|
Public
Warrants
|
2,875,000
|
|
—
|
|
|
$11.50
|
|
March
19, 2026
|
Private
Warrants
|
136,250
|
|
—
|
|
|
$11.50
|
|
March
19, 2026
|
PIPE
Warrants
|
1,353,750
|
|
—
|
|
|
$11.50
|
|
March
19, 2026
|
Stonepeak/Evolve
Warrants - series B
|
2,000,000
|
|
—
|
|
|
$10.00
|
|
May
17, 2031
|
Stonepeak/Evolve
Warrants - series C
|
1,000,000
|
|
—
|
|
|
$15.00
|
|
May
17, 2031
|
Stonepeak/Evolve
Warrants - series D
|
1,000,000
|
|
—
|
|
|
$20.00
|
|
May
17, 2031
|
Stonepeak/Evolve
Warrants - series E
|
1,000,000
|
|
—
|
|
|
$30.00
|
|
May
17, 2031
|
Stonepeak/Evolve
Warrants - series F
|
1,000,000
|
|
—
|
|
|
$40.00
|
|
May
17, 2031
|
|
10,365,000
|
|
|
|
|
|
|
Because
the Private Warrants have dissimilar terms with respect to the Company’s redemption rights depending on the holder of the Private
Warrants, the Company determined that the Private Warrants are required to be carried as a liability in the condensed consolidated balance
sheet at fair value, with changes in fair value recorded in the condensed consolidated statement of operations. The Private Warrant is
reflected as a liability in the condensed consolidated balance sheet as of
NUVVE
HOLDING CORP. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30,
2021 in the amount of $626,000 and the change in the fair value of the Private Warrant for the three and nine months ended September 30,
2021 of is reflected as a gain of $557,000
and a gain of $627,228,
respectively, in the condensed consolidated statement of operations.
Unit
Purchase Option
On
February 19, 2020, Newborn sold to the underwriters of its initial public offering for $100,
a unit purchase option ("UPO") to purchase up to a total of 316,250
units at $11.50
per unit (or an aggregate exercise price of $3,636,875)
commencing on the date of Newborn's initial business combination, March 19, 2021, and expiring February 13, 2025. Each unit issuable upon
exercise of the UPO consists of one and one-tenth of a share of the Company's common stock and one
warrant to purchase one
share of the Company's common stock at the exercise price of $11.50
per share. The warrant has the same terms as the Public Warrant. In no event will the Company be required to net cash settle the exercise
of the UPO or the warrants underlying the UPO. The holders of the unit purchase option have demand and "piggy back" registration rights
for periods of five
and seven
years, respectively, from the effective date of the IPO, including securities directly and indirectly issuable upon exercise of the unit
purchase option. The UPO is classified within stockholders’ equity as “additional paid-in capital” in accordance with
ASC
815-40, Derivatives and Hedging-Contracts
in an Entity’s Own Equity, as the UPO is indexed to the Company’s common stock and meets the conditions for equity classification.
Put Option
On
March 19, 2021, the Closing Date of the Business Combination, EDF Renewables exercised its put option on the Company’s common shares
held them (see Note 2). As a result, on April 26, 2021, the Company reacquired 134,449
shares of the Company's Common Stock from EDF Renewables for $2,000,000
in cash, at a price per share of approximately $14.87
(the average closing price over the five trading days preceding the date of exercise).
Securities
Purchase Agreement
On
May 17, 2021, in connection with the signing of a letter of agreement relating to the formation of a venture, Levo Mobility LLC, the Company
entered into a Securities Purchase Agreement with Stonepeak and Evolve which provide them from time to time between November 13,
2021 and November 17, 2028, in their sole discretion, to purchase up to an aggregate of $250
million in shares of the Company’s common stock at a purchase price of $50.00
per share (allocated 90%
to Stonepeak and 10%
to Evolve). See
Note
16
for details.
The grant-date fair value of the Securities Purchase Agreement to purchase shares of the Company’s common stock was $12.6
million, and is recorded in the condensed consolidated balance sheet as equity in additional-paid-in capital as it is indexed to the Company’s
common stock and meets the conditions for equity classification, and deferred
financing costs. The
carrying amount of the deferred financing costs is reduced as the commitment amount is funded, and the amount is charged to additional-paid-in
capital.
NUVVE
HOLDING CORP. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note
10 – Stock
Option Plan
In
2010, the Company adopted the 2010 Equity Incentive Plan (the “2010 Plan”), which provides for the grant of restricted stock
awards, stock options, and other share-based awards to employees, consultants, and directors. In November 2020, the Company’s Board
of Directors extended the term of the 2010 Plan to July 1, 2021. In 2021, the Company adopted the 2020 Equity Incentive Plan (the “2020
Plan”), which provides for the grant of restricted stock awards, incentive and non-statutory stock options, and other share-based
awards to employees, consultants, and directors. As of September 30, 2021, there is an aggregate of 3,300,000
common shares reserved for issuance under the 2020 Plan. All options granted to date have a ten
years contractual life and vesting terms of four
years. In general, vested options expire if not exercised at termination of service. As of September 30, 2021, a
total of 1,365,933
shares of common stock remained available for future issuance under the 2020 Plan.
Stock-based
compensation expense for the three and nine months ended September 30 are as follows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended September 30,
|
|
Nine
Months Ended September 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Options
|
$
|
778,922
|
|
|
$
|
82,090
|
|
|
$
|
1,841,930
|
|
|
$
|
115,068
|
|
Restricted
stock
|
537,693
|
|
|
—
|
|
|
805,665
|
|
|
—
|
|
Total
|
$
|
1,316,615
|
|
|
$
|
82,090
|
|
|
$
|
2,647,595
|
|
|
$
|
115,068
|
|
The
Company uses the Black-Scholes option pricing model to estimate the fair value of stock options. Fair value is estimated at the date of
grant for employee and nonemployee options. The
following assumptions were used in the Black-Scholes model to calculate the fair value of stock options granted for the nine
months ended September 30, 2021 for the 2010 Plan and the 2020 Plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
Plan
|
|
2020
Plan
|
Expected
life of options (in years) (1)
|
6.0
|
|
6.0
|
Dividend
yield (2)
|
0
|
%
|
|
0
|
%
|
Risk-free
interest rate (3)
|
1.02
|
%
|
|
1.02
|
%
|
Volatility
(4)
|
60.2
|
%
|
|
60.2
|
%
|
__________________
(1)The
expected life of options is the average of the contractual term of the options and the vesting period.
(2)No
cash dividends have been declared on the Company’s common stock since the Company’s inception, and the Company currently does
not anticipate declaring or paying cash dividends over the expected life of the options.
(3)The
risk-free interest rate is based on the yields on U.S. Treasury debt securities with maturities approximating the estimated life of the
options.
(4)Volatility
is estimated by management. As the Company has been a private company for most of its existence, there is not enough historical volatility
data related to the Company’s Common stock as a public entity. Therefore, this estimate is based on the average volatility of certain
public company peers within the Company’s industry.
The
following is a summary of the stock option activity under the 2010 Plan, as converted to the Company’s shares due to Reverse Recapitalization,
for the nine months ended September 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted-
Average
Exercise
Price
per
Share($)
|
|
Weighted-
Average
Remaining
Contractual
Term
(Years)
|
|
Aggregate
Intrinsic Value($)
|
Outstanding
- December 31, 2020
|
1,242,234
|
|
|
2.88
|
|
|
6.73
|
|
—
|
|
Granted
|
81,775
|
|
|
8.71
|
|
|
—
|
|
|
—
|
|
Exercised
|
(7,903)
|
|
|
2.49
|
|
|
—
|
|
|
—
|
|
Forfeited
|
(21,175)
|
|
|
5.84
|
|
|
—
|
|
|
—
|
|
Expired/Cancelled
|
(2,809)
|
|
|
2.78
|
|
|
—
|
|
|
—
|
|
Outstanding
- September 30, 2021
|
1,292,122
|
|
|
3.21
|
|
|
5.50
|
|
9,812,805
|
|
|
|
|
|
|
|
|
|
Options
Exercisable at September 30, 2021
|
1,004,969
|
|
|
2.15
|
|
|
4.58
|
|
8,709,677
|
|
Option Vested
at September 30, 2021
|
1,004,969
|
|
|
2.15
|
|
|
4.58
|
|
8,652,097
|
|
|
|
|
|
|
|
|
|
NUVVE
HOLDING CORP. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The
weighted-average grant-date fair value of options granted during the nine months ended September 30, 2021 was $4.06.
The
following is a summary of the stock option activity under the 2020 Plan for the nine months ended September 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted-
Average
Exercise
Price
per
Share ($)
|
|
Weighted-
Average
Remaining
Contractual
Term
(Years)
|
|
Aggregate
Intrinsic Value($)
|
Outstanding
- December 31, 2020
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Granted
|
1,776,850
|
|
|
12.82
|
|
|
9.51
|
|
—
|
|
Exercised
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Forfeited
|
(177,500)
|
|
|
9.81
|
|
|
—
|
|
|
—
|
|
Expired/Cancelled
|
(100)
|
|
|
10.00
|
|
|
—
|
|
|
—
|
|
Outstanding
- September 30, 2021
|
1,599,250
|
|
|
13.15
|
|
|
9.51
|
|
320,565
|
|
|
|
|
|
|
|
|
|
Options
Exercisable at September 30, 2021
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Option Vested
at September 30, 2021
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
The
weighted-average grant-date fair value of options granted during the nine months ended September 30, 2021 was $7.25.
During
the nine months ended September 30, 2021, 1,640,000
options were modified to lower the exercise price by $0.60
per share, which will result in $246,000
of incremental compensation cost to be recognized over the remaining vesting period. The amount of additional compensation expense for
the three
and nine months
ended September 30, 2021, were $20,758
and $42,486,
respectively.
Other
Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
Months Ended
September 30,
|
|
|
|
|
2021
|
|
2020
|
|
|
Amount
received from option exercised
|
|
$
|
18,325
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
September
30, 2021
|
|
|
|
Weighted
average remaining recognition period
|
Total
unrecognized options compensation costs
|
|
$
|
11,321,196
|
|
|
|
|
3.35
|
No
amounts relating to the Plan have been capitalized. Compensation cost is recognized over the requisite service period based on the fair
value of the options.
A
summary of the status of the Company’s nonvested restricted stock units as of December 31, 2020, and changes during the nine
months ended September 30, 2021, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted-
Average
Grant
Date Fair Value($)
|
Nonvested
at December 31, 2020
|
—
|
|
|
—
|
|
Granted
|
359,923
|
|
|
10.84
|
|
Vested/Release
|
—
|
|
|
—
|
|
Cancelled/Forfeited
|
(15,106)
|
|
|
9.93
|
|
Nonvested and
Outstanding at September 30, 2021
|
344,817
|
|
|
10.87
|
|
As
of September 30, 2021, there was $2,944,210
of total unrecognized compensation cost related to nonvested restricted stock. The Company expects to recognize this compensation cost
over a remaining weighted-average period of approximately 1.9
years.
NUVVE
HOLDING CORP. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note
11 – Income
Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended September 30,
|
|
Nine
Months Ended September 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Income
tax (benefit) expense
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,000
|
|
|
$
|
1,000
|
|
Effective
tax rate
|
0.0
|
%
|
|
(0.1)
|
%
|
|
0.0
|
%
|
|
(0.1)
|
%
|
The
effective tax rate used for interim periods is the estimated annual effective tax rate, based on current estimate of full year results,
except that taxes related to specific events, if any, are recorded in the interim period in which they occur. The effective tax rate differed
from the U.S. federal statutory tax rate primarily due to operating losses that receive no tax benefit as a result of a valuation allowance
recorded for such losses.
The
Company accounts for income taxes in accordance with ASC Topic 740, Income
Taxes (“ASC
740”). Under the provisions of ASC 740, management is required to evaluate whether a valuation allowance should be established against
its deferred tax assets. The Company currently has a full valuation allowance against its deferred tax assets. As of each reporting date,
the Company’s management considers new evidence, both positive and negative, that could impact management’s view with regard
to future realization of deferred tax assets. For the nine months ended September 30, 2021, there was no material change from the year
ended December 31, 2020 in the amount of the Company’s deferred tax assets that are not considered to be more likely than not
to be realized in future years.
On
December 27, 2020, the Consolidated Appropriations Act (“CAA”) was enacted in further response to the COVID-19 pandemic, in
combination with omnibus spending for the 2021 federal fiscal year. The CAA extended many of the provisions enacted by the CARES Act,
which did not have a material impact on the Company’s consolidated financial statements for the year ended December 31, 2020.
On March 11, 2021, the American Rescue Plan Act of 2021 (“ARPA”) was enacted in still further response to the COVID-19 pandemic.
The Company is evaluating the provisions of ARPA but does not expect it to have a material impact on the Company’s consolidated
financial statements for the 2021 fiscal year.
NUVVE
HOLDING CORP. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note
12 – Net
Loss Per Share Attributable to Common Stockholders
The
following table sets forth the calculation of basic and diluted net loss per share attributable to common stockholders during the three
and nine months ended September 30, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended September 30,
|
|
Nine
Months Ended September 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Net
loss attributable to Nuvve common stockholders
|
$
|
(6,976,580)
|
|
|
$
|
(782,250)
|
|
|
$
|
(18,525,606)
|
|
|
$
|
(2,334,160)
|
|
Weighted-average
shares used to compute net loss per share attributable to Nuvve common stockholders, basic and diluted
|
18,627,978
|
|
|
8,778,916
|
|
|
15,931,466
|
|
|
8,778,916
|
|
Net
Loss per share attributable to Nuvve common stockholders, basic and diluted
|
$
|
(0.37)
|
|
|
$
|
(0.09)
|
|
|
$
|
(1.16)
|
|
|
$
|
(0.27)
|
|
The
following outstanding shares of common stock equivalents were excluded from the calculation of the diluted net loss per share attributable
to Nuvve common stockholders because their effect would have been anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended September 30,
|
|
Nine
Months Ended September 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Stock
options issued and outstanding
|
2,890,564
|
|
1,128,286
|
|
|
2,342,967
|
|
1,031,454
|
|
Nonvested
restricted stock issued and outstanding
|
832,757
|
|
—
|
|
|
667,297
|
|
—
|
|
Public
warrants
|
2,875,000
|
|
—
|
|
|
2,061,121
|
|
—
|
|
Private
warrants
|
136,250
|
|
—
|
|
|
97,679
|
|
—
|
|
PIPE
warrants
|
1,353,750
|
|
—
|
|
|
970,519
|
|
—
|
|
Stonepeak
and Evolve warrants
|
6,000,000
|
|
—
|
|
|
3,000,000
|
|
—
|
|
Stonepeak
and Evolve options
|
5,000,000
|
|
—
|
|
|
2,500,000
|
|
—
|
|
Convertible
notes payable
|
—
|
|
|
151,323
|
|
—
|
|
|
143,606
|
Total
|
19,088,321
|
|
1,279,609
|
|
|
11,639,583
|
|
1,175,060
|
|
Note
13 – Related
Parties
At
March 31, 2020, the Company had accrued compensation payable to an officer and director totaling $471,129.
On August 11, 2020, the Board of Directors of the Company approved the conversion of the compensation payable into a convertible note
(Note 8). On November 17, 2020, convertible note was converted to common stock (Note 8).
As
described in Note 6, the Company holds equity interests in and provides certain consulting services to Dreev, an entity in which a stockholder
of the Company owns the other portion of Dreev’s equity interests.
During
2020, the Company engaged a stockholder for consulting services. During the three and nine months ended September 30, 2021 and 2020
no amounts were paid to the stockholder for these services. As of both September 30, 2021 and December 31, 2020, $42,500
due to the stockholder is included in accounts payable in the accompanying condensed consolidated balance sheets.
During
the three and nine months ended September 30, 2021, the Company recognized revenue
of zero
and $399,620,
respectively, from an entity that is an investor in the Company. During the three and nine months ended September 30, 2020, the Company
recognized revenue of $367,268
and $416,769,
respectively, from the same entity that is an investor in the Company. The Company had a balance of accounts receivable of zero
and $203,215
at September 30, 2021 and December 31, 2020, respectively, from the same entity that is an investor in the Company.
NUVVE
HOLDING CORP. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note
14 – Leases
The
Company has entered into leases for commercial office spaces and vehicles. These leases are not unilaterally cancellable by the Company,
are legally enforceable, and specify fixed or minimum amounts. The leases expire at various dates through 2026 and provide for renewal
options. In the normal course of business, it is expected that these leases will be renewed or replaced by leases on other properties.
The
leases provide for increases in future minimum annual rental payments based on defined increases in the Consumer Price Index, subject
to certain minimum increases. Also, the agreements generally require the Company to pay real estate taxes, insurance, and repairs.
Supplemental
unaudited consolidated balance sheet information related to leases is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Classification
|
|
September
30, 2021
|
|
|
|
|
|
Operating
lease assets
|
|
Right-of-use
operating lease assets
|
|
$
|
—
|
|
Finance
lease assets
|
|
Property,
plant and equipment, net
|
|
27,656
|
|
Total
lease assets
|
|
|
|
$
|
27,656
|
|
|
|
|
|
|
Operating
lease liabilities - current
|
|
Operating
lease liabilities - current
|
|
$
|
—
|
|
|
|
|
|
|
Finance
lease liabilities - current
|
|
Other
liabilities - current
|
|
7,770
|
|
Finance
lease liabilities - noncurrent
|
|
Other
long-term liabilities
|
|
20,561
|
|
Total
lease liabilities
|
|
|
|
$
|
28,331
|
|
The
components of lease expense are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended September 30,
|
|
Nine
Months Ended September 30,
|
|
|
Classification
|
|
2021
|
|
2021
|
|
|
|
|
|
|
|
Operating
lease expense
|
|
Selling,
general and administrative
|
|
$
|
44,952
|
|
|
$
|
136,779
|
|
Finance
lease expense:
|
|
|
|
|
|
|
Amortization
of finance lease assets
|
|
Selling,
general and administrative
|
|
1,536
|
|
|
3,073
|
|
Interest
on finance lease liabilities
|
|
Interest
expense
|
|
729
|
|
|
1,487
|
|
Total
lease expense
|
|
|
|
$
|
47,217
|
|
|
$
|
141,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Lease
|
|
Finance
Lease
|
Maturities
of lease liabilities are as follows:
|
|
September
30, 2021
|
|
September
30, 2021
|
2021
|
|
$
|
—
|
|
|
$
|
1,942
|
|
2022
|
|
—
|
|
|
7,770
|
|
2023
|
|
—
|
|
|
7,770
|
|
2024
|
|
—
|
|
|
7,770
|
|
2025
|
|
—
|
|
|
7,770
|
|
Thereafter
|
|
—
|
|
|
1,942
|
|
Total
lease payments
|
|
—
|
|
|
34,964
|
|
Less:
interest
|
|
—
|
|
|
(6,633)
|
|
Total
lease obligations
|
|
$
|
—
|
|
|
$
|
28,331
|
|
NUVVE
HOLDING CORP. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Lease
term and discount rate:
|
|
|
|
|
|
|
|
|
|
|
September
30, 2021
|
Weighted-average
remaining lease terms (in years):
|
|
|
Operating
lease
|
|
0.0
|
Finance
lease
|
|
4.5
|
|
|
|
Weighted-average
discount rate:
|
|
|
Operating
lease
|
|
10%
|
Finance
lease
|
|
10%
|
Other
Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
Months Ended September 30,
|
|
|
|
|
2021
|
Cash
paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
Operating
cash flows from operating leases
|
|
|
|
$
|
100,292
|
|
Operating
cash flows from finance leases
|
|
|
|
$
|
1,487
|
|
Financing
cash flows from finance leases
|
|
|
|
$
|
4,613
|
|
|
|
|
|
|
Leased
assets obtained in exchange for new finance lease liabilities
|
|
|
|
$
|
27,656
|
|
Leased
assets obtained in exchange for new operating lease liabilities
|
|
|
|
$
|
—
|
|
Disclosures
related to periods prior to adoption of ASU 2016-02
Rent
expenses paid for the year ended December 31, 2020, was
$334,350.
The
minimum annual payments under operating leases as of December 31, 2020 through September 2021 was
$139,843.
Main
Office Lease
On
May 16, 2021, the Company entered into a ten
years lease for an additional 10,250
rentable square feet for its main office facilities in San Diego, California. The lease terms include 3%
annual fixed increases in the base rental payment. Also, the lease requires the Company to pay operating expenses such as utilities, real
estate taxes, insurance, and repairs. The estimated commencement date for the lease is December 1, 2021. The monthly base rent will be
abated for the second through and including the eleventh full calendar months of the term and the Company's pro rata share of certain
operating expenses will be abated for the first twelve full calendar months of the lease term. The Company was required to provide an
irrevocable, unconditional letter of credit in the amount of $380,000
to the landlord upon execution of the lease, and this amount was recorded as restricted cash.
The
following is a maturity analysis of the annual undiscounted cash flows under the new main office lease for years ended December 31:
|
|
|
|
|
|
2021
|
$
|
41,513
|
|
2022
|
84,270
|
|
2023
|
514,377
|
|
2024
|
529,809
|
|
2025
|
545,703
|
|
Thereafter
|
3,579,935
|
|
|
$
|
5,295,607
|
|
NUVVE
HOLDING CORP. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note
15 – Commitments
and Contingencies
(a) Deferred
Compensation
The
Company has deferred compensation for two of its founders earned during the first five
years of the Company's operations, which is payable upon successful completion of a purchase of the Company or an initial
public offering. As a result, the Company is committed to pay one of the founders an amount equivalent to 1%
of the value of the Company as of the date the Merger transaction closes, which amounted to approximately $1,548,347.
The Company is committed to pay the other founder an amount equivalent to 100%
of his current base salary at the date the Merger transaction closes, which amounts to approximately $260,000.
No deferred compensation amount was accrued at December 31, 2020 related to these commitments as they were contingent upon the successful
close of the Merger transaction. The Company accrued $1,808,347
in compensation expense related to these payments during the three months ended March 2021. The deferred compensation was paid to the
founders in April 2021.
(b)Legal
Matters
The
Company is subject to various claims and legal proceedings covering matters that arise in the ordinary course of its business activities,
including product liability claims. Management believes that any liability that may ultimately result from the resolution of these matters
will not have a material adverse effect on the financial condition or results of operations of the Company.
During
the three
and nine months
ended September 30, 2021, the Company accrued $496,666
of costs associated with the departures of former employees.
(c)Research
Agreement
Effective
September 1, 2016, the Company is party to a research agreement with a third party, which is also a Company stockholder, whereby
the third party will perform research activity as specified annually by the Company. Under the terms of the agreement, the Company paid
a minimum of $400,000
annually in equal quarterly installments. For the nine months ended September 30, 2021 and 2020, $266,667
each were
paid under the research agreement, respectively. In October 2021, the agreement was renewed for one year through August 2022. Therefore,
at September 30, 2021, $400,000
was the outstanding balance payable under the renewed agreement.
(d)In-Licensing
The
Company is a party to a licensing agreement for non-exclusive rights to intellectual property which will expire at the later of the date
at which the last patent underlying the intellectual property expires or 20
years from the sale of the first licensed product. Under the terms of the agreement, the Company will pay up to an aggregate of $700,000
in royalties upon achievement of certain milestones. As of September 30, 2021 and December 31, 2020, no
royalty expenses had been incurred under this agreement.
In
November 2017, the Company executed an agreement ("IP Acquisition Agreement") with the University of Delaware (Seller) whereby all right,
title, and interest in the licensed intellectual property was assigned to the Company in exchange for an upfront fee of $500,000
and common shares valued at $1,491,556.
The total acquisition cost of $1,991,556
was capitalized and is being amortized over the fifteen
years expected life of the patents underlying the intellectual property. Under
the terms of the agreement, the Company will pay up to an aggregate $7,500,000
in royalties to the Seller upon achievement of milestones, related to the aggregate number of vehicles that have had access to the Company’s
GIVe platform system for a period of at least six consecutive months, and for which the Company has received monetary consideration for
such access pursuant to a subscription or other similar agreement with the vehicle’s owner as follows:
|
|
|
|
|
|
|
|
|
Milestone
Event: Aggregated Vehicles
|
|
Milestone
Payment
Amount
|
10,000
|
|
$
|
500,000
|
|
20,000
|
|
750,000
|
|
40,000
|
|
750,000
|
|
60,000
|
|
750,000
|
|
80,000
|
|
750,000
|
|
100,000
|
|
1,000,000
|
|
200,000
|
|
1,000,000
|
|
250,000
|
|
2,000,000
|
|
|
|
$
|
7,500,000
|
|
NUVVE
HOLDING CORP. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The
Seller will retain a non-exclusive, royalty-free license, to utilize the intellectual property solely for research and education purposes.
As of September 30, 2021,
no
royalty expenses
had been incurred under this agreement.
(e)Investment
The
Company is committed to possible future additional contributions to the Investment in Dreev (Note 6) in the amount of $270,000.
(f)Reimbursement
of Legal Fees
On
October 5, 2020, the Company entered into an agreement with an investor whereby the Company agreed to reimburse the investor for
certain legal fees, up to approximately $96,000,
associated with a license agreement between the parties. The reimbursement is payable upon the completion by the Company of an equity
financing or the completion of the licensing agreement.
No
legal fees have been accrued or paid under this agreement through September 30, 2021.
NUVVE
HOLDING CORP. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note
16 –
Levo
Mobility LLC Entity
Stonepeak
and Evolve Initial Term Sheet
On
May 17, 2021, the Company entered into a letter agreement (the “Letter Agreement”) with Stonepeak Rocket Holdings LP,
a Delaware limited partnership (“Stonepeak”), and Evolve Transition Infrastructure LP, a Delaware limited partnership (“Evolve”),
relating to the formation of an entity, Levo Mobility LLC, a Delaware limited liability company. Pursuant to the Letter Agreement, the
parties agreed to negotiate in good faith to finalize and enter into definitive agreements to form an entity.
Under
the terms of the Letter Agreement, Levo will utilize the Company’s proprietary V2G technology and the capital from Stonepeak and
Evolve to help accelerate the deployment of electric fleets, including zero-emission electric school buses for school districts nationwide
through “V2G hubs” and Transportation as a Service ("TaaS"). Also, under the terms of the Letter Agreement, Stonepeak and
Evolve will fund acquisition and construction costs up to an aggregate capital commitment of $750
million. They will have the option to upsize their capital commitments when Levo has entered into contracts with third parties for $500
million in aggregate capital expenditures.
In
connection with the signing of the Letter Agreement, the Company issued to Stonepeak and Evolve the following ten
years warrants (the “Warrants”) to purchase common stock (allocated 90%
to Stonepeak and 10%
to Evolve):
•Series
B warrants to purchase 2,000,000
shares of the Company’s common stock, at an exercise price of $10.00
per share, which are fully vested upon issuance,
•Series
C warrants to purchase 1,000,000
shares of the Company’s common stock, at an exercise price of $15.00
per share, which are vested as to 50%
of the shares upon issuance and vest as to the remaining 50%
when Levo has entered into contracts with third parties for $125
million in aggregate capital expenditures,
•Series
D warrants to purchase 1,000,000
shares of the Company’s common stock, at an exercise price of $20.00
per share, which are vested as to 50%
of the shares upon issuance and vest as to the remaining 50%
when Levo has entered into contracts with third parties for $250
million in aggregate capital expenditures,
•Series
E warrants to purchase 1,000,000
shares of the Company’s common stock, at an exercise price of $30.00
per share, which are vested as to 50%
of the shares upon issuance and vest as to the remaining 50%
when Levo has entered into contracts with third parties for $375
million in aggregate capital expenditures, and
•Series
F warrants to purchase 1,000,000
shares of the Company’s common stock, at an exercise price of $40.00
per share, which are vested as to 50%
of the shares upon issuance and vest as to the remaining 50%
when Levo has entered into contracts with third parties for $500
million in aggregate capital expenditures.
The
warrants may be exercised at any time on or after the date that is 180 days after the applicable vesting date.
In
connection with the signing of the Letter Agreement, the Company also entered into a Securities Purchase Agreement (the “SPA”)
and a Registration Rights Agreement (the “RRA”) with Stonepeak and Evolve.
•Under
the SPA, from time to time between November 13, 2021 and November 17, 2028, Stonepeak and Evolve may elect, in their sole discretion,
to purchase up to an aggregate of $250
million in shares of the Company’s common stock at a purchase price of $50.00
per share (allocated 90%
to Stonepeak and 10%
to Evolve). The SPA includes customary representations and warranties and closing conditions and customary indemnification provisions.
In addition, Stonepeak and Evolve may elect to purchase shares under the SPA on a cashless basis in the event of a change of control of
the Company.
•Under
the RRA, the Company granted Stonepeak and Evolve demand and piggyback registration rights relating to the sale of the Warrants and the
shares of the Company’s common stock issuable pursuant to the Warrants and the SPA.
The
Letter Agreement further requires that the Company use its reasonable best efforts to obtain stockholder approval of the issuance of shares
of the Company’s common stock under the Warrants and SPA. On June 30, 2021, the stockholders of the Company, at a special meeting,
approved the issuance of shares of the Company’s common stock under the Warrants and SPA. See Note
9 for
detail of the accounting of the Warrants and SPA.
NUVVE
HOLDING CORP. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Stonepeak
and Evolve Definitive Agreements
On
August 4, 2021, the Company formed an entity, Levo Mobility LLC a Delaware limited liability company (“Levo,”),
with Stonepeak Rocket Holdings LP, a Delaware limited partnership (“Stonepeak”), and Evolve Transition Infrastructure LP,
a Delaware limited partnership (“Evolve,” and together with Stonepeak, the “Investors”).
In
connection with the Levo, on August 4, 2021, (the "Formation Date"), the Company’s wholly owned operating subsidiary, Nuvve Corporation
(“Nuvve”), Stonepeak and Evolve entered into an Amended and Restated Limited Liability Company Agreement for Levo (the “Levo
LLCA”); the Company and Levo entered into a Development Services Agreement (the “DSA”); the Company, Stonepeak, Evolve
and Levo entered into a Parent Letter Agreement (the “PLA”); the Company and Stonepeak entered into a Board Rights Agreement
(the “BRA”); and the Company and Levo entered into an Intellectual Property License and Escrow Agreement (the “IP License
and Escrow Agreement”). The terms of the agreements were substantially consistent with the proposed terms set forth in the letter
agreement between the parties signed on May 17, 2021.
Pursuant
to the Levo LLCA, Stonepeak and Evolve agreed to make capital contributions to Levo in an aggregate amount of up to $750.0
million (which may be increased up to $1.0
billion) to finance Levo’s business subject to project approval process as outlined under the terms of the definitive agreements.
Levo
LLCA
The
Levo LLCA governs the affairs of Levo and the conduct of its business.
The
membership interests authorized by the Levo LLCA consist of Class A Common Units, Class B Preferred Units, Class C Common Units and Class
D Incentive Units. On the Formation Date and the signing of the Levo LLCA, Levo issued 510,000
Class A Common Units to the Company, 2,801
Class B Preferred Units to Stonepeak and Evolve, and 490,000
Class C Common Units to Stonepeak and Evolve. Stonepeak and Evolve agreed to pay to Levo an aggregate purchase price of $2.8
million for the Class B Preferred Units and the Class C Common Units. Stonepeak and Evolve will receive additional Class B Preferred Units
for each $1,000
in additional capital contributions made by them.
The
Class B Preferred Units have an initial liquidation preference of $1,000
per unit and are entitled to cumulative preferred distributions at a rate of 8.0%
of the liquidation preference per annum, payable quarterly. Available cash will be distributed quarterly, first, to the Class B Preferred
Unit holders to pay the preferred distributions for such quarter; second, to the Class B Preferred Unit holders to pay all amounts due
and unpaid on such units (including accumulated and unpaid preferred distributions); third, until the liquidation preference of the Class
B Preferred Units is reduced to $1.0,
to the both Class B Preferred Unit holders and the Common Unit holders, with the percentage allocation between them varying based on a
leverage ratio; and thereafter, to the Common Unit holders. Distributions on the Class B Preferred Units in excess of the preferred distributions
will reduce the liquidation preference of the Class B Preferred Units. Until the completion of the first full twelve fiscal quarters after
Stonepeak and Evolve have made aggregate capital contributions of at least $50.0
million, Levo may elect to pay the preferred distributions in cash or in kind.
The
Class D Incentive Units are profits interests intended to provide incentives to certain key employees and service providers of Levo, its
members and its affiliates. The Class D Incentive Unit holders will receive certain distributions from and after the time that the Class
B Preferred Unit holders have received a target return on their investment and the Common Unit holders have received a return of their
capital contributions. As of September 30, 2021, no Class D Incentive Units have been issued.
At
the earliest to occur of August 4, 2028, a fundamental change (which includes, for example, a change of control of the Company or Nuvve,
certain changes in ownership of Levo, a sale of all or substantially all of Levo’s assets, or an initial public offering or direct
listing of Levo) (a “Fundamental Change”) or a trigger event (which includes, for example, a failure to pay quarterly distributions
or a material breach by us of our obligations under the transaction documents) (a “Trigger Event”), Stonepeak will have the
option to cause Levo to redeem the Class B Preferred Units in whole or in part from time to time at a redemption price equal to the greater
of the liquidation preference, a price based on a 12.5%
internal rate of return, and a price based on a 1.55
multiple on invested capital.
At
any time following the earliest to occur of August 4, 2028 and a Trigger Event, Stonepeak has the right to cause a sale of Levo. In addition,
at any time following the earliest to occur of August 4, 2023, the date on which Levo has entered into contracts with third parties to
spend at least $500.0
million in aggregate capital expenditures, and a Trigger Event, Stonepeak has the right to effect an underwritten initial public offering
of Levo.
Levo
is managed by a board of managers consisting of nine
managers, of whom (i) five
will be appointed by Nuvve, (ii) for so long as any Class B Preferred Units remain outstanding or Stonepeak owns at least 10.0%
or more of the issued and
NUVVE
HOLDING CORP. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
outstanding
Common Units, three
will be appointed by Stonepeak, and (iii) one
will be an independent manager. For so long as Evolve owns more than 2.0%
of the issued and outstanding Common Units, Evolve will have the right to designate one
person
to
act as an observer at all meetings of the board of managers, subject to certain limited exceptions. Certain specified actions will require
the approval of at least one
of the Stonepeak managers, the representative of the Class B Preferred Unit holders and/or Evolve.
The
Company and its affiliates are required to present to Levo all investment or business opportunities in North America they become aware
of and desire to pursue, to the extent such investment or business opportunities are within the scope of, primarily relate to or compete
with, Levo’s business, and shall not pursue any such business opportunity, subject to certain exceptions, during the period ending
on the earliest to occur of the funding of the full commitment amount (generally $750.0
million, subject to increase or decrease in accordance with the Levo LLCA), the end of the commitment period (generally August 4, 2024,
subject to reduction or extension in certain circumstances) or a monetization event (including, for example, an underwritten initial public
offering or sale of Levo).
The
Levo LLCA includes other customary provisions for an agreement of its type, including tag-along rights, a right of first offer on transfers,
and drag-along rights.
DSA
Under
the DSA, the Company or one of its affiliates will provide certain services to Levo and its subsidiaries, including operational, commercial,
research and development, engineering, business development, legal, regulatory, accounting, treasury, and finance services.
As
payment for the services, for the initial development period commencing on August 4, 2021 and running through the date that Levo has entered
into contracts with third parties to spend at least $25.0
million, in the aggregate, of capital expenditures relating to qualifying business opportunities, Levo will pay the Company an amount
equal to 49.0%
of its budgeted out-of-pocket and general and administrative expenses allocable to the provision of the services, and a fixed monthly
general and administrative fee. After the expiration of the initial development period, Levo will pay the Company an amount equal to 100.0%
of its budgeted out-of-pocket and general and administrative expenses allocable to the provision of the services, and a fixed monthly
general and administrative fee.
The
DSA may be terminated under certain conditions, including by Levo for convenience upon 30 days’ written notice, by either party
upon written notice to the other party upon a material uncured breach of the DSA, by the Company on 90 days’ written notice if no
business opportunities have been approved during the commitment period under the Levo LLCA, or by either party upon 30 days’ notice
following the earliest of the 3rd
anniversary of Levo’s initial public offering, the 3rd
anniversary of the date the Comapny ceases to own any Levo equity interests, and the 5th
anniversary of the date the Comapny ceases to have the right to designate a majority of Levo’s board of managers.
PLA
The
PLA includes, among other provisions, certain restrictive covenants with respect to Levo’s business, including a business opportunities
covenant applicable to the Company that is identical to the one in the Levo LLCA described above, and a covenant granting Stonepeak a
right of first offer to participate in certain future financing transactions of Levo. In addition, the Company agreed to reimburse each
of Stonepeak and Evolve for a portion of their out-of-pocket expenses incurred in connection with the due diligence, documentation and
negotiation of the agreements.
BRA
Under
the BRA, so long as the Investors beneficially own any Class B Preferred Units or at least 10.0%
of the Company’s common stock, Stonepeak has the right to designate two
individuals to act as observers at all meetings of the Company’s board of directors. In addition, for so long as the Investors beneficially
own at least 10.0%
of the Company’s common stock, Stonepeak has the right to designate one
individual for appointment as a member of the Company’s board of directors and as a member of one
committee of the board of directors (or two
committees, if the Investors beneficially own at least 15.0%
of the Company’s common stock, or all committees, if the Investors beneficially own at least 25.0%
of the Company’s common stock). Any such designee must meet certain qualification requirements.
NUVVE
HOLDING CORP. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IP
License and Escrow Agreement
The
IP License and Escrow Agreement provides that (i) certain intellectual property of the Company used in Levo’s business will be deposited
into escrow, to be released to Levo upon the occurrence of certain specified release events (including, for example, certain circumstances
in which the Company ceases to provide the services under the DSA and certain bankruptcy-related events), and (ii) the Company will grant
a license to such intellectual property to Levo, which may be exercised solely after the occurrence of one of the specified release events.
If
(i) one of the specified release events has occurred, (ii) Stonepeak and Evolve have made capital contributions to Levo of at least $1.0
billion in respect of Class B Preferred Units or the commitment period has expired, and (iii) the Company and its
subsidiaries
no longer own any equity interests in Levo, from and after such time and for so long as the license subsists and the intellectual property
remains proprietary, Levo shall pay the Company (or its successor) a royalty on all vehicle-to-grid net revenue generated by or on behalf
of or otherwise attributable to Levo and its affiliates and sublicensees from assets acquired or developed by Levo and its sublicensees.
The
foregoing summaries of the Levo LLCA, the DSA, the BRA and the IP License and Escrow Agreement are qualified in their entirety by reference
to the text of such agreements. Please refer to Exhibit
10.17, Exhibit 10.18, Exhibit 10.19, Exhibit 10.20 and Exhibit 10.21 in this Quarterly Report on Form 10-Q for the full text of the agreements.
Reimbursement
of Out-of-Pocket Expenses
As
part of the initial transaction agreement, the Company is responsible for the first $900,000
of Stonepeak’s out-of-pocket expenses, and the first $100,000
of Evolve’s out-of-pocket expenses. To the extent that the out-of-pocket expenses exceed those levels, Levo would bear all excess
amounts.
In
addition, the Company is responsible for its own Levo related expenses for the first $1.0
million, and expenses above those levels will be borne by Levo. As of September 30, 2021, the Company has incurred and recorded in
deferred financing costs $1.0
million towards its responsibility for Levo related expenses.
NUVVE
HOLDING CORP. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 17 - Non-Controlling
Interest
For
entities that are consolidated, but not 100% owned, a portion of the net income or loss and corresponding equity is allocated to owners
other than the Company. The aggregate of the net income or loss and corresponding equity that is not owned by the Company is included
in non-controlling interests in the condensed consolidated financial statements.
Non-controlling
interests are presented outside as a separate component of stockholders’ equity on the Company’s condensed consolidated Balance
Sheets. The primary components of non-controlling interests are separately presented in the Company’s condensed consolidated statements
of changes in stockholders’ equity to clearly distinguish the interest in the Company and other ownership interests in the consolidated
entities. Net income or loss includes the net income or loss attributable to the holders of non-controlling interests on the Company’s
condensed consolidated statements of operations. Net income or loss is allocated to non-controlling interests in proportion to their relative
ownership interests.
Levo Series B Redeemable Preferred Stock
Levo
is authorized to issue 1,000,000
shares of series B preferred stock at no par value.
The
Series B Preferred Stock (a) pays a dividend, when, as and if declared by Levo's Board of Directors, of 8.0%
per annum of the stated value per share, payable quarterly in arrears, (b) has an initial stated value of $1,000
per share, and dividends are paid in cash. Levo accrues for undeclared and unpaid dividends as they are payable in accordance with the
terms of the Certificate of Designations filed with the Secretary of State of the State of Delaware. At September 30, 2021, Levo
had accrued preferred dividends of $39,096
on 3,138
issued and outstanding shares of Series B Preferred Stock. Series B Preferred Stock is not participating or converted security. Series
B Preferred Stock is not currently redeemable but it could be redeemable with the passage of time at the election of Levo, the preferred
shareholders or a trigger event as defined in the preferred stock agreement. Since the redeemable preferred stock may be redeemed by the
preferred shareholders, or a trigger event that is not solely within the control of Levo, but is not mandatorily redeemable; therefore,
based on its characteristics, Levo has classified the Series B Preferred Stock as mezzanine equity.
At
September 30, 2021, Series B Preferred Stock consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
Authorized
|
|
Shares
Issued and Outstanding
|
|
Stated
Value per Share
|
|
Initial
Carrying Value
|
|
Accrued
Preferred Dividends
|
|
Liquidation
Preference
|
1,000,000
|
|
|
3,138
|
|
|
$
|
1,000
|
|
|
$
|
3,138,000
|
|
|
$
|
39,096
|
|
|
$
|
3,177,096
|
|
The
Company has determined that the redemption features embedded in the non-controlling redeemable preferred stock is required to be accounted
for separately from the redeemable preferred stock as a derivative liability. See Note 5 for detail disclosure of the derivative liability.
As
stated above, the redeemable preferred stock has been classified as mezzanine equity and initially recognized at fair value of $3,138,000,
the proceeds on the date of issuance. This amount has been further reduced by 497,606,
the fair value of the embedded derivative liability at date of issuance, resulting in an adjusted initial value of $2,640,394.
Levo is accreting the difference between the adjusted initial value and the redemption price value over the seven-year
period from date of issuance of August 4, 2021 through July 4, 2028 (the date at which the preferred shareholders have the unconditional
right to redeem the shares, deemed to be the earliest likely redemption date) using the effective interest method. The accretion to the
carrying value of the redeemable preferred stock is treated as a deemed dividend, recorded as a charge to retained earnings of Levo. As
of September 30, 2021, Levo has accreted $100,039
resulting in the carrying value of the the redeemable preferred stock of $2,723,960.
NUVVE
HOLDING CORP. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The
following table summarizes Levo non-controlling interests presented as a separate component of stockholders’ equity on the Company’s
condensed consolidated balance sheets at September 30, 2021:
|
|
|
|
|
|
|
|
|
September
30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add: net loss
attributable to non-controlling interests as of September 30, 2021
|
$
|
(130,837)
|
|
|
|
Less: dividends
paid to non-controlling interests as of September 30, 2021
|
39,096
|
|
|
|
Less:
Preferred share accretion adjustment
|
100,039
|
|
|
|
Non-controlling
interests
|
$
|
(269,972)
|
|
|
|
The
following table summarizes Levo non-controlling interests presented as a separate component of the Company’s condensed consolidated
statements of operations as of September 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
September 30, 2021
|
|
Nine
Months Ended
September 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable
to non-controlling interests
|
$
|
(130,837)
|
|
|
$
|
(130,837)
|
|
|
|
Redeemable
Non-controlling Interest Reconciliation — Mezzanine Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
September 30, 2021
|
|
Nine
Months Ended
September 30, 2021
|
|
|
Beginning balance
- December 31, 2020
|
$
|
—
|
|
|
$
|
—
|
|
|
|
Beginning
redemption value (at fair value)
|
3,138,000
|
|
|
3,138,000
|
|
|
|
Less:
Non-controlling redeemable preferred shares - embedded derivatives
|
497,606
|
|
|
497,606
|
|
|
|
Adjusted
initial carrying value
|
2,640,394
|
|
|
2,640,394
|
|
|
|
Deferred
finance costs adjustment
|
(16,473)
|
|
|
(16,473)
|
|
|
|
Preferred
share Accretion adjustment
|
100,039
|
|
|
100,039
|
|
|
|
Ending balance
- September 30, 2021
|
$
|
2,723,960
|
|
|
$
|
2,723,960
|
|
|
|
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This
Quarterly Report on Form 10-Q (this “Quarterly Report”) includes forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”). Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement
that does not directly relate to any historical or current fact. In some cases, you can identify forward-looking statements by terminology
such as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,”
“believe,” “estimate,” “continue,” or the negative of such terms or other similar expressions. Forward-looking
statements are not guarantees of future performance and the Company’s actual results may differ significantly from the results discussed
in the forward-looking statements. Forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about
us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results,
levels of activity, performance or achievements expressed or implied by such forward-looking statements. Factors that might cause or contribute
to such a discrepancy include, but are not limited to, those described in our other filings with the Securities and Exchange Commission
(“SEC”).
References
in this Quarterly Report to “we,” “us” and “our” and to “Nuvve” and the “Company”
are to Nuvve Holding Corp. and its subsidiaries.
The
following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with
the financial statements and the notes thereto contained elsewhere in this Quarterly Report.
Overview
Nuvve
is a green energy technology company that provides, directly and through business ventures with its partners, a globally-available, commercial
V2G technology platform that enables EV batteries to store and resell unused energy back to the local electric grid and provide other
grid services. Its proprietary V2G technology — Nuvve’s Grid Integrated Vehicle (GIVe) platform — has the
potential to refuel the next generation of EV fleets through cutting-edge, bi-directional charging solutions.
Nuvve’s
proprietary V2G technology enables it to link multiple EV batteries into a virtual power plant to provide bi-directional services to the
electrical grid. Nuvve’s GIVe software platform was created to harness capacity from “loads” at the edge of the distribution
grid (i.e., coalitions of aggregated EVs and small stationary batteries) in a qualified, controlled and secure manner to provide many
of the grid services offered by conventional generation sources (i.e., coal and natural gas plants). Nuvve’s current addressable
energy and capacity markets include grid services such as frequency regulation, demand charge management, demand response, energy
optimization, distribution grid services and energy arbitrage.
Nuvve’s
customers and partners include owner/operators of light duty fleets, heavy duty fleets (including school buses), automotive manufacturers,
charge point operators, and strategic partners (via joint ventures, other business ventures and special purpose financial vehicles). Nuvve
also operates a small number of company-owned charging stations serving as demonstration projects funded by government grants. Nuvve expects
growth in company-owned charging stations and the related government grant funding to continue, but for such projects to constitute a
declining percentage of its future business as its commercial operations expand.
Nuvve
offers its customers networked charging stations, infrastructure, software, professional services, support, monitoring and parts and labor
warranties required to run electric vehicle fleets, as well as low and in some cases free energy costs. Nuvve expects to generate revenue
primarily from the provision of services to the grid via its GIVe software platform and sales of V2G-enabled charging stations. In the
case of light duty fleet and heavy duty fleet customers, Nuvve also may receive a mobility fee, which is a recurring fixed payment made
by fleet customers per fleet vehicle. In addition, Nuvve may generate non-recurring engineering services revenue derived from the integration
of its technology with automotive OEMs and charge point operators. In the case of recurring grid services revenue generated via automotive
OEM and charge point operator customer integrations, Nuvve may share the recurring grid services revenue with the customer.
On
August 4, 2021, we formed Levo Mobility LLC ("Levo"), a Delaware limited liability company with Stonepeak Rocket Holdings LP ("Stonepeak"),
a Delaware limited partnership and Evolve Transition Infrastructure LP ("Evolve"), a Delaware limited partnership. Please see Note
16 for
a summary description of the key items of the venture agreements.
Levo
is a sustainable infrastructure company focused on rapidly advancing the electrification of transportation by funding V2G-enabled EV fleet
deployments. Levo utilizes Nuvve’s V2G technology and committed capital from Stonepeak and Evolve to offer Fleet-as-a-Service for
school buses, last-mile delivery, ride hailing and ride sharing, municipal services, and more to eliminate the primary barriers to EV
fleet adoption including large upfront capital investments and lack of expertise in securing and managing EVs and associated charging
infrastructure.
Levo's
turnkey solution simplifies and streamlines electrification, can lower the total cost of EV operation for fleet owners, and support the
grid when the EVs are not in use. For a fixed monthly payment with no upfront cost, Levo will provide the EVs, such as electric school
buses, charging infrastructure powered by Nuvve’s V2G platform, EV and charging station maintenance, energy management, and technical
advice.
Levo
will initially focus on electrifying school buses, providing associated charging infrastructure, and delivering V2G services to enable
safer and healthier transportation for children while supporting carbon dioxide emission reduction, renewable energy integration, and
improved grid resiliency.
Business
Combination
On
March 19, 2021, the Company consummated the Business Combination with Newborn and Nuvve Corp.contemplated by the Merger Agreement. See
Note
2
of the Consolidated Financial Statements for more information. The Business Combination was effected in two steps, as follows: (i) Newborn
reincorporated to the State of Delaware by merging with and into the Company, with the Company surviving the merger as the new public
company (the "Reincorporation Merger"), and (ii) immediately after the Reincorporation Merger, Merger Sub merged with and into Nuvve
Corp., with Nuvve Corp. surviving the merger as a wholly-owned subsidiary of the Company (the "Acquisition Merger"). Also on March 19,
2021, the Company consummated the Private Investment in Public Equity ("PIPE"), generating net proceeds of $14,250,000.
The
most significant change in the Company's future reported financial position and results as a result of the completion of the Business
Combination and the PIPE was an estimated net increase in cash of approximately $62,018,410. Total transaction costs of $3,702,421 were
treated as a reduction of the cash proceeds with capital raising costs being deducted from the Company's additional paid-in capital. In
addition, the net cash proceeds were reduced by the Company’s payment of $6,000,000 to EDF Renewables in connection with the repurchase
from them of 600,000 shares of the Company’s common stock pursuant to the Purchase and Option Agreement, payment of $487,500 to
NeoGenesis Holding Co. Ltd., the sponsor of Newborn, in repayment of loans made by the sponsor to Newborn, and deposit of $495,000 into
escrow for the potential repayment Nuvve Corp.'s PPP loan. Upon forgiveness of the PPP loan in June 2021, the $495,000 was released to
the Company.
Upon
consummation of the Business Combination, Nuvve Corp-designated directors were appointed to five of the seven seats of the combined company’s
board of directors; Nuvve Corp’s Chief Executive Officer was appointed as Chairman of the combined company’s board of directors;
Nuvve Corp’s senior management became the senior management of the combined company; and the former stockholders of Nuvve Corp became
the owners of approximately 48.3% of the outstanding shares of common stock of the combined company. Accordingly, the Business Combination
is being accounted for as a Reverse Recapitalization, whereby Nuvve Corp is the acquirer for accounting and financial reporting purposes
and Newborn is the legal acquirer. A Reverse Recapitalization does not result in a new basis of accounting, and the financial statements
of the combined entity represent the continuation of the consolidated financial statements of legacy Nuvve Corp in many respects. The
shares of Newborn remaining after redemptions, and the unrestricted net cash and cash equivalents on the date the Business Combination
is consummated, are being accounted for as a capital infusion to Nuvve Corp.
As
a consequence of the Business Combination, Nuvve Corp effectively became an SEC-registered, Nasdaq-listed company, which has required
the combined company to hire additional personnel and implement procedures and processes to address public company regulatory requirements
and customary practices. The combined company expects to incur additional annual expenses as a public company for, among other things,
directors’ and officers’ liability insurance, director fees and additional internal and external accounting, legal and administrative
expenses.
Additionally,
the combined company expects its capital and operating expenditures will increase significantly in connection with ongoing activities
as the combined company invests additional working capital for heavy-duty DC-V2G charging stations and level 2 AC-V2G charging stations,
additional investments in equipment to meet increased project needs, and additional operating expenses to hire project managers, technicians,
sales, partnership and customer service personnel, data scientists, trading teams, software engineers and administrative staff.
Nuvve
Corp’s historical operations and statements of assets and liabilities may not be comparable to the operations and statements of
assets and liabilities of the combined company as a result of the Business Combination.
COVID-19
The
outbreak of disease cause by a novel coronavirus discovered in December 2019 (COVID-19), which was declared a pandemic in March 2020,
and the related restrictive measures such as travel restrictions, quarantines, and shutdowns, have negatively impacted the global economy.
As national and local governments in different countries ease COVID-19 restrictions, and vaccines are distributed and rolled out successfully,
we continue to see improved economic trends. However, COVID-19 and actions taken to mitigate its spread have had and are expected to continue
to have an adverse impact on the economies and financial markets of many countries, including the geographical area in which Nuvve operates.
As
the coronavirus pandemic continues to evolve, Nuvve believes the extent of the impact to its business, operating results, cash flows,
liquidity and financial condition will be primarily driven by the severity and duration of the coronavirus pandemic, the pandemic’s
impact on the U.S. and global economies and the timing, scope and effectiveness of federal, state and local governmental responses to
the pandemic. Those primary drivers are beyond Nuvve’s knowledge and control, and as a result, at this time Nuvve is unable to predict
the cumulative impact, both in terms of severity and duration, that the coronavirus pandemic will have on its business, operating results,
cash flows and financial condition, but it could be material if the current circumstances continue to exist for a prolonged period of
time. In addition to any direct impact on Nuvve’s business, it is reasonably possible that the estimates made by management in preparing
Nuvve’s financial statements have been, or will be, materially and adversely impacted in the near term as a result of the COVID-19
outbreak, and if so, Nuvve may be subject to future impairment losses related to long-lived assets as well as changes to recorded reserves
and valuations. Although Nuvve has made its best estimates based upon current information, there can be no assurance that such estimates
will prove correct due to the effects of the COVID-19 outbreak or otherwise.
Key
Factors Affecting Nuvve’s Business
Nuvve
believes its performance and future success depend on several factors that present significant opportunities for it but also pose risks
and challenges, including those discussed below and in the “Form
10 Information—Risk Factors”
section of the Form 8-K filed on March 25, 2021 with the Securities and Exchange Commission (“Form 8-K”).
Growth
in EV Adoption
Nuvve’s
revenue growth is tied to the overall acceptance of commercial fleet and passenger EVs, which it believes will help drive the demand for
intelligent vehicle-grid-integration solutions. The market for EVs is still rapidly evolving and although demand for EVs has grown in
recent years, there is no guarantee of such future demand. Factors impacting the adoption of EVs include but are not limited to: perceptions
about EV features, quality, safety, performance and cost; perceptions about the limited range over which EVs may be driven on a single
battery charge; volatility in the cost of oil and gasoline; availability of services for EVs; consumers’ perception about the convenience
and cost of charging EVs; and increases in fuel efficiency. In addition, macroeconomic factors could impact demand for EVs, particularly
since they can be more expensive than traditional gasoline-powered vehicles when the automotive industry globally has been experiencing
a recent decline in sales. If the market for EVs does not develop as expected or if there is any slow-down or delay in overall EV adoption
rates, this would impact Nuvve’s ability to increase its revenue or grow its business.
Fleet
Expansion
Nuvve’s
future growth is highly dependent upon the fleet applications associated with its technology. Because fleet operators often make large
purchases of EVs, this cyclicality and volatility may be more pronounced, and any significant decline from these customers reduces
Nuvve’s potential for future growth.
Government
Mandates, Incentives and Programs
The
U.S. federal government, foreign governments and some state and local governments provide incentives to end users and purchasers of EVs
and EV charging stations in the form of rebates, tax credits, and other financial incentives, such as payments for regulatory credits.
The EV market relies on these governmental rebates, tax credits, and other financial incentives to significantly lower the effective price
of EVs and EV charging stations to customers. However, these incentives may expire on a particular date, end when the allocated funding
is exhausted, or be reduced or terminated as a matter of regulatory or legislative policy.
In
the future, Nuvve will derive other revenue from fees received for transferring regulatory credits earned for participating in low carbon
fuel programs in approved states. Generally, only the owner of EV charging stations can either claim or assign such regulatory credits.
If a material percentage of Nuvve’s customers were to claim these regulatory credits or choose to not assign the regulatory credits
to Nuvve, Nuvve’s revenue from this source could decline significantly, which could have an adverse
effect
on its revenues and overall gross margin. Further, the availability of such credits depends on continued governmental support for these programs.
If these programs are modified, reduced or eliminated, Nuvve’s ability to generate this revenue in the future could be adversely
impacted.While Nuvve has derived an immaterial percentage of its other revenue from these regulatory credits, Nuvve expects revenue from
this source as a percentage of revenue may increase over time.
Competition
Nuvve
offers proprietary V2G technology and services and intends to expand its market share over time in its product categories, leveraging
the network effect of its V2G technology, services and GIVe software platform. Existing competitors may expand their product offerings
and sales strategies, and new competitors may enter the market. Furthermore, Nuvve’s competition includes other types of electric
vehicle charging technologies, such as uni-directional “smart-charging” and lower cost (unmanaged) charging solutions. See
“Form
10 Information—Business
of Nuvve”
in Nuvve’s Form 8-K. If Nuvve’s market share does not grow due to increased competition, its revenue and ability to generate
profits in the future may be impacted.
Geographic
Expansion
Nuvve
operates in North America, selected countries in Europe (directly and through its business venture with EDF), and Japan. Revenue from
North America and Europe is expected to contribute significantly to Nuvve’s total revenue in the near-to-intermediate term, while
revenue from Japan is expected to increase over the longer run due to the early stage nature of its market for V2G technology and services.
Nuvve plans to use a portion of the proceeds from the Business Combination to increase its sales and marketing activities, as well as
to potentially pursue strategic acquisitions in North America and Europe. Nuvve is also positioned to grow its North American and European
business through future partnerships with charge point operators, OEMs and leasing companies. However, Nuvve may experience competition
with other providers of EV charging station networks for installations. Many of these competitors have limited funding, which could lead
to poor customer experiences and have a negative impact on overall EV adoption. Nuvve’s growth in North America and Europe requires
differentiating itself as compared to the several existing competitors. If Nuvve is unable to penetrate the market in North America and
Europe, its future revenue growth and profits will be impacted.
Backlog
Our
total backlog represents the estimated transaction prices on unsatisfied and partially satisfied performance obligations to our customers
for products and services. Backlog is converted into revenue in future periods as we satisfy the performance obligations to our customers
for products and services, primarily based on the cost incurred or at delivery and acceptance of products, depending on the applicable
accounting method.
Our
estimated backlog at September 30, 2021 was $6.2 million.
Market
Opportunity
There
is a huge market opportunity for V2G, totaling approximately over $6 trillion. Nuvve's management believes it is well positioned to capture
this global opportunity for a variety of reasons:
•First,
our intellectual property ("IP") includes key patents, making it difficult for competitors to perform V2G functions without violating
our IP. Our technology originated with an academic unit at the University of Delaware starting in 1996 and not only had decades of development
but tens of millions of dollars in project funding invested prior to our acquisition of the IP and commercialization of the technology.
•Second,
we are already qualified by multiple Transmission System Operators, which typically take anywhere from one to three years to get approval.
With this qualification, it makes it easier for us to expand in other areas.
•Third,
we have over a decade of experience. Our history and strong relationships with key customers optimize our market participation and value
proposition.
•Fourth,
we have collected a huge amount of data which is a key element for rapid and accurate development, as well as monetization.
Because
of these factors, Nuvve has a significant competitive advantage which is a key differentiator for us. Further, our global experience allows
us to bring the lessons we have learned into each new region which, in turn, enables us to bring the unique experience and incredible
benefits of our V2G technology to customers at a faster rate.
Results
of Operations
Three
and Nine Months Ended September 30, 2021 Compared with Three and Nine Months Ended September 30, 2020
The
following table sets forth information regarding our consolidated results of operations for the three and nine months ended
September 30, 2021 and 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended September 30,
|
|
Period-over-Period
Change
|
|
Nine
Months Ended September 30,
|
|
Period-over-Period
Change
|
|
2021
|
|
2020
|
|
Change
($)
|
|
Change
(%)
|
|
2021
|
|
2020
|
|
Change
($)
|
|
Change
(%)
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
and services
|
$
|
682,900
|
|
|
$
|
541,349
|
|
|
$
|
141,551
|
|
|
26
|
%
|
|
$
|
1,761,319
|
|
|
$
|
901,395
|
|
|
$
|
859,924
|
|
|
95
|
%
|
Grants
|
480,104
|
|
|
799,561
|
|
|
(319,457)
|
|
|
(40)
|
%
|
|
1,182,047
|
|
|
1,847,988
|
|
|
(665,941)
|
|
|
(36)
|
%
|
Total
revenue
|
1,163,004
|
|
|
1,340,910
|
|
|
(177,906)
|
|
|
(13)
|
%
|
|
2,943,366
|
|
|
2,749,383
|
|
|
193,983
|
|
|
7
|
%
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of product and service revenue
|
387,582
|
|
|
32,125
|
|
|
355,457
|
|
|
1,106
|
%
|
|
877,468
|
|
|
65,329
|
|
|
812,139
|
|
|
1,243
|
%
|
Selling,
general and administrative expenses
|
6,599,490
|
|
|
1,366,472
|
|
|
5,233,018
|
|
|
383
|
%
|
|
16,352,021
|
|
|
3,083,892
|
|
|
13,268,129
|
|
|
430
|
%
|
Research
and development expense
|
1,622,608
|
|
|
770,696
|
|
|
851,912
|
|
|
111
|
%
|
|
4,574,803
|
|
|
1,977,781
|
|
|
2,597,022
|
|
|
131
|
%
|
Total
operating expenses
|
8,609,680
|
|
|
2,169,293
|
|
|
6,440,387
|
|
|
297
|
%
|
|
21,804,292
|
|
|
5,127,002
|
|
|
16,677,290
|
|
|
325
|
%
|
Operating
loss
|
(7,446,676)
|
|
|
(828,383)
|
|
|
(6,618,293)
|
|
|
799
|
%
|
|
(18,860,926)
|
|
|
(2,377,619)
|
|
|
(16,483,307)
|
|
|
693
|
%
|
Other
income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income (expense)
|
3,220
|
|
|
(48,457)
|
|
|
51,677
|
|
|
(107)
|
%
|
|
(592,345)
|
|
|
(55,787)
|
|
|
(536,558)
|
|
|
962
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in fair value of conversion option on convertible notes
|
—
|
|
|
19,000
|
|
|
(19,000)
|
|
|
100
|
%
|
|
—
|
|
|
19,000
|
|
|
(19,000)
|
|
|
100
|
%
|
Change
in fair value of private warrants liability
|
557,000
|
|
|
—
|
|
|
557,000
|
|
|
100
|
%
|
|
627,228
|
|
|
—
|
|
|
627,228
|
|
|
100
|
%
|
Change
in fair value of derivative liability
|
(12,179)
|
|
|
—
|
|
|
(12,179)
|
|
|
100
|
%
|
|
(12,179)
|
|
|
—
|
|
|
(12,179)
|
|
|
100
|
%
|
Other,
net
|
(69,647)
|
|
|
75,590
|
|
|
(145,237)
|
|
|
(192)
|
%
|
|
321,914
|
|
|
81,246
|
|
|
240,668
|
|
|
296
|
%
|
Total
other (expense) income, net
|
478,394
|
|
|
46,133
|
|
|
432,261
|
|
|
937
|
%
|
|
344,618
|
|
|
44,459
|
|
|
300,159
|
|
|
675
|
%
|
Loss
before taxes
|
(6,968,282)
|
|
|
(782,250)
|
|
|
(6,186,032)
|
|
|
791
|
%
|
|
(18,516,308)
|
|
|
(2,333,160)
|
|
|
(16,183,148)
|
|
|
694
|
%
|
Income
tax (benefit) expense
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
%
|
|
1,000
|
|
|
1,000
|
|
|
—
|
|
|
—
|
%
|
Net
loss
|
$
|
(6,968,282)
|
|
|
$
|
(782,250)
|
|
|
$
|
(6,186,032)
|
|
|
791
|
%
|
|
$
|
(18,517,308)
|
|
|
$
|
(2,334,160)
|
|
|
$
|
(16,183,148)
|
|
|
693
|
%
|
Less:
Net loss attributable to non-controlling interests
|
(130,837)
|
|
|
—
|
|
|
(130,837)
|
|
|
100
|
%
|
|
(130,837)
|
|
|
—
|
|
|
(130,837)
|
|
|
100
|
%
|
Net
loss attributable to Nuvve Holding Corp.
|
$
|
(6,837,445)
|
|
|
$
|
(782,250)
|
|
|
$
|
(6,055,195)
|
|
|
774
|
%
|
|
$
|
(18,386,471)
|
|
|
$
|
(2,334,160)
|
|
|
$
|
(16,052,311)
|
|
|
688
|
%
|
Revenue
Total
revenue was $1.2 million for the three months ended September 30, 2021, compared to $1.3 million for the three months ended September 30,
2020, a decrease of $0.2 million, or 13.3%. The decrease is attributed to $0.3 million decrease in grants.
Total
revenue was $2.9 million for the nine months ended September 30, 2021, compared to $2.7 million for the nine months ended September 30,
2020, an increase of $0.2 million, or 7.1%. The increase is attributed to a $0.9 million increase in products and services revenue, mostly
offset by a similar decrease in grants revenue.
Cost
of Product and Service Revenue
Cost
of product and service revenues primarily consisted of the cost of charging station goods sold. Cost of product and service revenues for
the three months ended September 30, 2021, increased by $0.4 million, or 1,106.5%, primarily due to the sales of charging stations
in the United States, with no similar activity in the comparable period. Product and service margins decreased by 50.8% to 43.2% from
94.1% compared to the same prior year period mostly due to to a higher mix of hardware charging stations sales and a lower mix of engineering
services in the current quarter.
Cost
of product and service revenues for the nine months ended September 30, 2021, increased by $0.8 million, or 1,243.2%, primarily due
to the sales of charging stations in the United States, with no similar activity in the comparable period. Product and service margins
decreased by 42.6% to 50.2% from 92.8% compared to the same prior year period mostly due to unfavorable mix of products sold with lower
margins.
Selling,
General and Administrative Expenses
Selling,
general and administrative expenses consist of selling, marketing, advertising, payroll, administrative, finance, and professional expenses.
Selling, general and administrative expenses were $6.6 million for the three months ended September 30, 2021, as compared to $1.4
million for the three months ended September 30, 2020, an increase of $5.2 million, or 383.0%. Selling, general and administrative
expenses were $16.4 million for the nine months ended September 30, 2021 as compared to $3.1 million for the nine months
ended September 30, 2020, an increase of $13.3 million, or 430.2%. $0.5 million of the increase in selling, general and administrative
expenses represent Levo's expenses resulting from the consolidation of Levo's activities beginning in the third quarter 2021.
The
increases during the three and nine months ended September 30, 2021 were primarily attributable to increases in compensation expenses,
including share-based compensation, non-recurring severance costs related to departures of former employees, and professional fees and
governance costs associated with the completion of the Business Combination and the Company becoming a recapitalized publicly traded company
in March 2021.
Research
and Development Expenses
Research
and development expenses increased by $0.9 million, or 110.5%, from $0.8 million for the three months ended September 30, 2020 to
$1.6 million for the three months ended September 30, 2021. Research and development expenses increased by $2.6 million, or 131.3%,
from $2.0 million for the nine months ended September 30, 2020 to $4.6 million for the nine months ended September 30, 2021.
The increases during the three and nine months ended September 30, 2021 were primarily attributable to increases in compensation
expenses and subcontractor expenses used to advance the Company's platform functionality and integration with more vehicles.
Other
Income (Expense)
Other
income (expense) consists primarily of interest expense, change in fair value of private warrants liability, change in fair value of conversion
option on convertible notes, and other income (expense). Other income (expense) increased by $0.4 million of income, from $0.05 million
of other income for the three months ended September 30, 2020, to $0.5 million in other expense for the three months ended September 30,
2021. Other income (expense) increased by $0.3 million, from $0.04 million of other expense for the nine months ended September 30,
2020 to $0.3 million in other expense for the nine months ended September 30, 2021.
The
increases during the three and nine months ended September 30, 2021 were primarily attributable to the interest expense on the convertible
debenture, the change in fair value of the private warrants liability, and the beneficial conversion feature associated with the convertible
debenture, partially offset by the gains on the forgiveness write-off of the PPP loan. The debenture was converted upon the closing of
the Business Combination and will not be recurring.
Income
Taxes
In
the three and nine months ended September 30, 2021 and 2020, we recorded no material income tax expenses. The income tax expenses
during the three and nine months ended September 30, 2021 and 2020 were minimal primarily due to operating losses that receive no
tax benefits as a result of a valuation allowance recorded for such losses.
Net
loss
Net
loss includes the net loss attributable to Stonepeak and Evolve, the holders of non-controlling interests in Levo, on our condensed consolidated
statements of operations. We began consolidating the results of operations of Levo during the quarter ended September 30, 2021.
Net
loss increased by $6.2 million, or 790.8%, from $0.8 million for the three months ended September 30, 2020, to $7.0 million for the
three months ended September 30, 2021. The increase in net loss was primarily due to increase in expenses of $6.6 million and
increase in other expense of $0.4 million for the aforementioned reasons.
Net
loss increased by $16.2 million, or 693.3%, from $2.3 million for the nine months ended September 30, 2020 to $18.5 for the nine
months ended September 30, 2021. The increase in net loss primarily due to increase in expenses of $16.5 million and increase in
other expense of $0.3 million for the aforementioned reasons.
Net
Loss Attributable to Non-Controlling Interest
Net
loss attributable to non-controlling interest was $0.1
million for the three and nine months ended September 30, 2021.
Net
loss is allocated to non-controlling interests in proportion to the relative ownership interests of the holders of non-controlling interests
in Levo, an entity formed by us with Stonepeak and Evolve (see Note
16 for
details). We own 51% of Levo's common units and Stonepeak and Evolve own 49% of Levo's common units. We have determined that Levo is a
variable interest entities (“VIE”) in which we are the primary beneficiary. Accordingly, we consolidated Levo and recorded
a non-controlling interest for the share of the entity owned by Stonepeak and Evolve during the three and nine months ended September 30,
2021.
Liquidity
and Capital Resources
Sources
of Liquidity
We
are an early-stage business enterprise. Prior to the Business Combination, we funded our business operations primarily with the issuance
of equity and convertible notes, borrowings and cash from operations. Nuvve has incurred net losses and negative cash flows from operations
since its inception. During the nine months ended September 30, 2021, Nuvve raised net proceeds of
$61.8 million from
the Business Combination, the PIPE offering, and related transactions. As reflected in Nuvve’s unaudited condensed consolidated
financial statements as of September 30, 2021, Nuvve had a cash balance, working capital, and stockholders’ equity of $40.7
million, $43.9 million and $89.0 million, respectively. Nuvve has been able to raise funds primarily through the Business Combination
and PIPE Offering to support its business operations, although there can be no assurance it will be successful in raising necessary funds
in the future, on acceptable terms or at all. We believe that our cash balance as of September 30, 2021 and our cash flows from operations,
will be sufficient to fund our working capital and capital expenditure requirements for the next 12 months.
Levo
On
August 4, 2021, we formed Levo with Stonepeak and Evolve to rapidly accelerate the deployment of electric fleets, including zero-emission
electric school buses for school districts in the United States through V2G hubs and TaaS. Levo utilizes our proprietary V2G technology,
and the capital commitments from Stonepeak and Evolve of $750 million, subject to project approval process as outlined under the terms
of the definitive agreements, to fund acquisition of electric fleets, and construction of EV infrastructure. Stonepeak and Evolve have
the option to increase their capital commitments to $1.0 billion when Levo has entered into contracts with third parties for $500 million
in aggregate capital expenditures. See Note
16 for
details of the definitive agreements.
PPP
and SBA Loans
In
April 2020, Nuvve applied for, and in May 2020 received, a loan in the amount of $0.5 million as a part of the CARES Act. The
loan is also known as a PPP loan. The loan had a term of two years at an interest rate of 1% with principal and interest deferred for
six months. The loan also was eligible for forgiveness if certain criteria were met. Upon the closing of the Business Combination, $495,000
of the proceeds received from Newborn’s trust account were set aside in trust for the possible repayment of the PPP loan.
We applied
for forgiveness of the PPP loan in
June 2021, and the PPP loan was fully forgiven and the
$495,000 in trust was released to us.
Nuvve
has two contracts, E-FLEX and Project Local Energy Oxfordshire, with a United Kingdom government agency, Innovate UK ("IUK"). Due
to the COVID-19 pandemic, IUK offered, and in March 2020, Nuvve accepted a grant of disaster relief funds of 0.1 million
British pounds (equivalent to approximately US$0.1 million) to only be used in performance under these contracts.
Cash
Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
Months Ended September 30,
|
|
2021
|
|
2020
|
Net
cash (used in) provided by:
|
|
|
|
Operating
activities
|
$
|
(23,478,507)
|
|
|
$
|
(1,269,241)
|
|
Investing
activities
|
7,784
|
|
|
(22,504)
|
|
Financing
activities
|
62,159,593
|
|
|
1,138,497
|
|
Effect
of exchange rate on cash and restricted cash
|
150,547
|
|
|
(95,399)
|
|
Net
increase (decrease) in cash and restricted cash
|
$
|
38,839,417
|
|
|
$
|
(248,647)
|
|
Net
cash used in operating activities during the nine months ended September 30, 2021 was $23.5 million as compared to net cash used
of $1.3 million in the nine months ended September 30, 2020. The $22.2 million increase in net cash used in operating activities
was primarily attributable to higher use of cash for working capital during the nine months ended September 30, 2021 as compared
to the same prior period. Working capital during the nine months ended September 30, 2021 was impacted by, among other items, lower
net revenues and the related net loss of $18.5 million, increased compensation and professional expenses associated with the Company becoming
a recapitalized publicly traded company, and cash purchases to fund higher inventory levels. These were partially offset by improved timing
and management of vendor terms compared to the cash settlement of such items.
During
the nine months ended September 30, 2021, cash provided by investing activities was $0.01 million. Net cash used in investing
activities was $0.02 million during the nine months ended September 30, 2020, which was used to purchase fixed assets.
Net
cash provided by financing activities for the nine months ended September 30, 2021 was $62.2 million, of which $58.2 million was
provided in connection with the Business Combination, $14.3 million was provided in connection with the PIPE offering, and $3.1 million
was provided through the issuance of Levo's preferred stock, partially offset by issuance costs of $4.0 million, the repayment of Newborn
sponsor loans of $0.5 million, the $6.0 million repurchase of common stock, the payment of investor stock liability of $2.0 million and
the payment of legal and accounting costs of $1.0 million associated with the Business Combination.
Cash
provided by financing activities for the nine months ended September 30, 2020 was $1.1 million, all of which was proceeds from PPP
and EDF loans.
Business
Combination
Immediately
prior to the closing of the Business Combination on March 19, 2021, Newborn consummated the sale of $14,250,000 of Newborn’s ordinary
shares and warrants in the PIPE pursuant to the Subscription Agreements. See Note
2 of the
Consolidated Financial Statements for more information. In addition, immediately prior to the closing of the Business Combination, the
principal and interest earned on the Bridge Loan (see Note 8 of the Consolidated Financial Statements for further information)
was automatically converted into 2,562,005 shares of common stock of Nuvve Corp. based on a stated conversion price of $1.56 per share
of Nuvve Corp. common stock (equivalent to $7.50 per share of the Company’s common stock). At the effective time of the Business
Combination, subject to the terms and conditions of the Merger Agreement, each share of Nuvve Corp. common stock (including the shares
of Nuvve Corp. common stock issued upon conversion of Nuvve Corp.'s Series A preferred stock and upon conversion of the Bridge Loan immediately
prior to the closing) was canceled and converted into the right to receive the number of shares of the Company’s common stock equal
to the Closing Exchange Ratio. As part of the Business Combination, Newborn was merged with and into the Company, the separate corporate
existence of Newborn ceased and the Company continued as the surviving corporation. Upon the closing of the merger with the Company,
each of Newborn’s outstanding units was automatically separated into its constituent securities and Newborn’s outstanding
securities (including the Newborn ordinary shares and Newborn warrants purchased by the PIPE Investors) were converted into a like number
of equivalent securities of the Company, except that each of Newborn’s rights was converted automatically into one-tenth of one
share of the Company’s common stock in accordance with its terms. In connection with the closing, the Company changed its name
to Nuvve Holding Corp.
On
the closing date of the Business Combination, the proceeds from Newborn's Trust Account, which were generated from Newborn's initial public
offering and a concurrent private placement, were released to the combined company. In Newborn’s initial public offering, Newborn
issued 5,750,000 units at $10.00 per unit. Concurrently with the initial public offering, Newborn sold to its sponsor 272,500 units at
$10.00 per unit in a private placement. Newborn received net proceeds of approximately $57,989,380 from the public and private units.
Upon closing of the initial public offering and the private placement, $57,500,000 was placed in a trust account with a trust company
acting as trustee. On the closing Date of the Business Combination, the balance in the Trust Account, net of $18,630 of redemptions by
Newborn shareholders, was $58,453,331.
Pursuant
to a Purchase and Option Agreement between the Company and a former stockholder of Nuvve Corp., 600,000 shares of the Company’s
common stock were repurchased immediately after the closing for $6,000,000 out of the proceeds available from the Trust Account.
After
the closing of the above transactions, payment of transaction costs of $3,702,421, repayment of loans made by Newborn’s sponsor
to Newborn of $487,500, and deposit into escrow of $495,000 to cover the balance of the PPP Loan (see Note 8 of the Consolidated Financial
Statements for further information), the Company received total net proceeds in cash of $62,018,410 result of the above transactions.
Off-Balance
Sheet Arrangements
Nuvve
is not a party to any off-balance sheet arrangements.
Critical
Accounting Policies and Estimates
Management’s
discussion and analysis of Nuvve’s financial condition and results of operations is based on its consolidated financial statements,
which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires Nuvve to make
estimates and assumptions for the reported amounts of assets, liabilities, revenue, expenses and related disclosures. Nuvve’s estimates
are based on its historical experience and on various other factors that it believes are reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under different assumptions or conditions and any such differences may be material.
While
Nuvve’s significant accounting policies are described in more detail in Note 2 to its consolidated financial statements included
elsewhere in this report, it believes the following accounting policies and estimates to be most critical to the preparation
of its consolidated financial statements.
Revenue
Recognition
Nuvve
recognizes revenue using the five-step model under ASC 606 in determining revenue recognition that requires Nuvve to exercise judgment
when considering the terms of contracts, which includes: (a) identification of the contract, or contracts, with a customer; (b) identification
of the performance obligations in the contract; (c) determination of the transaction price; (d) allocation of the transaction
price to the performance obligations in the contract; and (e) recognition of revenue when, or as, it satisfies a performance
obligation.
Nuvve
may enter into contracts with customers that include promises to transfer multiple products and services, such as charging systems, software
subscriptions, extended maintenance, and professional services. For arrangements with multiple products and services, Nuvve evaluates
whether the individual products and services qualify as distinct performance obligations. In Nuvve’s assessment of whether products
and services are a distinct performance obligation, it determines whether the customer can benefit from the product or service on its
own or with other readily available resources and whether the service is separately identifiable from other products or services in the
contract. This evaluation requires Nuvve to assess the nature of each of its networked charging systems, subscriptions, and other offerings
and how they are provided in the context of the contract, including whether they are significantly integrated which may require
judgment based on the facts and circumstances of the contract.
The
transaction price for each contract is determined based on the amount Nuvve expects to be entitled to receive in exchange for transferring
the promised products or services to the customer. Collectability of revenue is reasonably assured based on historical evidence of collectability
of fees Nuvve charges its customers. The transaction price in the contract is allocated to each distinct performance obligation in an
amount that represents the relative amount of consideration expected to be received in exchange for satisfying each performance
obligation. Revenue is recognized when performance obligations are satisfied. Revenue is recorded based on the transaction price excluding
amounts collected on behalf of third parties such as sales taxes, which are collected on behalf of and remitted to governmental authorities,
or driver fees, collected on behalf of customers who offer public charging for a fee.
When
agreements involve multiple distinct performance obligations, Nuvve accounts for individual performance obligations separately if they
are distinct. Nuvve applies significant judgment in identifying and accounting for ach performance obligation, as a result of
evaluating terms and conditions in contracts. The transaction price is allocated to the separate performance obligations on a relative
standalone selling price (“SSP”) basis. Nuvve determines SSP based on observable standalone selling price when it is available,
as well as other factors, including the price charged to its customers, its discounting practices and its overall pricing objectives,
while maximizing observable inputs. In situations where pricing is highly variable, or a product is never sold on a stand-alone basis,
Nuvve estimates the SSP using the residual approach.
Nuvve
has entered into various agreements for research and development services. The terms of these arrangements typically include terms whereby
Nuvve receives milestone payments in accordance with the scope of services outlined in the respective agreement or is reimbursed for allowable
costs. At the inception of each arrangement that includes milestone payments, Nuvve evaluates whether a significant reversal of cumulative
revenue associated with achieving the milestones is probable and estimates the amount to be included in the transaction price using the
most likely amount method. If it is probable that a significant reversal of cumulative revenue would not occur, the associated milestone
value is included in the transaction price. Nuvve applies considerable judgment in evaluating factors such as the scientific, regulatory,
commercial, and other risks that must be overcome to achieve the particular milestone in making this assessment. At the end of each subsequent
reporting
period,
Nuvve reevaluates the probability of achievement of all milestones subject to constraint and, if necessary, adjusts its estimate
of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings
in the period of adjustment.
Revenue
for other service contracts is recognized over time using an input method where progress on the performance obligation is measured based
on the proportion of actual costs incurred to date relative to the total costs expected to be required to satisfy the performance obligation.
The payment terms for some of the Company’s service contracts include revenue sharing arrangements whereby the Company is entitled
to the right to receive a portion of the revenue generated by the customer selling energy through the GIVe platform or from carbon credits
received as a result of the customer using the GIVe platform.
During
2017, Nuvve was awarded grant funding from the California Energy Commission, which contract continued through 2020. Nuvve has concluded
as of January 1, 2019 that this government grant is not within the scope of ASC 606, as government entity does not meet the definition
of a “customer” as defined by ASC 606, as there is not considered to be a transfer of control of goods or services to the
government entity funding the grant. Revenues from this grant are based upon internal costs incurred that are specifically covered by
the grant. Revenue is recognized as Nuvve incurs expenses that are related to the grant. Nuvve believes this policy is consistent with
the overarching premise in ASC 606, to ensure that it recognizes revenues to reflect the transfer of promised goods or services to customers
in an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services, even though there
is no “exchange” as defined in the ASC. Nuvve believes the recognition of revenue as costs are incurred and amounts become
earned/realizable is analogous to the concept of transfer of control of a service over time under ASC 606.
For
sales of finished products (charging stations) to customers which are standalone performance obligations, Nuvve satisfies its performance
obligation and records revenues when transfer of control has passed to the customer, which Nuvve has determined as the date
at which the product ships. The transaction price is determined based upon the invoiced sales price. Payment terms generally require remittance
from customer within 30 days of the sale date. When charging stations are sold as part of a solution, Nuvve satisfies its performance
obligation and records revenues when the charging stations are installed and commissioned.
The
Company occasionally enters into agreements with customers in which EV charging stations are sold at a discount in exchange for a higher
percentage of revenue share from the customer selling energy through the GIVe platform or from carbon credits. Due to the long-term nature
of these payment terms, certain contracts are considered to have significant financing components as it relates to the equipment. The
Company estimates the effect of any significant financing component and records the revenue associated with the equipment at the estimated
present value of the expected stream of payments. As payments are received, the difference between the total payment and the amortized
value of the receivable is recorded to interest income using the effective yield method.
Areas
of Judgment and Estimates
Determining
whether multiple promises in a contract constitute distinct performance obligations that should be accounted for separately or as a single
performance obligation requires significant judgment. In reaching its conclusion, Nuvve assesses the nature of each individual service
or product offering and how the services and products are provided in the context of the contract, including whether the services are
significantly integrated which may require judgment based on the facts and circumstances of the contract. Determining the relative SSP
for contracts that contain multiple performance obligations requires significant judgment. Nuvve determines SSP using observable pricing
when available, which takes into consideration market conditions and customer specific factors. When observable pricing is not available,
Nuvve first allocates to the performance obligations with established SSPs and then applies the residual approach to allocate the remaining
transaction price.
Principles
of Consolidation
We
consolidate entities based on either a variable interest model or voting interest model. As such, for entities that are determined to
be VIEs, we consolidate those entities where we have both significant economics and the power to direct the activities of the entity that
impact economic performance.
The
consolidation guidance requires qualitative and quantitative analysis to determine whether our involvement, through holding interests
directly or indirectly in the entity or contractually through other variable interests would give us a controlling financial interest.
This analysis requires judgment. These judgments include: (1) determining whether the equity investment at risk is sufficient to permit
the entity to finance its activities without additional subordinated financial support, (2) evaluating whether the equity holders, as
a group, can make decisions that have a significant effect on the success of the entity, (3) determining whether two or more parties’
equity interests should be aggregated, (4) determining whether the equity investors have proportionate voting rights to their obligations
to absorb losses or rights to receive returns from an entity and (5)
evaluating
the nature of relationships and activities of the parties involved in determining which party within a related-party group is most closely
associated with a VIE and hence would be deemed the primary beneficiary.
The
creditors of the consolidated VIEs do not have recourse to us other than to the assets of the consolidated VIEs. See Note
2 for
details.
Stock-based
compensation
Nuvve
grants stock options and restricted stock awards to employees and non-employees. Determining the grant date fair value of options using
the Black-Scholes option-pricing model requires management to make certain assumptions and judgments. These estimates involve inherent
uncertainties, and, if different assumptions had been used, stock-based compensation expense could have been materially different from
the amounts recorded. Stock-based compensation is measured at the grant date, based on the fair value of the award and is recognized as
an expense on a straight-line basis over the requisite service period. Nuvve recognizes forfeitures as they occur.
The
determination of the grant date fair value of stock option awards issued is affected by a number of variables, including the fair value
of Nuvve’s underlying common stock, its expected common stock price volatility over the term of the option award, the expected
term of the award, risk-free interest rates, and the expected dividend yield of Nuvve Common Stock.
The
following table summarizes the weighted-average assumptions used in estimating the fair value of stock options granted during
each of the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
Months Ended September 30,
|
|
2021
|
|
2020
|
Expected
life of options (in years)
|
6.0
|
|
—
|
|
Dividend
yield
|
0
|
%
|
|
—
|
|
Risk-free
interest rate
|
1.02
|
%
|
|
—
|
|
Expected
volatility
|
60.2
|
%
|
|
—
|
|
There
were no stock options granted during the nine months ended September 30, 2020.
•Expected
Life. The
expected term represents the expected life of options is the average of the contractual term of the options and the vesting period.
•Dividend
Yield. The
expected dividend yield is zero as Nuvve has never declared or paid cash dividends and has no current plans to do so over the expected life
of the options.
•Risk
Free Interest Rate. The
risk-free interest rate is based on the yields on U.S. Treasury debt securities with maturities approximating the estimated life of the
options.
•Expected
Volatility. As
Nuvve has only been a public company for a short period of time, the volatility rate was estimated by management based on the average
volatility of certain public company peers within Nuvve’s industry corresponding to the expected term of the awards.
Common
Stock Valuation
Historically
for financial statement periods prior to the Business Combination, the fair value of Nuvve Common Stock has been determined by the Nuvve’s
Board of Directors with the assistance of management. In the absence of a public trading market for Nuvve Common Stock, on each grant
date, Nuvve developed an estimate of the fair value of Nuvve Common Stock based on the information known on the date of grant, upon a
review of any recent events and their potential impact on the estimated fair value per share of Nuvve Common Stock, and in part on input
from third-party valuations. For periods subsequent to the Business Combination, the Company determines the fair value of its common stock
based on the price of its publicly traded stock.
Nuvve’s
valuations of Nuvve Common Stock are determined in accordance with ASC 820, Fair
Value Measurement and
the guidelines outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation
of Privately-Held-Company Equity Securities Issued as Compensation.
The
assumptions used to determine the estimated fair value of Nuvve Common Stock are based on numerous objective and subjective factors,
combined with management’s judgment, including:
•third-party
valuations of its common stock;
•external
market conditions affecting the EV industry and trends within the industry;
•the
rights, preferences, and privileges of Nuvve convertible Series A preferred stock relative to those of Nuvve Common Stock;
•the
prices at which Nuvve sold shares of its common stock;
•its
financial condition and operating results, including its levels of available capital resources;
•the
progress of its research and development efforts, its stage of development, and business strategy;
•the
likelihood of achieving a liquidity event, such as an initial public offering or a sale of Nuvve given prevailing market conditions;
•the
history and nature of Nuvve’s business, industry trends, and competitive environment;
•the
lack of marketability of Nuvve Common Stock;
•equity
market conditions affecting comparable public companies; and
•general
U.S. and global market conditions.
In
determining the fair value of Nuvve Common Stock, Nuvve established the enterprise value of its business using the market approach and
the income approach. Nuvve also estimated the enterprise value by reference to the closest round of equity financing preceding the date
of the valuation if such financing took place around the valuation date. Under the income approach, forecasted cash flows are discounted
to the present value at a risk-adjusted discount rate. The valuation analyses determine discrete free cash flows over multiple years based
on forecasted financial information provided by Nuvve’s management and a terminal value for the residual period beyond the discrete
forecast, which are discounted at its estimated weighted-average cost of capital to estimate its enterprise value. Under the market approach,
a group of guideline publicly-traded companies with similar financial and operating characteristics to Nuvve are selected, and valuation
multiples based on the guideline public companies’ financial information and market data are calculated. Based on the
observed valuation multiples, an appropriate multiple was selected to apply to Nuvve’s historical and forecasted revenue results.
In
allocating the equity value of Nuvve’s business among the various classes of equity securities, it used the option pricing model
(“OPM”) method, which models each class of equity securities as a call option with a unique claim on its assets. The OPM treats
Nuvve Common Stock and convertible Series A preferred stock as call options on an equity value with exercise prices based on the liquidation
preference of its redeemable convertible preferred stock. The common stock is modeled as a call option with a claim on the equity value
at an exercise price equal to the remaining value immediately after its redeemable convertible preferred stock is liquidated.
The exclusive reliance on the OPM is appropriate when the range of possible future outcomes was difficult to predict and resulted in a
highly speculative forecast.
Since
August 2020, Nuvve used a hybrid method utilizing a combination of the OPM and the probability weighted expected return method (“PWERM”).
The PWERM is a scenario-based methodology that estimates the fair value of ommon shares based upon an analysis of future values
for Nuvve, assuming various outcomes.
The
common share value is based on the probability-weighted present value of expected future investment returns considering two possible scenarios
available as well as the rights of each class of shares. These two scenarios are: (i) a transaction with a SPAC and (ii) remaining
a private company. The value of the common shares is determined based on an analysis of Nuvve’s operations and projections as of
the valuation date, as well as its expected SPAC value for which we have discounted back to the valuation date at an appropriate risk-adjusted
discount rate. We then probability weighted each outcome to arrive at an indication of value for the common shares. Nuvve used the OPM
and the PWERM to allocate the equity value of its business among the various classes of stock.
After
the allocation to the various classes of equity securities, a discount for lack of marketability (“DLOM”) was applied to arrive
at a fair value of common stock. A DLOM was meant to account for the lack of marketability of a stock that was not publicly traded. In
making the final determination of common stock value, consideration was also given to recent sales of common stock.
Application
of these approaches and methodologies involves the use of estimates, judgments, and assumptions that are highly complex and subjective,
such as those regarding Nuvve’s expected future revenue, expenses, and future cash flows, discount rates, market multiples, the
selection of comparable public companies, and the probability of and timing associated with possible future events. Changes in any or
all of these estimates and assumptions or the relationships between those assumptions
impact
Nuvve’s valuations as of each valuation date and may have a material impact on the valuation of Nuvve Common Stock. Following the
Business Combination, it will not be necessary to estimate the fair value of the Company’s Common Stock as the shares will be traded
in a public market.
Income
Taxes
Nuvve
utilizes the asset and liability method in accounting for income taxes. Deferred tax assets and liabilities reflect the estimated future
tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. Deferred tax expense or benefit is the result of changes in the deferred tax asset and liability.
Valuation allowances are established when necessary to reduce deferred tax assets where it is more likely than not that the deferred tax
assets will not be realized. Nuvve makes estimates, assumptions, and judgments to determine its provision for its income taxes, deferred
tax assets and liabilities, and any valuation allowance recorded against deferred tax assets. Nuvve assesses the likelihood that its deferred
tax assets will be recovered from future taxable income, and to the extent it believes that recovery is not likely, it establishes a valuation
allowance.
Nuvve
recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on
examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized from such positions
are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement. Interest
and penalties related to unrecognized tax benefits which, as of the date of this report, have not been material, are recognized within
provision for income taxes.
Recent
Accounting Pronouncements
See
Note 2 of Nuvve’s consolidated financial statements included elsewhere in this report for more information regarding recently
issued accounting pronouncements.
Emerging
Growth Company Accounting Election
Section 102(b)(1)
of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until
private companies are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company
can choose not to take advantage of the extended transition period and comply with the requirements that apply to non-emerging growth
companies, and any such election to not take advantage of the extended transition period is irrevocable. The Company is an “emerging
growth company” as defined in Section 2(A) of the Securities Act of 1933, as amended, and has elected to take advantage of
the benefits of this extended transition period.
The
Company expects to use this extended transition period for complying with new or revised accounting standards that have different effective
dates for public business entities and non-public business entities until the earlier of the date the Company (a) is no longer an
emerging growth company or (b) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act.
This may make it difficult or impossible to compare the Company’s financial results with the financial results of another public
company that is either not an emerging growth company or is an emerging growth company that has chosen not to take advantage of the extended
transition period exemptions because of the potential differences in accounting standards used. See Note 2 of the accompanying audited
consolidated financial statements and unaudited consolidated financial statements of Nuvve included elsewhere in this report for the recent
accounting pronouncements adopted and the recent accounting pronouncements not yet adopted for the nine months ended September 30,
2021.
In
addition, the Company intends to rely on the other exemptions and reduced reporting requirements provided by the JOBS Act. Subject to
certain conditions set forth in the JOBS Act, if, as an emerging growth company, the Company intends to rely on such exemptions, the Company
is not required to, among other things: (a) provide an auditor’s attestation report on the Company’s system of internal
control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act; (b) provide all of the compensation disclosure
that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act; (c) comply
with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation
or a supplement to the auditor’s report providing additional information about the audit and the consolidated financial statements
(auditor discussion and analysis); or (d) disclose certain executive compensation-related items such as the correlation between executive
compensation and performance and comparisons of the Chief Executive Officer’s compensation to median employee compensation.
The
Company will remain an emerging growth company under the JOBS Act until the earliest of (a) the last day of the Company’s
first fiscal year following the fifth anniversary of Newborn’s IPO, (b) the last date of the Company’s fiscal year in
which the Company has total annual gross revenue of at least $1.07 billion, (c) the date on which the Company is deemed to be a “large
accelerated filer” under the rules of the SEC with at least $700.0 million of outstanding securities held by non-affiliates or (d) the
date on which the Company has issued more than $1.0 billion in non-convertible debt securities during the previous three years.
Item
3. Quantitative and Qualitative Disclosures About Market Risk.
Not
applicable.
Item
4. Controls and Procedures.
Evaluation
of Disclosure Controls and Procedures
Our
management, with the participation of our Chief Executive Officer and our Chief Financial Officer, our principal executive officer and
principal accounting and financial officer, respectively, have evaluated the effectiveness of our disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2021.
Disclosure
controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our
reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in
the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure
that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including
our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based
on the evaluation of our disclosure controls and procedures, our Chief Executive Officer and our Chief Financial Officer concluded that
our disclosure controls and procedures were not effective as of September 30, 2021 due to the material weaknesses in our internal
control over financial reporting described below. In light of this fact, our management has performed additional analyses, reconciliations,
and other post-closing procedures and has concluded that, notwithstanding the material weaknesses in our internal control over financial
reporting, the condensed consolidated financial statements for the periods covered by and included in this Quarterly Report on Form 10-Q
fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity
with U.S. GAAP.
Changes
in Internal Control over Financial Reporting
Except
for the changes in connection with the ongoing remediation of the previously identified material weaknesses discussed below, there has
been no change in our internal control over financial reporting during the quarter ended September 30, 2021, that has materially
affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Material
Weakness
In
connection with the preparation of our consolidated financial statements for the years ended December 31, 2020 and 2019, we identified
control deficiencies in the design and operation of our internal control over financial reporting that constituted material weaknesses,
which we have started remediating but have not completed the remediation as of September 30, 2021. A material weakness is a deficiency,
or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material
misstatement of our financial statements will not be prevented or detected on a timely basis.
The
material weaknesses identified in our internal control over financial reporting related to (i) segregation of duties related to roles
and responsibilities in the accounting department; and (ii) financial close and reporting processes lacking formal documentation of financial
closing policies and procedures, that do not result in timely production of accurate financial information, and that do not result in
a consistent documentation of the considerations and conclusions related to unusual or complex accounting matters. As of September 30,
2021, we have taken a number of actions to remediate these material weaknesses, including:
•utilizing
outside accounting and financial reporting consultants to supplement the Company’s resources in the area of the financial close
and financial reporting;
•engaging
SEC compliance and technical accounting consultants to assist in evaluating transactions for conformity with the U.S. GAAP;
•utilizing
outside consultants to perform a comprehensive review of current procedures to identify and assist in implementing controls in conformity
with COSO “Internal Control over Financial Reporting - Guidance for Smaller Public Companies” that was published in 2006 and
updated in 2013, including the control environment, risk assessment, control activities, information and communication and monitoring;
and
•hiring
additional finance and accounting personnel, including hiring an SEC compliance and technical accountant, to augment accounting staff
and to provide further segregation of duties and more resources for complex accounting matters and financial reporting.
We
are still in the process of implementing these controls. We intend to continue to take steps to remediate the material weaknesses through
formalizing documentation of policies and procedures and further evolving our accounting processes.
While
we believe that these efforts will improve our internal control over financial reporting, the design and implementation of our remediation
is ongoing and will require validation and testing of the design and operating effectiveness of our internal controls over a sustained
period of financial reporting cycles. The actions that we are taking are subject to ongoing senior management review, as well as audit
committee oversight. We will not be able to conclude whether the steps we are taking will fully remediate the material weaknesses in our
internal control over financial reporting until we have completed our remediation efforts and subsequent evaluation of their effectiveness.
Inherent
Limitation on the Effectiveness Over Financial Reporting
The
effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including
the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate
misconduct completely. Accordingly, any system of internal control over financial reporting, including ours, no matter how well designed
and operated, can only provide reasonable, not absolute assurances. In addition, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate
for our business, but there can be no assurance that such improvements will be sufficient to provide us with effective internal control
over financial reporting.