Valence Technology Reports Financial Results for the Second Quarter of Fiscal 2007

  
    
  
  
    
      Valence Technology Inc. (NASDAQ:VLNC), providers of Saphion® 
      energy storage systems, the industry’s first 
      commercially available, safe, large-format lithium-ion phosphate 
      rechargeable batteries, today reported results for the three-month 
      period ending September 30, 2006.
    
    
      Second Quarter Highlights:
    
    
      
        Achieved record quarterly revenue of $6.4 million.
      
      
        Reported a record 16.9 percent gross margin.
      
      
        Reduced operating expenses by 13.4 compared to second quarter of 
        fiscal 2006.
      
      
        Decreased operating cash flow by 32.8 percent year-over-year.
      
      
        Reduced net loss available to common stockholders by 40.8 percent 
        compared to second quarter of fiscal 2006.
      
    
    
      “I am pleased with our cost reduction programs 
      and enhanced manufacturing processes, as well as the momentum we are 
      experiencing for our large-format Saphion® 
      batteries,” said Dr. James R. Akridge, 
      president and chief executive officer of Valence Technology Inc. “We 
      will remain focused on cost control, quality processes and products, 
      improved productivity and higher revenue, while diligently working to 
      bring the Company to profitability.”
    
    
      Financial Results
    
    
      Valence Technology reported record revenue for the second quarter of 
      fiscal year 2007 of $6.4 million, an increase of 15.5 percent over the 
      second quarter of fiscal 2006, and an increase of 101.3 percent over 
      first quarter of fiscal 2007. The substantial increase in revenue is a 
      result of the small-format N-Charge system orders that were scheduled to 
      ship in the first quarter but were postponed due to the Company’s 
      UL recertification process. Large-format systems represented 69.0 
      percent of total revenue for the second quarter.
    
    
      The company reported a net loss available to common stockholders of $4.8 
      million, or $0.05 per basic and diluted share. This compares to a net 
      loss available to common stockholders of $8.1 million, or $0.09 per 
      basic and diluted share in the second quarter of fiscal 2006, and a net 
      loss of $5.7 million, or $0.06 per basic and diluted share in the first 
      quarter of fiscal 2007.
    
    
      Second Quarter Financial Results Conference Call and Webcast
    
    
      The Valence management team will host a conference call and live webcast 
      to discuss the second quarter of fiscal year 2007 financial results 
      beginning at 3:00 p.m. CST on Wednesday, November 8, 2006. To 
      participate in the conference call by telephone, please call 
      800-289-0572 at approximately 2:45 p.m. CST. Please provide the 
      following ID Number: 4336853. A telephonic replay will be available from 
      5:00 p.m. CST on Wednesday, November 8, 2006, through 11:59 p.m. CST on 
      Tuesday, November 14, 2006. To access the replay, please call 
      888-203-1112 and enter the following ID Number: 4336853.
    
    
      About Valence Technology Inc.
    
    
      Valence Technology develops and markets intelligent battery systems 
      using its Saphion® technology, 
      the industry's first commercially available, safe, large-format 
      Lithium-ion phosphate rechargeable battery technology. Valence 
      Technology holds an extensive, worldwide portfolio of issued and pending 
      patents relating to its Saphion technology and lithium-ion phosphate 
      rechargeable batteries. The company has facilities in Austin, Texas, Las 
      Vegas, Nevada, Mallusk, Ireland and Suzhou and Shanghai, China. Valence 
      Technology is traded on the NASDAQ Capital Market under the symbol VLNC 
      and can be found on the Internet at www.valence.com.
    
    
      Safe Harbor Statement
    
    
      This press release contains forward-looking statements within the 
      meaning of the Private Securities Litigation Reform Act of 1995, 
      including our statements that we are positioned to realize better 
      execution, improve gross margins, continue to reduce production costs 
      and expenses, realize a strong year in both customer orders and revenue 
      and our financial Guidance. Actual results may vary substantially from 
      these forward-looking statements as a result of a variety of factors. 
      Among the important factors that could cause actual results to differ 
      are: the impact of our limited financial resources on our ability to 
      execute on our business plan and the need to raise additional debt or 
      equity financing to execute on that plan; our uninterrupted history of 
      quarterly losses; our ability to service our debt, which is substantial 
      in relationship to our assets and equity values; the pledge of all of 
      our assets as security for our existing indebtedness; the rate of 
      customer acceptance and sales of our products; the continuance of our 
      relationship with a few existing customers, which account for a 
      substantial portion of our current and expected sales in the upcoming 
      year; the level and pace of expansion of our manufacturing capabilities; 
      the level of direct costs and our ability to grow revenues to a level 
      necessary to achieve profitable operating margins in order to achieve 
      break-even cash flow; the level of our selling, general and 
      administrative costs; any impairment in the carrying value of our 
      intangible or other assets; our execution on our business strategy of 
      moving our operations to Asia and our ability to achieve our intended 
      strategic and operating goals; the effects of competition; and general 
      economic conditions. These and other risk factors that could affect 
      actual results are discussed in our periodic reports filed with the 
      Securities and Exchange Commission, including our Report on Form 10-K 
      for the year ended March 31, 2006, and the reader is directed to these 
      statements for a further discussion of important factors that could 
      cause actual results to differ materially from those in the 
      forward-looking statements.
    
    
    
    
      
        
          VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES
        
      
      
        
          CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE 
          LOSS
        
      
      
        
          (in thousands, except per share amounts)
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
        
        
        
        
          Three Months Ended
        
        
        
        
          Six Months Ended
        
      
      
        
        
        
        
        
          September 30,
        
        
        
        
          September 30,
        
      
      
        
        
        
        
        
          2006 
        
        
        
        
          2005 
        
        
        
        
          2006 
        
        
        
        
          2005 
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Total revenues
        
        
        
        
          $ 6,376 
        
        
        
        
          $ 5,518 
        
        
        
        
          $ 9,544 
        
        
        
        
          $ 8,923 
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Gross margin profit (loss)
        
        
        
        
          1,079 
        
        
        
        
          (1,826)
        
        
        
        
          1,101 
        
        
        
        
          (3,748)
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Operating loss
        
        
        
        
          (3,142)
        
        
        
        
          (6,698)
        
        
        
        
          (7,302)
        
        
        
        
          (13,958)
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Net loss available to common stockholders
        
        
        
        
          ($4,768)
        
        
        
        
          ($8,053)
        
        
        
        
          ($10,425)
        
        
        
        
          ($16,250)
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          
            Net loss per share available to common stockholders
          
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
        
        
          $ (0.05)
        
        
        
        
          $ (0.09)
        
        
        
        
          $ (0.11)
        
        
        
        
          $ (0.18)
        
      
    
    
      
        
          VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES
        
      
      
        
          CONSOLIDATED BALANCE SHEETS
        
      
      
        
          (in thousands, except share amounts)
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
        
        
        
        
          September 30, 2006
        
        
        
        
          March 31, 2006
        
      
      
        
          Assets
        
        
        
        
        
        
        
        
        
      
      
        
          Current assets:
        
        
        
        
        
        
        
        
        
      
      
        
          Total current assets
        
        
        
        
          $ 15,049 
        
        
        
        
          $ 8,292 
        
      
      
        
        
        
        
        
           
        
        
        
        
           
        
      
      
        
          Total assets
        
        
        
        
          18,724 
        
        
        
        
          11,632 
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Liabilities and Stockholders' Deficit
        
        
        
        
        
        
        
        
        
      
      
        
          Current liabilities:
        
        
        
        
        
        
        
        
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Total current liabilities
        
        
        
        
          6,057 
        
        
        
        
          12,542 
        
      
      
        
        
        
        
        
           
        
        
        
        
           
        
      
      
        
          Total liabilities
        
        
        
        
          74,834 
        
        
        
        
          79,234 
        
      
      
        
          Commitments and contingencies
        
        
        
        
          - 
        
        
        
        
          - 
        
      
      
        
          Redeemable convertible preferred stock
        
        
        
        
          8,610 
        
        
        
        
          8,610 
        
      
      
        
        
        
        
        
           
        
        
        
        
           
        
      
      
        
          Total stockholders’ deficit
        
        
        
        
          (64,720)
        
        
        
        
          (76,212)
        
      
      
        
        
        
        
        
           
        
        
        
        
           
        
      
      
        
          Total liabilities, preferred stock and stockholders’ 
          deficit
        
        
        
        
          $ 18,724 
        
        
        
        
          $ 11,632 
        
      
    
  
Valence Technology Inc. (NASDAQ:VLNC), providers of Saphion(R)
energy storage systems, the industry's first commercially available,
safe, large-format lithium-ion phosphate rechargeable batteries, today
reported results for the three-month period ending September 30, 2006.

   Second Quarter Highlights:

   --  Achieved record quarterly revenue of $6.4 million.

   --  Reported a record 16.9 percent gross margin.

   --  Reduced operating expenses by 13.4 compared to second quarter
        of fiscal 2006.

   --  Decreased operating cash flow by 32.8 percent year-over-year.

   --  Reduced net loss available to common stockholders by 40.8
        percent compared to second quarter of fiscal 2006.

   "I am pleased with our cost reduction programs and enhanced
manufacturing processes, as well as the momentum we are experiencing
for our large-format Saphion(R) batteries," said Dr. James R. Akridge,
president and chief executive officer of Valence Technology Inc. "We
will remain focused on cost control, quality processes and products,
improved productivity and higher revenue, while diligently working to
bring the Company to profitability."

   Financial Results

   Valence Technology reported record revenue for the second quarter
of fiscal year 2007 of $6.4 million, an increase of 15.5 percent over
the second quarter of fiscal 2006, and an increase of 101.3 percent
over first quarter of fiscal 2007. The substantial increase in revenue
is a result of the small-format N-Charge system orders that were
scheduled to ship in the first quarter but were postponed due to the
Company's UL recertification process. Large-format systems represented
69.0 percent of total revenue for the second quarter.

   The company reported a net loss available to common stockholders
of $4.8 million, or $0.05 per basic and diluted share. This compares
to a net loss available to common stockholders of $8.1 million, or
$0.09 per basic and diluted share in the second quarter of fiscal
2006, and a net loss of $5.7 million, or $0.06 per basic and diluted
share in the first quarter of fiscal 2007.

   Second Quarter Financial Results Conference Call and Webcast

   The Valence management team will host a conference call and live
webcast to discuss the second quarter of fiscal year 2007 financial
results beginning at 3:00 p.m. CST on Wednesday, November 8, 2006. To
participate in the conference call by telephone, please call
800-289-0572 at approximately 2:45 p.m. CST. Please provide the
following ID Number: 4336853. A telephonic replay will be available
from 5:00 p.m. CST on Wednesday, November 8, 2006, through 11:59 p.m.
CST on Tuesday, November 14, 2006. To access the replay, please call
888-203-1112 and enter the following ID Number: 4336853.

   About Valence Technology Inc.

   Valence Technology develops and markets intelligent battery
systems using its Saphion(R) technology, the industry's first
commercially available, safe, large-format Lithium-ion phosphate
rechargeable battery technology. Valence Technology holds an
extensive, worldwide portfolio of issued and pending patents relating
to its Saphion technology and lithium-ion phosphate rechargeable
batteries. The company has facilities in Austin, Texas, Las Vegas,
Nevada, Mallusk, Ireland and Suzhou and Shanghai, China. Valence
Technology is traded on the NASDAQ Capital Market under the symbol
VLNC and can be found on the Internet at www.valence.com.

   Safe Harbor Statement

   This press release contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995,
including our statements that we are positioned to realize better
execution, improve gross margins, continue to reduce production costs
and expenses, realize a strong year in both customer orders and
revenue and our financial Guidance. Actual results may vary
substantially from these forward-looking statements as a result of a
variety of factors. Among the important factors that could cause
actual results to differ are: the impact of our limited financial
resources on our ability to execute on our business plan and the need
to raise additional debt or equity financing to execute on that plan;
our uninterrupted history of quarterly losses; our ability to service
our debt, which is substantial in relationship to our assets and
equity values; the pledge of all of our assets as security for our
existing indebtedness; the rate of customer acceptance and sales of
our products; the continuance of our relationship with a few existing
customers, which account for a substantial portion of our current and
expected sales in the upcoming year; the level and pace of expansion
of our manufacturing capabilities; the level of direct costs and our
ability to grow revenues to a level necessary to achieve profitable
operating margins in order to achieve break-even cash flow; the level
of our selling, general and administrative costs; any impairment in
the carrying value of our intangible or other assets; our execution on
our business strategy of moving our operations to Asia and our ability
to achieve our intended strategic and operating goals; the effects of
competition; and general economic conditions. These and other risk
factors that could affect actual results are discussed in our periodic
reports filed with the Securities and Exchange Commission, including
our Report on Form 10-K for the year ended March 31, 2006, and the
reader is directed to these statements for a further discussion of
important factors that could cause actual results to differ materially
from those in the forward-looking statements.


-0-
*T
              VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
               (in thousands, except per share amounts)

                                Three Months Ended  Six Months Ended
                                  September 30,       September 30,
                                ------------------ -------------------
                                  2006     2005      2006      2005
                                --------- -------- --------- ---------


Total revenues                    $6,376   $5,518    $9,544    $8,923

Gross margin profit (loss)         1,079   (1,826)    1,101    (3,748)

Operating loss                    (3,142)  (6,698)   (7,302)  (13,958)

Net loss available to common
 stockholders                    ($4,768) ($8,053) ($10,425) ($16,250)
                                ========= ======== ========= =========


Net loss per share available to
 common stockholders              $(0.05)  $(0.09)   $(0.11)   $(0.18)
                                ========= ======== ========= =========
*T

-0-
*T
              VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES
                     CONSOLIDATED BALANCE SHEETS
                 (in thousands, except share amounts)


                                    September 30, 2006  March 31, 2006
                                    ------------------  --------------
Assets
  Current assets:
Total current assets                          $15,049          $8,292

                                    ------------------  --------------
Total assets                                   18,724          11,632
                                    ------------------  --------------

Liabilities and Stockholders'
 Deficit
  Current liabilities:

Total current liabilities                       6,057          12,542

                                    ------------------  --------------
Total liabilities                              74,834          79,234
                                    ------------------  --------------
Commitments and contingencies                       -               -
Redeemable convertible preferred
 stock                                          8,610           8,610

                                    ------------------  --------------
Total stockholders' deficit                   (64,720)        (76,212)
                                    ------------------  --------------

                                    ------------------  --------------
Total liabilities, preferred stock
 and stockholders' deficit                    $18,724         $11,632
                                    ==================  ==============
*T