Item 1. Business
Item 1.
BUSINESS
Overview
We are a provider of purpose-built zero-emission electric vehicles focused on reducing the total cost of vehicle ownership and helping fleet operators unlock the benefits of green technology. We serve commercial and last-mile fleets, school districts, public and private transportation service companies and colleges and universities to meet the increasing demand for light to heavy-duty electric vehicles. Our vehicles address the challenges of traditional fuel price cost instability and local, state and federal environmental regulatory compliance. We currently offer Class 2 through 4 logistics vans, class 4 through 5 urban trucks, school buses, electric forklifts, street sweepers, neighborhood electric vehicles (“NEV”) and right-hand drive vans and urban trucks.
Our vehicles are manufactured by original equipment manufacturers ("OEM") located in China, Malaysia and the Philippines and can be marketed, sold, warrantied and serviced through our developing distribution and service network.
Our vehicles include options for telemetrics for remote monitoring, electric power-export and various levels of grid-connectivity. Our zero-emission products may also grow to include automated charging infrastructure and “intelligent” stationary energy storage that enables fast vehicle charging, emergency back-up facility power, and access to the developing, grid-connected opportunities for the aggregate power available from groups of large battery packs.
For the years ended December 31, 2023 and 2022, our net losses were $12.7 million and $43.8 million, respectively. Included in the net losses for 2023 and 2022 were non-cash charges of approximately $6.4 million and $38.7 million, respectively.
Market Overview
Concerns regarding climate change and other environmental considerations have led to the implementation of laws and regulations that restrict, cap, or tax, emissions in the automotive industry and throughout other industries. In particular, the Environmental Protection Agency ("EPA"), Tier 4 emission standards, California Air Resources Board ("CARB"), regulations, and recently implemented policies in Europe, generally referred to as Stage I, II, III, IV, V and VI regulations, require significant reductions in the level of emissions and particulate matter produced by diesel power systems and are increasing the costs associated with producing carbon-intensive fuels. On June 25, 2020, the Board of CARB passed a first-in-the-world rule requiring truck manufacturers to transition from diesel trucks and cargo vans to electric zero-emission vehicles beginning in 2024. More recently, in December 2021, President Biden signed an executive order directing the federal government to minimize planet-heating emissions from operations and transition to an all-electric fleet of cars and trucks, with the stated goal of reducing its emissions by 65% by 2030 and reaching carbon neutrality by 2050.
These and other regulations are expected to increase both the cost and size of emission-compliant diesel power products, primarily due to the need to incorporate additional combustion and after-treatment components. A variety of market factors are contributing to the increased use of alternative fuels and growth of alternative fuel technology, including economics, energy independence, environmental concerns, and the widespread availability of alternative fuels. As the price of crude oil remains volatile and the threats of climate change and air pollution increase as public concerns, we believe the search for more cost effective and cleaner fuels has become more important. Electricity has emerged as a cleaner-fuel solution to these challenges. The price of alternative fuels such as electricity is often substantially less than diesel or gasoline, and alternative fuels can result in the production of lower amounts of greenhouse gases and other air pollutants. In addition, several public utilities in California and elsewhere have applied to their states’ public utility commissions for rate increases to be used for the purchase or leasing of electric vehicles and infrastructure. Additional requests have been made by the utilities to offer favorable costs for electric bus charging.
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According to the International Energy Agency ("IEA"), approximately 10.5 million passenger electric vehicles (“EVs”) were sold globally in 2022. This represented 14% of 2022 vehicle sales and a 62% increase in EV sales versus the prior year, resulting in a total fleet of approximately 27 million units and expected to grow to over 100 million by 2026. Sales are expected to grow by another 35% in 2023 to reach 14 million representing 18% of the overall car market. According to Bloomberg New Energy Finance (“Bloomberg NEF”) per their Electric Vehicle Outlook 2023 report, annual passenger EV sales are estimated to more than double between 2022 and 2026 to 26.6 million. China and Europe have been the leaders on electric vehicle adoption and per the same report, are expected to account for nearly 75% of EV sales in 2026, with the U.S. representing 15% of the global EV market. Government policy, however, remains ever-changing and likely continues to play a foundational role in the rate of adoption around the world.
In China, the government has mandated that electric vehicles make up 40% of all auto sales by 2030. Meanwhile, we believe that tightening emissions standards and high fuel taxes in Europe will result in substantial increases in the market share of electric vehicles. In 2022, around half of the total growth in electric vehicles sales was in China, according to the Global EV Outlook 2022 report by the IEA. In the U.S., 630,000 new electric vehicles were sold in 2021, reflecting an acceleration in growth as this was about double the sales experienced in 2020. The overall market for electric vehicles consists of multiple, discrete markets for various vehicle types, including passenger cars, buses, two-wheelers and others. Passenger cars are the most prominent, but two-wheelers are far more prevalent, particularly in Asia, and buses and trucks, although smaller in number, are significantly higher in price and often purchased in bulk by major corporate customers or government or transit agencies.
Charging infrastructure is another important factor in electric vehicle adoption rates. According to a report by S&P Global, there were approximately 126,500 Level 2 and just under 20,500 Level 3 charging stations in the United States today as of December 31, 2022. S&P Global estimates that by 2030, the United States will need 2.13 million Level 2 and 172,000 Level 3 chargers, an increase of nearly seventeen times the number of Level 2 chargers and more than eight times the number of Level 3 chargers. In an effort to help address this need, in September 2022, the National Electric Vehicle Infrastructure Program (“NEVI”), established and funded by the Infrastructure Investment and Jobs Act (the "Infrastructure Bill"), which was signed into law on November 15, 2021, approved each state’s program to help states install EV chargers along interstate highways. Over the next five years, it will distribute $5 billion to establish EV charging stations every 50 miles on major corridors.
Additionally, the Infrastructure Bill included $7.5 billion to build a national network of 500,000 chargers by 2030. Through a combination of grant and incentive programs for state and local governments and the private sector, it is expected to support the deployment of a mix of chargers in apartment buildings, in public parking, throughout communities, and across a robust network on our nation’s roadways. Some geographic areas have considerably more charging stations than others, contributing to more significant electric vehicle usage in those regions.
Commercial Vehicles
In 2022, nearly 66,000 electric buses and 60,000 medium- and heavy-duty trucks were sold worldwide, representing about 4.5% of all bus sales and 1.2% of truck sales worldwide. China continues to dominate production and sales of electric (and fuel cell) trucks and buses. However, the global market is growing and is expected to continue to grow in the foreseeable future.
Environmental Benefits
Because heavy-duty commercial vehicles consume considerably more fuel than light duty passenger vehicles, the environmental benefits of replacing conventionally fueled commercial vehicles with electric vehicles can also be substantial. Whereas an electric passenger car may reduce greenhouse gas (“GHG”) emissions by 3 tons per year as compared to a conventional car, replacing a conventional Class 8 port drayage truck with an electric equivalent can bring an 18 metric ton annual reduction in GHG emissions. Replacing a conventional diesel bus with an all-electric bus can achieve a 78 metric ton (approximately 171,961 pounds) reduction in GHG emissions. Electric buses can also reduce nitrous oxide emissions by 47 kg (approximately 104 pounds) per year compared to a diesel bus and 19 kg (approximately 42 pounds) compared to a clean natural gas (“CNG”) bus. As discussed below, we believe these pollution reductions have had the greatest impact in the electric bus market, where municipalities are the principal purchasers.
A first-of-kind, comprehensive study was released in December 2019 assessing the environmental benefits and economics of various alternative fuel truck technologies. The study, conducted by the ICF International research firm (“ICF”), demonstrates that electric trucks and buses are a triple-win in terms of helping meet California’s climate and air quality targets; the least cost to own and operate across nearly all truck and bus classes by 2030, and provide the greatest job and economic benefits to the state. The study was commissioned by the Natural Resource Defense Council (“NRDC”) and the California Electric Transportation Coalition (an industry group representing utilities and vehicle manufacturers) and was sponsored by the Union of Concerned Scientists, Earthjustice, BYD, Ceres, and NextGen Climate America. Advisory support was provided by East Yard Communities for Environmental Justice and University of California, Davis. The study concluded that the costs of battery packs, and therefore the cost of electric trucks and buses, will decline such that by 2030, they will be the most attractive technology from a total cost of ownership perspective for nearly all truck and bus classes, even without incentives.
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Trucks
Some of the main markets for electric trucks include delivery vans, shuttle buses, and utility or work trucks, each of which has its own set of challenges. Where Plug-In Hybrid Electric Vehicle ("PHEV") have greater operational flexibility, and require less charging infrastructure, Battery Electric Vehicles ("BEV") can be either short range, which can charge quickly and operate with limited interruption, or long range, which requires longer charging times but more intraday operational flexibility. Because of charging needs and restrictions, we believe short-haul fleet vehicles that operate in a limited geographic area and return to central locations, such as delivery vans and shuttle buses, are the best candidates for electrification.
Transit Buses
Some public transportation operators are facing pressure to purchase and operate low-emissions vehicles. For public entities, cleaner transportation systems can provide benefits beyond reduced operating costs, in the form of less pollution and lower abatement and cleanup costs. Electric transit buses are likely to have lower fuel and maintenance costs which is typically a significant cost component for transit operators as compared to conventional diesel buses. Electric buses generally have smoother, faster acceleration and provide a quieter ride, thus benefiting both passengers and the surrounding urban environment.
Similar to other commercial fleet electric vehicles, transit buses have a higher initial acquisition cost than their traditional-fueled counterparts, and the logistics of charging remains a challenge. Electric buses can be two to nearly five times as expensive as conventional buses.
In addition to public health and environmental benefits, school districts and transit agencies are able to experience cost savings due to reduced fuel and maintenance costs of electric buses. While electric transit buses cost approximately $200,000 more than diesel buses (depending on battery pack size) before incentives, lifetime fuel and maintenance savings of electric transit buses approximate $400,000.
Electrification in the medium- and heavy-duty vehicle sector is increasing in the U.S. with California leading the way. Increasing investment in the sector from public and private sources, however, is expected to generate growth and significantly increase the number of electric trucks and buses on the road in the near term. Upfront costs associated with electric trucks and buses are expected to decline significantly through 2030 as battery prices fall, making them competitive on a total cost of ownership ("TCO") basis.
School Buses
School buses present another significant potential market for electrification. The U.S. has approximately 480,000 school buses that are particularly well suited to running solely on electricity. Traditional diesel school buses, which make up over half the total fleet, not only consume large amounts of fuel - more than 800 million gallons of diesel a year in the United States, at a fuel economy of only 4–5 mpg - but also directly impact children with tailpipe emissions. In response, the EPA committed to distributing $5 billion over five years via the Clean School Bus Program. In 2022, the EPA allocated approximately $1 billion in funding and again in 2023 as part of this program. The awards will cover the initial cost of acquiring most buses and will subsidize charging hardware and infrastructure.
U.S. — Federal Laws and Incentives
There are numerous U.S. legislative efforts underway to accelerate the adoption of electric vehicles. In January 2021, President Biden signed into effect the “Buy America” executive order, which among other objectives, will see a transition of U.S. Government fleet to U.S.-manufactured electric vehicles, thus creating a large market opportunity for Class 3, 4 and 5 electric trucks. The order equates to approximately $25 billion in total value and will replace approximately 456,000 government vehicles with U.S. manufactured electric vehicles.
Along with holding many U.S. certifications, we are identified as an eligible manufacturer by the Internal Revenue Service ("IRS") of light to heavy-duty electric vehicles in the United States. This is significant because, as of January 1, 2023, federal tax credits are available for electric cars and trucks from eligible manufacturers. Individuals that purchase electric vehicles weighing less than 14,000 lbs. will receive a credit of $7,500. Commercial operators will receive a tax credit of up to $40,000 for each purchased vehicle over 14,000 lbs. Furthermore, with the Alternative Fuel Infrastructure Tax Credit, depending on the size of the chargers, businesses are eligible for a tax credit of up to 30% of the cost of the chargers and infrastructure, up to $100,000 per unit. Additionally, the Senate passed the Inflation Reduction Act, the budget reconciliation bill that includes $3 billion over five years to establish a new grant program to install electrified equipment and reduce emission at ports.
U.S.—State Laws and Incentives
Among U.S. states, California is notable for pioneering a number of measures that have encouraged electric vehicle production and adoption, and that have since been emulated by other jurisdictions. These incentives include tax credits and rebates for both individual and fleet owners, HOV lane access, and various grant and loan programs. Besides setting the nation’s most stringent tailpipe emissions standards, California has required automakers to produce increasing percentages of zero-emission vehicles, of which electric vehicles make up a significant portion, along with creating a market that allows manufacturers to buy and sell credits awarded for selling electric vehicles. California, New York and New Jersey have also implemented voucher programs that significantly reduce the cost to purchase an electric vehicle in their respective states, with additional cost reductions for businesses that meet certain criteria such as minority-, veteran-, or women- owned or locating in a low-income area. Furthermore, California and New York have introduced legislation to completely ban the sale of internal combustion engines and fossil fuel vehicles by 2035. See “—Governmental Programs and Incentives” for additional discussion of certain relevant incentive programs.
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Our Solution
We are a provider of purpose-built zero-emission electric vehicles focused on reducing the total cost of ownership. Our vehicles are manufactured by OEMs locate d in China, Malaysia and the Philippines and m arketed, sold, warrantied and serviced through our developing distribution and service network. Our vehicles are designed to help fleet operators unlock the benefits of technology that reduces GHG, NOx, PM and other pollutants, as well as to address the challenges of lo cal, state and federal regulatory compliance and traditional-fuel price cost instability.
We seek to enable our customers to:
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Add Emission-Compliant Vehicles to Their Fleets . Our commercial fleet vehicles are designed to reduce or eliminate the use of traditional petroleum-based fuels that create GHG and particulate matter.
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Reduce Total Cost of Ownership . Our technology is designed to reduce fuel budgets and maintenance costs by eliminating or reducing reliance on traditional petroleum-based fuels through the use of more energy efficient and less variably priced grid-provided electricity.
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Prolong Lives of Existing Vehicles . Zero-emission electric vehicles generally have lower maintenance costs. These reduced maintenance costs may take the form of longer service intervals between brake system maintenance, elimination of internal combustion engine oil and oil filter changes, reduction or elimination of transmission oil and oil filter changes, reduction or elimination of air filter changes, elimination of emissions systems services, elimination of diesel emission fluid use, elimination of emissions and the elimination of certification tests.
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Plan for Natural Disasters When Fuel Supply May be Interrupted. Our zero-emissions systems are designed, when optionally equipped, to serve as on-site emergency back-up energy storage if grid power becomes intermittent or fails temporarily during natural or man-made disasters.
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Improve the Environment Around Vehicles . As a result of our zero-emission systems, drivers, operators, customers and the communities they serve could have healthier environments in and around these vehicles.
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Our Strategy
We intend to capitalize on these opportunities by pursuing the following key strategies:
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Develop Sales Staff . Due to coronavirus ("COVID-19") pandemic impacts and to other business challenges in 2020, we had to eliminate our in-house sales team in 2020. We have not been able to reestablish our sales team during 2021, 2022 and 2023 to help our current and future customer base, and instead relied primarily on our executives to work on sales activity. Our executives, on a limited basis, also engaged industry consultants with ties to trucking fleets, county and city transportation managers, as well as school districts and an extensive dealer network to assist with the sales activity.
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Build Dealership and Service Networks . We are building an international dealership and service network for the sales and service of our purpose-built zero-emission electric commercial vehicles either manufactured by or for us.
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Develop Third-Party Relationships . We have completed existing negotiations with partners and are seeking additional partners for sales, service and support.
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Provide Demonstrations . We have been and continue to seek out and respond to local, state and federal pilot demonstration opportunities in interest areas for which we have relevant current product offerings or in areas of interest that are congruent with product(s) that are on our product development roadmap, but still in early-stage development. In 2023 , we participated in numerous events across the United States, Canada and Asia that demonstrated our product offerings.
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Obtain Approvals from Incentive Programs. Our products have been approved for various local, state and federal vehicle designations and incentive programs. For example, the California Hybrid and Zero-Emission Truck and Bus Voucher Incentive Project (“HVIP”) administered by CARB was meant to accelerate the purchase of cleaner, more efficient trucks and buses in California. Our products are currently approved for voucher programs in California and New Jersey. Our class 4 through 8 vehicles also qualify for up to $40,000 of the federally available tax credit.
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Grow Our Manufacturing, Installation and Service Capability . In 2023 , we increased our integration efforts and began completing the final assembly of sub-assembly components at our Osceola, Arkansas facility. In 2024, we also intend to install the manufacturing equipment in Osceola required to begin producing our vehicles ourselves in the United States. As facility space and technician time requirements at partners are exceeded, we intend to consolidate manufacturing, installation and service of our zero-emission vehicles in Osceola as we work towards becoming a fully integrated electric vehicle manufacturer.
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Technical Support . We anticipate adding additional technicians to expand our resources for supporting the maintenance, warranty work or repairs that any vehicle we have sold or that contains our vehicles may require.
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Introduce New Products . As new markets develop, we plan to expand our zero-emission vehicles and systems into ancillary product verticals, such as charging infrastructure (also called Electric Vehicle Service Equipment), stationary energy storage, vehicle-to-grid hardware and capabilities.
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Our Customers
Our current primary focus is Class 3 to 5 trucks, class 3 and 4 cargo vans and school buses. Our ta rget customers primarily include public and private fleet operators that have an interest in meeting or exceeding local, state and federal emission regulatory guidelines while saving money on fuel and maintenance costs over the lifecycle of their fleet vehicles and that also have an interest in tangible demonstrations of their GHG-reducing efforts. These targets include:
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Public and private schools that operate “white fleet” vehicles for non-student transportation use, such as facility service trucks, food service delivery vans/trucks, campus security vehicles and golf cart-type vehicles.
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Commercial fleet operators that provide high daily mileage vehicles for use on routes in and around airports, hotels and offsite parking facilities.
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Last mile delivery companies with fleets of delivery vans, short haul trucks and distribution/sorting facility center vehicles.
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Large agricultural and food processing industry-focused companies that operate Class 1 through 7 trucks, buses and/or delivery vans.
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Public and private transportation services that are involved in prisoner transportation.
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Large companies that operate shuttle buses, transit style buses and facility-based vehicles, including on and off road-type vehicles for employee transport to/from remote parking areas, to/from special events, and the various vehicles used for facilities maintenance, services and security.
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Private transportation contractors that shuttle large companies’ employees from common public transportation hubs to their campuses.
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Public and private colleges and universities that operate shuttle buses, transit-style buses, facility service vans and trucks and utilize golf cart-type vehicles on their campuses.
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Community-based, public/privately funded shuttle buses serving special-needs community members.
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Retirement communities, municipalities, shopping malls, movie studio lots, and large warehouse facilities that currently use golf cart-type vehicles for moving people and goods.
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The current market of approximately 3.5 million e-trike users in the Philippines, most of which currently operate gasoline or diesel- powered vehicles.
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Public and private K-12 schools that operate Type-A, C and D school buses, and special-needs student buses.
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Student transportation contractors that serve public and private schools.
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Port, railway and distribution center operators that use traditionally-fueled loading equipment, tractors, material handling equipment, forklifts, Class 1 through 7 trucks, delivery vans, yard goats, and other similar vehicles, that could be replaced with zero-emission alternatives.
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Mining companies with fleets of above-ground service vehicles and underground staff transport and support vehicles.
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Oil and gas companies with fleets of field trucks.
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Electric utility companies with fleets of service trucks that are in the public eye.
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Military-based fleet operators that have non-combat fleet vehicles of all sizes.
Our Products and Services
Our products and services primarily include purpose-built, zero-emission vehicles a nd chassis of all sizes manufactured by OEMs, and are marketed, sold, warrantied and serviced thro ugh our developing distribution and service network.
We engage OEMs to design and supply vehicles for us that meet our specifications. In addition, our products and services may in the future include some or all of the following:
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Zero-emission electric systems for ship-through integration by outside OEMs into their own privately branded medium to heavy-duty commercial fleet vehicles.
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Automated charging infrastructure for commercial fleet vehicles.
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“Intelligent” stationary energy storage that enables fast vehicle charging.
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“Intelligent” stationary energy storage that enables emergency back-up facility power during grid power outages.
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“Intelligent” stationary energy storage that enables access to the developing grid-connected opportunities for the aggregate power available from groups of large battery packs.
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“Intelligent” stationary energy storage that enables avoidance of electric utility demand charges for commercial customers integrated with or independent of Envirotech-supplied, zero-emission fleet vehicle(s).
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Energy storage systems (battery packs) replacements with better energy density and/or expected lifecycles for existing electric vehicles and equipment that has outlived their OEM-provided energy storage systems. For example, replace flooded lead acid (“FLA”) battery packs of existing industrial forklifts and underground mining equipment with more energy dense and higher cycle-life battery packs composed of lithium-ion cells.
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Testing
Our suppliers are vetted before their products are accepted for use in our products. Our drivetrain systems and finished products are inspected, road-tested (when applicable) and receive quality control testing prior to delivery.
Customer Service, Support and Training
Our sales team has historically been used as the first point of customer contact for customer support and training. We are hiring sales personnel and other internal staf f currently to su pport our current and planned operations.
Technology
Zero-emission electric drivetrain systems for purpose-built new vehicles generally include the following: electric traction motor/generator of sufficient kW power for grade, speed, acceleration and efficiency requirements, a motor controller/inverter system that modulates electrical power flow between the battery packs and traction motor, a gear reduction system or multispeed transmission, systems to electrify power steering/brakes, a VCU, high-voltage traction battery packs with integrated BMS, battery disconnect units, thermal management systems, vehicle charging hardware, electric HVAC systems, DC to DC inverter(s) to reduce traction battery pack voltage sufficient to operate on-board, low voltage systems, wiring harnesses, user/driver interface and remote diagnostic/tracking/fault code/data logging systems. Although clear industry power-export standards have not yet been adopted, systems and options for a variety of vehicle-to-other power management options (such as grid, building, stationary energy storage, etc.) are being developed by multiple vendors and their inclusion may be offered as additional cost options in the future.
Sales and Marketing
Sales
We intend to build out our marketing and sales network by hiring sales personnel to form a team of dedicated sales employees with responsibility for each of the geographic regions we serve.
Marketing
We plan to focus our marketing efforts on increasing brand awareness, generating demand for our products, communicating product advantages and generating qualified leads for our sales force. We intend to rely on a variety of marketing vehicles, including our website and social media, participation in industry conferences and trade shows, public relations and our collaborative relationships with our business and teaming partners to share our technical message and the benefits of our product offering, with customers.
Manufacturing
We currently contract with third-party suppliers to manufacture our products. In 2022, we increased our integration efforts and began completing the final assembly of sub-assembly components at our Osceola, Arkansas, facility. We also intend to install the manufacturing equipment in Osceola required to begin producing our vehicles ourselves in the United States, which will be a key step towards our longer-term strategy of becoming a fully integrated electric vehicle manufacturer.
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Envirotech Electric Vehicles Incorporated ("EEVI")
EEVI is a Canadian company engaged in the design, prototyping and certification of electric components and vehicles, including complete drivetrain systems. Previously, we engaged EEVI to design and supply a series of zero-emission electric Class 3 and 6 trucks, cargo vans and chassis built to our specifications and requirements. The vehicles are initially comprised of a cab, chassis and electric drivetrain system. Any customer can then customize the trucks by adding a box or stake bed to the vehicle in accordance with their needs. We received the first truck and cargo van pursuant to our arrangement with EEVI. As the dealer for EEVI, we submitted additional information to the HVIP Department of CARB and received our HVIP listing in November 2019, which renders the trucks and vans eligible for buy-down funding based on the gross vehicle weight rating ("GVWR").
We also own certain rights under an Exclusive Supply Agreement entered into with EEVI (the “Exclusive Distribution Agreement”). Pursuant to the Exclusive Distribution Agreement, EEVI appointed us as the exclusive distributor of all of EEVI’s products in the United States on the terms and subject to the conditions set forth therein. Unless earlier terminated in accordance with the terms thereof, the Exclusive Distribution Agreement will remain in effect for a term expiring on December 17, 2070. The Exclusive Distribution Agreement provides us certainty of product supply and consistency of design between different classes or type of vehicles; allows us to license the products to third party resellers, distributors and others which should enhance our ability to sell vehicles and permits us to use trademarks associated with the vehicles, all of which we believe is very advantageous to executing our business plan.
Raw Materials and Supply Chain
Prices for the systems, components and raw materials we use in our vehicles and drivetrain systems, many of which are OEM items used by many companies in different applications, can fluctuate depending on market conditions and global demand. Our purchase of raw materials is currently limited due to sales volume, but we attempt to limit our exposure to raw material price increases and availability fluctuations by having relationships with a dynamic group of vendors that sell us value-added hardware, components and systems. We have further mitigated these supply chain risks by establishing purchasing relationships with multiple vendors that are diversified by type of product offered, brand of products offered, country of origin of products (which is relevant for “Buy American” provisions that we encounter with our customers), individual specification requirements, purchase quantity requirements, quality, availability and price. Our drivetrain systems allow for component substitution, which further mitigates our exposure to any one supplier or component. We believe that we have adequate supplies and access to the sources of the systems, components and materials to meet our current and anticipated future production and supply requirements.
Backlog
As of December 31, 2023, we had a backlog of 5 zero-emission Class 4 trucks and 19 zero-emission Class 4 cargo vans, which consists of unfilled firm orders for products undersigned contracts with customers.
Employees
As of December 31, 2023, we h a d 14 employees in total, whi c h are all full-time employees. None of our employees are covered by collective bargaining agreements and we believe our employee relations are good.
Competition
The electric vehicle market is highly competitive, and we expect it to become even more so in the future as additional companies launch competing products and vehicle offerings. We also compete with other alternative energy technologies, such as natural gas, propane and hybrid technologies. Our primary direct electric competitors include small- to mid-size companies that produce or plan to produce vans and trucks for commercial use. These direct competitors include companies such as GreenPower Motor Company, which has a broad-based line-up of purpose-built electric vehicles that include low floor transit buses, school buses and minibuses; Canoo, which is developing a battery electric minivan; and Lion Electric Company, a Canadian-based manufacturer of Type C all-electric school buses, mini buses and a Class-8 truck. We also may compete with large traditional vehicle manufacturers such as Ford, Volvo, Mercedes-Benz and Navistar. These traditional vehicle manufacturers have begun producing, or plan to produce, electric vans, buses and trucks for commercial use.
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Intellectual Property
The protection of our technology and intellectual property is an important component of our success. We rely on intellectual property laws, including trade secret, copyright, trademark and patent laws in the United States and abroad, and use contracts, confidentiality procedures, non-disclosure agreements, employee disclosure and invention assignment agreements and other contractual rights to protect our intellectual property.
We maintain a trademark portfolio including common law trademarks and service marks and have three service marks registered and two trademark registrations in the United States.
Circumstances outside of our control could pose a threat to our intellectual property rights. Effective intellectual property protection may not be available in the United States or other countries in which we provide our solution. In addition, the efforts we have taken to protect our intellectual property rights may not be sufficient or effective. Any impairment of our intellectual property rights could harm our business, our ability to compete and harm our operating results. In addition, as the number of competitors grows and solutions of competitors overlap, we may in the future face claims by third parties that we infringe upon or misappropriate their intellectual property rights, and we may be found to be infringing upon or to have misappropriated such rights. In the future, we, or our customers, may be the subject of legal proceedings alleging that our solutions or underlying technology infringe or violate the intellectual property rights of others.
Governmental Programs and Incentives
We believe that the availability of government subsidies and incentives currently is an important factor considered by our customers when purchasing vehicles that utilize our technology, and that our growth depends in part on the availability and amounts of these subsidies and incentives. This is especially true over the next five to ten years. With the federal government allocating $5 billion for the Clean School Bus Program, another $5 billion for the National Electric Vehicle Infrastructure program, $3 billion over 5 years to establish a new grant program to install electrified equipment and reduce emission at ports and federal tax incentives, there are significant funds available to purchase electric vehicles.
Overview of Incentive Programs Most Applicable to Our Products
We intend to have our products approved for various local, state and federal incentive programs, including those set forth below. In particular, California’s zero-emission vehicle mandate, which requires a percentage of an automobile manufacturer’s sales to be zero-emission vehicles, has resulted in numerous incentive programs designed to accelerate the purchase and/or repower of cleaner, more efficient vehicles in California. We anticipate that the relevant aggregate funding available in California alone over the next several years may be in excess of $800 million, which includes federal, state and Volkswagen settlement funding sources.
HVIP
HVIP is a CARB program administered by CALSTART, the purpose of which is to help speed the early market introduction of clean, low-carbon hybrid and electric trucks and buses. Under HVIP, dealers and fleet operators may request vouchers from HVIP on a first-come first-served basis, up to the funding amount available for that year, to reduce the cost of purchasing hybrid and zero-emission medium- and heavy-duty trucks and buses. It is a statewide program. On November 17, 2022, CARB approved the Fiscal Year 2022-23 Funding Plan for Clean Transportation Incentives, which included an allocation of over $1.7 billion to be administered by HVIP.
HVIP vouchers range in amounts depending on the gross vehicle weight of the purchased vehicle and the number of vehicles purchased. Zero-emission Class 3 trucks are currently eligible for up to $45,000 per vehicle. Class 4 and Class 5 vehicles are funded at the $60,000 per vehicle level and Class 6 and Class 7 vehicles are eligible for $85,000 per vehicle. Depending on project location (i.e. if in a disadvantaged area community census tract) those amounts can be increased to $49,500, $66,000, and $93,500 per vehicle, respectively. However, HVIP may also be revising per vehicle amounts available for future grant periods.
HVIP funds the purchase of only fully commercialized hybrid and zero-emission trucks and buses. Vehicles still in the demonstration or evaluation stage are not eligible for inclusion in HVIP. Vehicle manufacturers must apply to have their hybrid and zero-emissions trucks and buses included in HVIP’s voucher program. Once a make and model is included in the program, the manufacturer is not required to submit a full application for the succeeding year’s program unless the vehicle has been modified. We intend to comply with the HVIP guidelines and continue to qualify our vehicles for the HVIP vouchers.
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New York Truck Voucher Incentive Program ("NYTVIP")
NYT-VIP is a first-come, first-served incentive program funded by the New York State Energy Research & Development Authority. The structure and process for fleets to secure incentives is similar to that of HVIP discussed above. Eligible vehicles include all-electric, hybrid-electric, and CNG trucks and buses. Funding for eligible vehicles domiciled in New York State can reach $385,000 per vehicle. Class 4 and 5 all electric trucks are eligible for up to $100,000 per vehicle and $110,000 per vehicle in funds respectively (i.e., up to 95% of the incremental cost over diesel). We were named an approved dealership in the summer of 2020, and our vehicles are included on the NYTVIP eligible vehicle list for the program. As of February 10, 2023, the New York State Energy Research & Development Authority website reported $66.3 million in total funding availability under NYTVIP.
New York City Clean Trucks Voucher Program ("NYCCTVP")
In support of the transition to all-electric vehicles, in early February, 2020, New York City Mayor Bill de Blasio signed an executive order requiring electrification of the city’s entire municipal vehicle fleet by 2040.
In October 2020, we were named an approved dealership and our vehicles have been listed on the eligible vehicles list for the New York City Clean Trucks Program. This program provides funding for new electric truck purchases by New York City customers to replace and scrap older polluting Internal Combustion Engine ("ICE") vehicles. The rebate incentive funding program provides New York City fleet owners $100,000 per vehicle for an all-electric Class 4 truck sold to them by Envirotech, and $110,000 per vehicle for a Class 5 all-electric truck. The amounts increase for Class 6-Class 8 trucks.
New Jersey Zero Emissions Incentive Program ("NJZIP")
The New Jersey Zero Emissions Incentive Program is a $90 million pilot voucher program that supports businesses and institutions purchasing new, zero-emission vehicles operating in the New Jersey by offering up to $175,000 towards the purchase of battery-electric vehicles. In June 2021, we were named an approved vendor in the Program. The Program will fund vouchers ranging in value from $20,000 to $175,000 for businesses and institutional organizations looking to transition their fleets to zero emissions. Bonuses will be available for small businesses and minority-, women-, and veteran-owned businesses. NJZIP is funded by proceeds allocated to the New Jersey Economic Development Authority by the Regional Greenhouse Gas Initiative (“RGGI”) for the purposes of reducing harmful emissions, especially in communities disproportionately impacted by transportation emissions, and creating economic opportunity within the state.
Volkswagen Environmental Mitigation Trust Funds
Beginning in 2018, all 50 states were eligible for millions in funds per year to on-road vehicle projects. Several states have provided carve outs specifically for electric vehicles and, in some cases, electric school buses. For example, California, Illinois, Indiana, Michigan and Ohio have each allocated funds directly to electric school bus projects. The California program will provide per vehicle incentives of $750,000. These states have been in the process of funding their initial rounds or are developing specific funding plans. We have engaged with several of these states to support the development of such plans, including funding the purchase of other commercial vehicles, provided that the buyer surrenders a qualifying existing fossil-fueled vehicle in order to qualify for the funding.
CARB
CARB gathers air quality data for the State of California, ensures the quality of this data, designs and implements air models, and sets ambient air quality standards for the state, with a particular focus on regulating tailpipe emissions and other mobile sources. CARB compiles the state’s emissions inventory and performs air quality and emissions inventory special studies. CARB uses the Emissions Inventory and Air Quality Models to evaluate air quality and reduce emissions in each of California’s 35 local air districts.
CARB also manages several incentive and rebate programs and awards hundreds of millions of dollars in grants to reduce emissions from on- and off-road vehicles and equipment. CARB is responsible for program oversight. CARB awards grants and funds through the Air Quality Improvement Program (AB 118), the Carl Moyer Program, the Voucher Incentive Program for enhanced fleet modernization and emission reduction, and the Lower- Emission School Bus Program/School Bus Retrofit and Replacement Account. In February 2020, the CARB staff held a workshop to discuss a new fleet rule that will target a 100% zero-emission truck and bus fleet for the state of California by 2045. The rule making being considered enjoys broad political support, and has some precedent (e.g., the Advanced Clean Transit rule). We will monitor future actions on the proposal.
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California Energy Commission ( “ CEC ” )
The California Energy Commission has several core responsibilities, including but not limited to setting energy policy, developing renewable energy, achieving energy efficiency, and transforming California’s transportation infrastructure. One goal of the CEC is to mitigate GHG emissions and reduce the impact of climate change. The CEC carries out its responsibilities pursuant to several of California’s landmark environmental laws. In 2006, the Legislature passed and then Governor Arnold Schwarzenegger signed two landmark pieces of legislation with far-reaching implications for energy policy. The most comprehensive is AB 32, the California Global Warming Solutions Act of 2006, which set an economy-wide cap on California GHG emissions at 1990 levels by no later than 2020. At the time, this was an aggressive goal that represented an approximately 11% reduction from then-current emissions levels and nearly a 30% reduction from projected business-as-usual levels in 2020. In 2015, California passed Senate Bill (SB) 350, which further committed California to reducing GHG emissions by establishing a 2030 greenhouse gas reduction target of 40% below 1990 levels and to achieve 100% clean energy by 2045. The transportation sector represents a significant portion of California’s GHG emissions. This bill was amended with respect to implementation, but the targeted goals remain the same as originally passed. In 2007, AB 118 created the Alternative and Renewable Fuel and Vehicle Technology Program. The program is intended to increase the use of alternative and renewable fuels and innovative technologies that will transform California’s fuel and vehicle types to help attain the state’s climate change policies. AB 118 authorizes the CEC to provide approximately $100 million annually as incentives to public agencies, vehicle and technology consortia, businesses, public-private partnerships, workforce training partnerships and collaboratives, fleet owners, consumers, recreational boaters, and academic institutions for projects that: develop and improve alternative and renewable low-carbon fuels; optimize alternative and renewable fuels for existing and developing engine technologies; improve light-, medium-, and heavy-duty vehicle technologies; and retrofit medium-and heavy-duty on-road and non-road vehicle fleets.
Air Quality Management Districts ( “ AQMD ” ) and Air Pollution Control Districts ( “ APCD ” )
California’s AQMDs/APCDs are responsible for controlling emissions primarily from stationary sources of air pollution such as large power plants and refineries. They also have a role in distributing funds and administering incentive programs from mobile sources-primarily cars, trucks and buses, construction equipment, ships and trains, from which approximately 75% of emissions are generated. The largest AQMD/ APCDs are the South Coast AQMD, Bay Area AQMD, San Joaquin Valley APCD, and the San Diego APCD. Local AQMDs/APCDs develop and adopt an Air Quality Improvement Plans, which serves as the blueprint to bring the respective areas into compliance with federal and state clean air standards. Rules are adopted to reduce emissions from various sources, including specific types of equipment, industrial processes, paints and solvents, even consumer products. Permits are issued to many businesses and industries to ensure compliance with air quality rules. Local AQMDs award grants to help reduce emissions in their local communities. These grants and incentive programs include programs aimed at reducing emissions from mobile sources such as buses and trucks. For example, the San Joaquin Valley Air District’s Truck Replacement Program is a program that is open year-round, and which offers grant funding equal to HVIP. In some cases, air district funding programs such as this can be combined with other sources including state and federal grants.
Clean Cities
Clean Cities is a program administered by the DOE’s Office of Efficiency and Renewable Energy, Vehicle Technology Program. According to the DOE, the mission of Clean Cities is to advance the energy, economic, and environmental security of the United States by supporting local decisions to adopt practices that reduce the use of petroleum in the transportation sector. Clean Cities is a government-industry partnership. Under the program, public and private stakeholders from businesses, city and state governments, the automotive industry, fuel providers, and community organizations form coalitions throughout the country, which then work with the DOE to establish a plan for reducing petroleum consumption in their respective geographic areas.
Congestion Mitigation and Air Quality ( “ CMAQ ” ) Improvement Program
The CMAQ Improvement Program, which is jointly administered by the Department of Transportation Federal Highway Administration and Federal Transit Administration, provides funding to states to support surface transportation projects and other related efforts that contribute air quality improvements and provide congestion relief. CMAQ funding is allocated to the states annually based on a statutory formula that is based on population and air quality classification as designated by the EPA. Each state’s transportation department then is responsible for distributing the funds. State transportation departments may spend CMAQ funds on projects that reduce ozone precursors, and at least 16 states have used CMAQ funds for alternative fuel vehicle projects (such as purchasing electric or hybrid vehicles).
Commercial Clean Vehicle Credit
Businesses and tax-exempt organizations that buy a qualified commercial clean vehicle may qualify for a clean vehicle tax credit of up to $40,000 under Internal Revenue Code (IRC) 45W. The maximum credit is $7,500 for qualified vehicles with gross vehicle weight ratings (GVWRs) of under 14,000 pounds and $40,000 for all other vehicles.
Zero Emissions Airport Vehicle ("ZEAV") and Infrastructure Incentives
The Zero Emissions Airport Vehicle and Infrastructure Pilot Program provides funding to airports for up to 50% of the cost to acquire ZEAVs and install or modify supporting infrastructure for acquired vehicles. The program gives priority to applicants located in nonattainment areas, as defined by the Clean Air Act, and projects that achieve the greatest air quality benefits, as measured by the number of emissions reduced per dollar of funds spent under the program.
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Bus and Bus Facilities Grants
The U.S. Department of Transportation’s Federal Transit Administration (FTA) administers the Grants for Buses and Bus Facilities Competitive Program. Eligible applicants include state, local, and tribal governments, fixed-route bus operators, and private nonprofit organizations engaged in public transportation.
Clean School Bus Program
The EPA's Clean School Bus program provides funding to eligible applicants for the replacement of existing school buses with clean, alternative fuel school buses or zero-emission school buses. EPA may award up to 100% of the cost of the replacement bus, charging equipment, or fueling infrastructure. Eligible applicants are school districts, state and local government programs, federally recognized Native American tribes, non-profit organizations, and eligible contractors.
Heavy-Duty Zero Emission Vehicle ("ZEV") and Infrastructure Grants
By the early spring of 2024, the EPA is expected to create a grant program for heavy-duty ZEVs and associated infrastructure. Grant award amounts vary and may cover up to 100% of total project costs. The Inflation Reduction Act invests $1 billion to replace dirty heavy-duty vehicles with clean, zero-emission vehicles, support zero-emission vehicle infrastructure, and to train and develop workers. The EPA will be distributing this $1 billion in funding for clean heavy-duty vehicles between now and 2031. $400 million is designated for communities in nonattainment areas.
Diesel Emissions Reduction Act ("DERA")
The EPA established the DERA Program to reduce pollution emitted from diesel engines through the implementation of varied control strategies and the involvement of national, state, and local partners. DERA includes programs for existing diesel fleets, regulations for clean diesel engines and fuels, and regional collaborations and partnerships.
Other State Incentives
Most state provides a variety of electric vehicle incentives, as well as private enterprises incentives. The states with the most significant state-specific incentives include California, New Jersey, New York and Massachusetts.
Government Regulation
Our products are designed to comply with a significant number of governmental regulations and industry standards, some of which are evolving as new technologies are deployed. Government regulations regarding the manufacture, sale and implementation of products and systems similar to ours are subject to future change. We cannot predict what impact, if any, such changes may have upon our business. We believe that vehicles that utilize our technology are in conformity with all applicable laws in all relevant jurisdictions.
Emission and Fuel Economy Standards
Government regulation related to climate change is under consideration at the U.S. federal and state levels. The EPA and National Highway Traffic Safety Administration (“NHTSA”) issued a final rule for greenhouse gas emissions and fuel economy requirements for trucks and heavy-duty engines on August 9, 2011, which had an initial phase-in starting with model year 2014 and a final phase-in occurring in model year 2017. NHTSA standards for model years 2014 and 2015 were voluntary, while mandatory standards first went into effect in 2016. In August 2016, the EPA and NHTSA jointly finalized Phase 2 standards for medium- and heavy-duty vehicles through model year 2027 to improve fleet fuel efficiency and cut carbon emissions.
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The rule provides emission standards for carbon dioxide and fuel consumption standards for three main categories of vehicles: (i) combination tractors, (ii) heavy-duty pickup trucks and vans, and (iii) vocational vehicles. According to the EPA and NHTSA, vocational vehicles consist of a wide variety of truck and bus types, including delivery, refuse, utility, dump, cement, transit bus, shuttle bus, school bus, emergency vehicles, motor homes and tow trucks, and are characterized by a complex build process, with an incomplete chassis often built with an engine and transmission purchased from other manufacturers, then sold to a body manufacturer.
The EPA and NHTSA rule also establishes multiple flexibility and incentive programs for manufacturers of alternatively fueled vehicles, including an engine averaging banking and trading (“ABT”) program, a vehicle ABT program and additional credit programs for early adoption of standards or deployment of advanced or innovative technologies. The ABT programs allows for emission and/or fuel consumption credits to be averaged, banked or traded within defined groupings of the regulatory subcategories. The additional credit programs allow manufacturers of engines and vehicles to be eligible to generate credits if they demonstrate improvements in excess of the standards established in the rule prior to the model year the standards become effective or if they introduce advanced or innovative technology engines or vehicles.
Vehicle Safety and Testing
The National Traffic and Motor Vehicle Safety Act of 1966 (“Safety Act”), regulates motor vehicles and motor vehicle equipment in the United States in two primary ways. First, the Safety Act prohibits the sale in the United States of any new vehicle or equipment that does not conform to applicable motor vehicle safety standards established by NHTSA. Meeting or exceeding many safety standards is costly, in part because the standards tend to conflict with the need to reduce vehicle weight in order to meet emissions and fuel economy standards. Second, the Safety Act requires that defects related to motor vehicle safety be remedied through safety recall campaigns. A manufacturer is obligated to recall vehicles if it determines that the vehicles do not comply with a safety standard. Should we or NHTSA determine that either a safety defect or noncompliance exists with respect to any of our modified vehicles, the cost of such recall campaigns could be substantial.
Battery Safety and Testing
We believe our battery packs conform to mandatory regulations that govern transport of “dangerous goods,” which includes lithium-ion batteries that may present a risk in transportation. The governing regulations, which are issued by the Pipeline and Hazardous Materials Safety Administration, are based on the United Nations ("UN") Recommendations on the Safe Transport of Dangerous Goods Model Regulations, and related UN Manual of Tests and Criteria. The requirements for shipments of these goods vary by mode of transportation, such as ocean vessel, rail, truck and air.
Company Information
We file electronically with the U.S. Securities and Exchange Commission (the “SEC”) our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov. Our website is www.evtvusa.com. The information contained on or that can be accessed through our website is not incorporated by reference into this Annual Report.