As reported in the Company’s Management’s Discussion & Analysis for the year ended September 30, 2017, Li-Tec Battery GmbH, the owner of the premises occupied by Litarion, notified the company that it would terminate Litarion’s lease as of 31 January 2018 unless certain conditions were met. While the company intended to maintain the lease, Litarion’s cash flow was materially negatively impacted by the demands and garnishment processes initiated against it by the landlord.

With support from Electrovaya, Litarion attempted to resolve the dispute with its landlord but negotiations ultimately proved unsuccessful, and it was determined that the only viable alternative was to have the managing directors of Litarion voluntarily place it into preliminary insolvency proceedings.

While current circumstances on the ground in Germany dictated Litarion enter into this process, Electrovaya believes that it ultimately no longer needs its own contract manufacturing facilities and, given alternate supply arrangements is in place, it expects that the proceedings will not impact its ability to continue to fulfil current and future customer orders for its customized cells, custom modules and battery systems.

As previously disclosed, large battery orders from Litarion’s OEM partners and other customers have taken longer than expected to materialize. As a result, the cost of maintaining Litarion’s substantial infrastructure negatively affected Electrovaya’s financial results and liquidity position. The Litarion insolvency process is expected to substantially reduce Electrovaya’s overhead.