More than two weeks after automotive X Prize winner Li-Ion Motors Corp. got the $2.5 million payout it agreed to share, its fellow finalists haven't received their portions and are starting to worry that Li-Ion won't honor the agreement.
The debt-laden company was one of four teams to sign a "gentlemen's agreement," moments before the final race, to share any prize money (Greenwire, Oct. 18). But representatives of the other three companies say they haven't seen the money or heard from Li-Ion Motors.
"Not yet," said Randy Reisinger, a member of one of the finalist teams, TW4XP, which signed the agreement. "The lack of communication concerns me."
"We've had no communication with them," said William Hartman, chief financial officer of fellow finalist ZAP. A spokesman for the other co-signer, Aptera Motors, confirmed it hadn't received money.
Li-Ion Motors officials didn't respond to requests for comment. But in a brief conversation with Greenwire, the company's attorney hinted about how the company views the gentlemen's agreement.
"I don't even know if there is an enforceable agreement by anyone for anything," Winston-Salem, N.C., lawyer Jeffrey Patton said.
Reneging on the agreement could damage the reputation of a company that got a boost from winning the "alternative side-by-side class" in the X Prize competition for super-high fuel efficiency. X Prize officials had lauded the gentlemen's agreement as a sign of the camaraderie and sportsmanship found in the high-dollar competition.
Before winning the prize, Li-Ion Motors had been dogged by allegations of fraud, investigations by securities regulators and complaints from customers.
A detailed look at Li-Ion (pronounced "lion") by Greenwire last month found that the company's financial losses and substantial debt raise questions about whether the company met a key X Prize criterion -- the ability to mass-produce its winning car (Greenwire, Oct. 27).
The company has collected $50 million from stockholders in 10 years, with little to show for it until the Sept. 16 X Prize ceremony. Its accountants have repeatedly cast doubt on its ability to "continue as a going concern." It owes about $250,000 to the Internal Revenue Service for unpaid payroll withholding. And it has never delivered a car built from the ground up.
The company's most recent annual report indicates that the company's debts outstrip the size of the X Prize award. The report filed with the Securities and Exchange Commission states that in its most recent fiscal year, the company incurred a net loss of $3.7 million and had a deficit of $5.9 million.
Adding to the finalists' concerns, that report cites the $2.5 million prize money the company received from the X Prize, but makes no mention that the company has signed a contract to share $800,000 of that.
"That suggests they are either being less than honest with their shareholders and the SEC, or in their written agreement to share the prize money," Reisinger said. "Either way, their actions call their integrity into question."
The gentlemen's agreement has been a sensitive topic at Li-Ion for weeks, if not longer.
Patton has said all press responses need to be funneled through him because of "confidentiality" surrounding the X Prize. And company founder Salim Rana declined to answer questions about the award money, citing legal advice.
"I am not able to answer at this time as the company attorney has given everyone strict instructions not to make any comments in any way on this issue until Li-Ion has received the prize money," Rana said in an e-mail exchange on Oct. 20. Li-Ion received the money on Oct. 27.
The agreement was signed by Li-Ion's chief engineer, Ron Cerven. Cerven is not an officer or director of the company, but he led the company's X Prize efforts and represented the company at the Sept. 16 award ceremony.
Li-Ion Motors is headquartered in Las Vegas but has its main facility in Mooresville, N.C. -- nicknamed "Race City, USA" -- where it converts gasoline-burning cars into electric vehicles powered by lithium-ion batteries.
The company was founded in 2000 by Rana, a Las Vegas developer and venture capitalist who lives in Calgary, Alberta. It began as Whistler Investments Inc., touting "copper-gold" and/or "gold-silver" mining on an island in British Columbia.
Since then, the company has changed its name from Whistler to Hybrid Technologies Inc., to EV Innovations. Four days before Christmas last year, the company changed its name to Li-Ion Motors.
The company's mounting losses have been funded by selling stock to investors on the over-the-counter market, also called "penny stocks" or "microcap" stocks.
The company has twice been investigated by the SEC, though no civil or criminal action has ever been brought. A lawsuit, since dismissed for lack of jurisdiction, accused the company of running a "pump-and-dump" penny-stock scheme. The company is appealing a cease-trade order issued a week before the X Prize ceremony by securities regulators in British Columbia alleging Li-Ion broke a rule targeted at flagging companies that engage in "abusive practices."
Reisinger said any decision by Li-Ion not to honor the agreement with the other finalists could affect the company's trading on other stock exchanges.
"I can foresee scenarios where not paying the money owed to the teams could cost them a great deal more than the $800,000 they've agreed to," he said. "The British Columbia Securities Commission has already suspended trading of their stock. As news of their methods spreads, can the Frankfurt Xetra Exchange in Germany be far behind?"
'Story of camaraderie'
The goal of the Automotive X Prize, sponsored by car insurer Progressive, is to spark the development of super-efficient cars that can be mass-produced.
The X Prize Foundation awarded prizes in three categories in a September ceremony in Washington. Edison2 of Virginia won $5 million in the "mainstream" four-seater category and X-Tracer Team Switzerland won the other $2.5 million for the alternative tandem (motorcycle) category.
Li-Ion edged out its competitors in a five-way tiebreaker in July to win the X Prize in its "side-by-side" category.
The margin of victory was less than two-tenths of a second in a 100-mile energy and performance run on a Michigan track in July. That was the tiebreaker used after all five entries achieved an average of at least 100 mpg or the equivalent (all were battery-electric vehicles).
On the morning of the race, the leaders of four of the teams signed an agreement that whoever won would share the prize money. They hand-drafted an agreement on the page of a spiral-bound notebook stating that whoever won would keep $1.7 million but share the rest according to an agreed-to formula. X Prize officials have called it a "gentlemen's agreement."
"If my team wins the competition, I agree to share the prize in the following fashion," the agreement read.
Li-Ion's futuristic, lime-green Wave II achieved the equivalent of a remarkable 187 mpg. It won the tiebreaker race trial by 0.179 seconds to claim first in its category.
One of the finalists, RaceAbout Association of Finland, did not sign the agreement. RaceAbout would have won, but suffered penalties for exceeding the 70 mph speed limit in the final race, and came in second.
Others have said Li-Ion would not have won if it were not for the spirit of camaraderie and sportsmanship found in the competition. During an earlier elimination round, according to an account in Popular Mechanics, Li-Ion was in need of a part called a systems controller. ZAP loaned the Li-Ion team a spare controller and helped install it.
"If it wasn't for ZAP engineers loaning and programming a critical part to Li-Ion, they never would have made it to the finals," ZAP founder Gary Starr said.
Under the agreement, the German team TW4XP would get $400,000. ZAP of Santa Rosa, Calif., and Aptera of San Diego, which tied, would each get $200,000.
Oliver Kuttner, a Charlottesville, Va., businessman who heads $5 million prize winner Edison2, was the one who repeatedly urged the five finalists to craft an agreement so none of them went home empty-handed.
"In the X Prize there is a story of camaraderie," Kuttner said. "If they haven't paid, that's a real shame."