VALENCE TECHNOLOGY, INC. 12303 Technology Blvd.

Suite 950 Austin, TX 78727 NOTICE OF 2011 ANNUAL MEETING OF STOCKHOLDERS PROXY STATEMENT and ANNUAL REPORT ON FORM 10-K
for the fiscal year ended March 31, 2011

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VALENCE TECHNOLOGY, INC. 12303 Technology Blvd., Suite 950 Austin, Texas 78727 NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TIME PLACE 9:00 a.m. Central Daylight Time on September 1, 2011. Valence Technology, Inc. Main Conference Room 12303 Technology Blvd., Suite 950 Austin, TX 78727 (1) To elect five members of our Board of Directors; (2) To ratify the selection of PMB Helin Donovan, LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2012; (3) To hold an advisory (non-binding) vote on our executive compensation program; (4) To hold an advisory (non-binding) vote on the frequency of stockholder votes on our executive compensation program; and (5) To transact such other business as may properly come before the meeting and any adjournment or postponement. RECORD DATE PROXY VOTING You can vote if, at the close of business on July 8, 2011, you were a stockholder of Valence Technology, Inc. All stockholders are cordially invited to attend the Annual Meeting in person. However, to ensure your representation at the Annual Meeting, you are urged to vote promptly either by phone, by Internet or by signing and returning the enclosed proxy card. The Proxy Statement and our Annual Report on Form 10-K for the fiscal year ended March 31, 2011 are available electronically at http://www.proxyvote.com.

ITEMS OF BUSINESS

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS Austin, Texas July 21, 2011

/s/ Robert L. Kanode Robert L. Kanode Chief Executive Officer

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VALENCE TECHNOLOGY, INC. 12303 Technology Blvd., Suite 950 Austin, Texas 78727 PROXY STATEMENT These proxy materials are made available in connection with the solicitation by the Board of Directors (referred to as the Board) of Valence Technology, Inc., a Delaware corporation (referred to as Valence, we or us), of proxies to be voted at our Annual Meeting of Stockholders for the fiscal year ended March 31, 2011 (our Annual Meeting) and at any adjournments or postponements. You are invited to attend our Annual Meeting on Thursday, September 1, 2011, beginning at 9:00 a.m. Central Daylight Time. The meeting will be held at the principal executive offices of Valence Technology, Inc., at 12303 Technology Blvd., Suite 950, Austin, TX, 78727. On or about July 21, 2011, proxy materials for the Annual Meeting, including this Proxy Statement and our Annual Report on Form 10-K for the fiscal year ended March 31, 2011 (the Annual Report), are being made available to stockholders entitled to vote at the Annual Meeting. Stockholders Entitled to Vote Holders of our common stock at the close of business on July 8, 2011, are entitled to receive this notice and to vote their shares at the Annual Meeting. Common stock is the only outstanding class of securities entitled to vote at the Annual Meeting. As of July 8, 2011, there were 166,024,232 shares of our common stock outstanding. A list of stockholders entitled to vote at the Annual Meeting will be available at the Annual Meeting and at our principal executive offices, between the hours of 9:00 a.m. and 5:00 p.m., Central Daylight Time, for 10 days prior to the Annual Meeting. Voting Each share of our common stock is entitled to one vote on each matter properly brought before the meeting. In the election of directors in Proposal One, each stockholder will be entitled to vote for five nominees and the five nominees with the greatest number of votes will be elected. The affirmative vote of a majority of the votes cast on Proposal Two at the Annual Meeting will be required to ratify the selection of PMB Helin Donovan, LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2012. The affirmative vote of a majority of the votes cast on Proposal Three, concerning our executive compensation program, will be required to approve the proposal on an advisory (nonbinding) basis. With respect to Proposal Four concerning the frequency of stockholder votes on our executive compensation program, each stockholder will be entitled to vote for a frequency of one, two or three years, or abstain from voting, and the frequency receiving the greatest number of votes will be approved on an advisory (non-binding) basis. All shares entitled to vote and represented by properly executed proxies received prior to the Annual Meeting, and not revoked, will be voted at the Annual Meeting in accordance with the instructions indicated on those proxies. If you vote, whether by phone, by Internet, or by signing and returning your proxy, without specifying how the shares represented thereby are to be voted, the proxy will be voted FOR the approval of Proposal One, the election of the directors proposed by our Board, unless the authority to vote for the election of such directors is withheld, and, if no contrary instructions are given, the proxy will also be voted FOR the approval of Proposal Two, the ratification of the selection of PMB Helin Donovan, LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2012, FOR the approval of Proposal Three concerning our executive compensation program, and FOR a frequency of every three years with respect to Proposal Four concerning the frequency of holding stockholder votes on our executive compensation, in each case as more fully described in this Notice of Annual Meeting and Proxy Statement. You may revoke or change your proxy at any time before the Annual Meeting. If your shares are registered in your name, you may revoke your proxy by filing with our Corporate Secretary at our principal executive offices at 12303 Technology Blvd., Suite 950, Austin, TX, 78727, a notice of revocation or another signed proxy with a later date. If your shares are registered in street name, you should contact your broker, bank or nominee to arrange a revocation.

Internet Voting A number of brokerage firms and banks offer Internet voting options. The Internet voting procedures are designed to authenticate stockholders identities, to allow stockholders to give their voting instructions and to confirm that stockholders instructions have been recorded properly. Stockholders should check their proxy card or voting instructions forwarded by their broker, bank or other holder of record to see how they may vote via the Internet. Stockholders voting via the Internet should understand that there may be costs associated with electronic access, such as usage charges from telephone companies and Internet access providers, that must be borne by the stockholder. Proxies Your vote is important. If your shares are registered in your name, you are a stockholder of record. If your shares are in the name of your broker or bank, your shares are held in street name. We encourage you to vote by proxy so that your shares will be represented and voted at the meeting even if you cannot attend. All stockholders can vote by written proxy card, by phone or by Internet. Your submission of the proxy will not limit your right to vote at the Annual Meeting if you later decide to attend in person. If your shares are held in street name, you must obtain a proxy, executed in your favor, from the holder of record in order to be able to vote at the meeting. Delivery of Notice of Internet Availability In accordance with the rules adopted by the Securities and Exchange Commission, or SEC, except for stockholders who have requested otherwise, we have generally mailed to our stockholders a Notice of Internet Availability of Proxy Materials (the Notice of Internet Availability). The Notice of Internet Availability provides instructions either for accessing our proxy materials, including this Proxy Statement and the Annual Report, at the website address referred to in the Notice of Internet Availability, or for requesting printed copies of the proxy materials by mail or electronically. If you would like to receive a paper or email copy of our proxy materials either for this Annual Meeting or for all future meetings, you should follow the instructions for requesting such materials included in the Notice of Internet Availability sent to you. Most stockholders of Valence hold their shares through a broker, bank or other nominee (that is, in street name) rather than directly in their own name. If you hold your shares in street name, the Notice of Internet Availability or a printed set of the proxy materials, together with a voting instruction form, will be forwarded to you by your broker, bank or other nominee. If your shares are registered directly in your name, the Notice of Internet Availability or a printed set of the proxy materials, together with a proxy card, has been sent to you directly by Valence. Quorum; Abstentions and Broker Non-Votes The presence, in person or by proxy, of a majority of the votes entitled to be cast by the stockholders entitled to vote at the Annual Meeting is necessary to constitute a quorum. Abstentions and broker non-votes will be included in the number of shares present at the Annual Meeting for determining the presence of a quorum. Broker non-votes occur when a broker holding customer securities in street name has not received voting instructions from the customer on certain non-routine matters and, therefore, is barred by the rules of the applicable securities exchange from exercising discretionary authority to vote those securities. Proposal Two to be considered at the Annual Meeting may be treated as a routine matter. Consequently, if you do not return a proxy card, your broker will have discretion to vote your shares on such matter. Delivery of Documents to Security Holders Sharing an Address We are delivering, or making available electronically, this Proxy Statement and our Annual Report to all stockholders of record as of the record date. Stockholders residing in the same household who hold their shares in street name may receive only one Proxy Statement and Annual Report if previously notified by their bank, broker, or other holder. This process, by which only one Annual Report or Proxy Statement, as the case may be, is delivered to multiple security holders sharing an address, unless contrary instructions are received from one or more of the security holders, is called householding. Householding may provide convenience for stockholders and cost savings for companies. Once begun, householding may continue unless instructions to the contrary are received from one or more of the stockholders within the household.

Street name stockholders in a single household who received only one copy of the Proxy Statement and Annual Report may request to receive separate copies in the future by following the instructions provided on the voting instruction form sent to them by their bank, broker, or other holder of record. Similarly, street name stockholders who are receiving multiple copies may request that only a single set of materials be sent to them in the future by checking the appropriate box on the voting instruction form. Otherwise, street name stockholders should contact their bank, broker, or other holder. Cost of Solicitation of Proxies We will bear the entire cost of solicitation, including the preparation, assembly, printing, mailing and electronic posting of the Notice of Internet Availability, this Proxy Statement, the proxy, and any additional solicitation materials made available to the stockholders. Copies of solicitation materials will be made available to brokerage houses, fiduciaries, and custodians holding shares in their names that are beneficially owned by others so that they may forward this solicitation material to such beneficial owners. In addition, we may reimburse such persons for their costs in forwarding the solicitation materials to such beneficial owners. The original solicitation of proxies may be supplemented by a solicitation by telephone, telegram or other means by our directors, officers, or employees. No additional compensation will be paid to these individuals for any such services. Except as described above, we do not presently intend to make any supplemental solicitation of proxies. Code of Business Conduct and Code of Ethics We have adopted a Code of Business Conduct and a Code of Ethics applicable to all of our employees, including our Chief Executive Officer, Chief Financial Officer, and all other senior financial executives, and to our directors when acting in their capacity as directors. Our Code of Business Conduct and our Code of Ethics are designed to set the standards of business conduct and ethics and to help directors and employees resolve ethical issues. The purpose of our Code of Business Conduct and our Code of Ethics is to help ensure that our business is conducted in a consistently legal and ethical manner. Employees may submit concerns or complaints regarding audit, accounting, internal controls, or other ethical issues on a confidential basis by means of a toll-free telephone call or an anonymous email. We investigate all concerns and complaints. Copies of our Code of Business Conduct and our Code of Ethics can be found in the Investor Relations section of our website at www.valence.com. In addition, copies of our Code of Business Conduct and our Code of Ethics are available to investors free of charge upon written request. Any written request should be sent by mail to Valence Technology, Inc., 12303 Technology Blvd., Suite 950, Austin, Texas 78727, Attn: General Counsel, or should be made by telephone by calling our General Counsel at (888) 825-3623. We intend to disclose on our website amendments to, or waivers from, any provision of our Code of Business Conduct and our Code of Ethics that apply to our Chief Executive Officer, Chief Financial Officer, and persons performing similar functions and amendments to, or waivers from, any provision which relates to any element of our Code of Business Conduct and our Code of Ethics described in Item 406(b) of Regulation S-K. Stockholder Proposals Pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the Exchange Act), any stockholder who intends to present a proposal (including the nomination of a person for election as a director) at our 2012 Annual Meeting of Stockholders for inclusion in our proxy statement and proxy form relating to that Annual Meeting must submit the proposal to us at our principal executive offices by March 23, 2012, the date which is at least 120 days prior to July 21, 2012, the anniversary of the mailing date of this Proxy Statement. A stockholder's submission must include certain specified information concerning the proposal or nominee, as the case may be, and information as to the stockholder's ownership of our common stock. Proposals or nominations not meeting these requirements will not be considered at our 2012 annual meeting. Stockholders interested in submitting such a proposal are advised to contact knowledgeable counsel with regard to the detailed requirements of applicable securities laws. In the event we do not receive a stockholder proposal meeting the applicable requirements by March 23, 2012, the proxy to be solicited by the Board for the 2012 Annual Meeting will confer discretionary authority on the holders of the proxy to vote the shares if the proposal is presented at the 2012 Annual Meeting without any discussion of the proposal in the proxy statement for that meeting. The rules and regulations of the SEC provide that if the date of our 2012 Annual Meeting is advanced or delayed more than 30 days from the first anniversary date of the 2011 Annual Meeting, we must receive stockholder proposals intended to be included in the proxy materials for the 2012 Annual Meeting within a reasonable time before we begin to print or post on the Internet our proxy materials for the 2012 Annual Meeting. 3

PROPOSAL ONE ELECTION OF DIRECTORS Proposal One is the election of five members of our Board. Our Fourth Amended and Restated Bylaws provide that the number of directors constituting the Board shall be between four and seven, to be fixed by the Board from time to time. The Board has currently fixed the number of directors at five. Unless otherwise instructed, the proxy holders will vote the proxies received by them for the nominees named below. If any nominee is unwilling to serve as a director at the time of the Annual Meeting, the proxies will be voted for such other nominee(s) as shall be designated by the then current Board to fill any vacancy. We have no reason to believe that any nominee will be unable or unwilling to serve if elected as a director. The Board proposes the election of the following nominees as directors: Carl E. Berg Robert L. Kanode Vassilis G. Keramidas Bert C. Roberts, Jr. Donn V. Tognazzini If elected, the foregoing five nominees are expected to serve until the 2012 Annual Meeting of Stockholders. The five nominees for election as directors at the Annual Meeting who receive the highest number of affirmative votes will be elected. The principal occupation and certain other information about the nominees and certain executive officers and significant employees are set forth on the following pages. Our Board of Directors unanimously recommends a vote FOR the election of the nominees listed above. MANAGEMENT Directors and Executive Officers The following tables set forth certain information with respect to our directors and officers as of July 21, 2011. The following persons serve as our directors: Directors Carl E. Berg Robert L. Kanode Vassilis G. Keramidas (1)(2) Bert C. Roberts, Jr. (1)(2)(3) Donn V. Tognazzini (1)(2)(4)
(1) (2) (3) (4)

Age 74 61 71 68 77

Present Position Director and Chairman of the Board Director Director Director Director

Member of Audit Committee. Member of the Compensation Committee. Chairman of the Compensation Committee. Chairman of the Audit Committee.

The following persons serve as our executive officers: Executive Officers Robert L. Kanode Donald E. Gottschalk Randall J. Adleman Khoon Cheng Lim Roger A. Williams Age 61 58 54 66 63 4 Present Position Chief Executive Officer, President Acting Chief Financial Officer Vice President of Sales and Marketing Chief Technology Officer Vice President, General Counsel and Secretary

Our executive officers are appointed by and serve at the discretion of the Board. There are no family relationships between any director and any executive officer. Carl E. Berg. Mr. Berg helped found us, has served on the Board since September 1991, and currently serves as the Chairman of the Board. Mr. Berg has been a major Silicon Valley industrial real estate developer and a private venture capital investor. Since 1997, Mr. Berg has also served as the chairman of the board, chief executive officer, and director of Mission West Properties, Inc., a real estate investment company. Since 1992, Mr. Berg has also served as a director of Mosys, Inc., formerly known as Monolithic Systems, Inc. Mr. Berg holds a Bachelor of Arts degree in Business Administration from the University of New Mexico, Albuquerque. The Board concluded that Mr. Bergs substantial experience as a businessman and investor, and his large equity position in Valence qualifies him to serve as a member of our Board of Directors and the Chairman of the Board of Directors. Robert L. Kanode. Mr. Kanode joined us as our President and Chief Executive Officer in March 2007 and is a member of our Board. Mr. Kanode has over 14 years of experience in the battery industry. From 2001 to 2006, Mr. Kanode served as a senior partner for The Sales & Performance Group, a consulting group based in New York, where he worked with Fortune 500 companies to commercialize their products and services, to develop manufacturing, marketing, sales, and service functions, and to identify and develop global niche retail and OEM markets. Prior to his tenure there, Mr. Kanode served as president of OptiTec LLC and other private companies. Mr. Kanode holds a Bachelor of Science degree in Aviation Management from Auburn University. As the only management representative on our Board, Mr. Kanode provides an insiders perspective to our Board discussions about our business and strategic direction. The Board concluded that Mr. Kanodes experience and understanding of our business gained through his role as our President and Chief Executive Officer qualifies him to serve as a member of our Board of Directors. Vassilis G. Keramidas, Ph.D. Dr. Keramidas joined us as a director in August 2004. Since 2003, Dr. Keramidas has served as the Managing Director of Keramidas International Associates, LLC. His firm provides consulting services in connection with the generation, management, commercialization and disposition of intellectual property. In addition, Dr. Keramidas provides consulting services on strategic research planning and technology commercialization. Since 2003, Dr. Keramidas has served as a director of Twenty First Century Battery, LTD of India. From 1997 to 2003, Dr. Keramidas served as Vice President of Formative Technologies at Telcordia Technologies, Inc. (formerly Bellcore), and from 1984 to 1997, he served in director and Executive Director of Research positions with Bellcore. At Bellcore, he started the Intellectual Property Commercialization program, commercializing a number of Bellcore and Telcordia invented technologies via worldwide licensing, spin-offs, equity investments in start-ups and donations. Prior to that, Dr. Keramidas worked as a researcher and Research Director at Bell Laboratories from 1973 to 1983. Dr. Keramidas holds a Bachelors Degree in Physics from Rockford College, a Bachelors Degree in Electrical Engineering from the University of Illinois, a Masters Degree in Physics from John Carroll University, and a Ph.D. in Solid State Science (Applied Physics) from the Materials Research Laboratory of Pennsylvania State University. For his contributions to his field and his technical leadership, Dr. Keramidas has been elected a Fellow of the Institute of Electrical and Electronic Engineers. The Board concluded that Mr. Keramidas combination of independence and experience, including his experience as an executive officer in the technology field, qualifies him to serve as a member of our Board of Directors. Bert C. Roberts, Jr. Mr. Roberts originally joined us as a director in 1992 and served until 1993 prior to rejoining us as a director in 1998. Mr. Roberts served as the outside chairman of WorldCom, Inc. from 1998 until December 2002. On July 21, 2002, WorldCom, Inc. and substantially all of its active U.S. subsidiaries filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York. Mr. Roberts served as chairman of MCI, a telecommunications company, from 1996 until 1998, chairman and chief executive officer from 1992 to 1996, and chief executive officer in 1991 after having served as president and chief operating officer since 1985. In 2002, Mr. Roberts retired, and serves on the advisory boards of several high tech companies. Mr. Roberts holds a Bachelor of Science degree in Engineering from Johns Hopkins University. The Board concluded that Mr. Roberts combination of independence and experience, including past experience as an executive officer and service on multiple boards of directors, qualifies him to serve as a member of our Board of Directors.

Donn V. Tognazzini. Mr. Tognazzini joined us as a director in July 2008. From November 1998 to December 2007, prior to its merger with Venoco Inc., he was the president and chief executive officer of Gato Corporation, an independent oil producer. Mr. Tognazzini was senior vice president and later executive vice president of Starbuck, Tisdale & Associates, a professional investment management firm, from 1986 to 2005. He has over four decades of executive experience in the financial services industry, including serving as corporate vice president and manager for First Boston Corporation and Bache, Halsey, Stuart, Shields. Early in his career, Mr. Tognazzini served two years as a Naval Intelligence officer. Mr. Tognazzini holds a Bachelor of Arts degree from Stanford University and a Masters in Business Administration from Harvard Business School. The Board concluded that Mr. Tognazzinis combination of independence and experience as an executive officer qualifies him to serve as a member of our Board of Directors. Donald E. Gottschalk. Mr. Gottschalk was appointed as Acting Chief Financial Officer effective June 3, 2011, by our Board of Directors, after the resignation of Ross A. Goolsby as our Chief Financial Officer. Mr. Gottschalk joined our company in August 2007, where he served as our Corporate Controller until his appointment to our Acting Chief Financial Officer. Mr. Gottschalk is a Certified Public Accountant in the state of Texas, and has more than 25 years of accounting and financial experience. Prior to joining or company, he served as the Corporate Controller for Thermon Manufacturing Company, Inc. from November 1997 until August 2007. Randall J. Adleman. Mr. Adleman joined Valence in March 2010, and serves as our Vice President of Sales and Marketing. From January 2007 until February 2010, Mr. Adleman served as the principal and founder of Fords Barron Advisership, LLC, a corporate consultancy focused on senior leadership challenges within the power quality and energy industries. From September 2003 to June 2006, he was Senior Vice President of Sales & Implementation Services at software maker Misys Healthcare. Prior to that time, he held various executive sales leadership roles, including Vice President of Sales & Service at Ingersoll-Rand Energy Systems, and Vice President of Americas Sales at Powerware, a global leader in the power quality industry. Mr. Adleman holds an undergraduate degree from Colgate University and an MBA in Marketing from Fairleigh Dickinson University. Khoon Cheng Lim, Ph.D. Dr. Lim has served as our Chief Technology Officer since November 2008. Dr. Lim provided consulting services to us in 2007 and 2008 prior to his appointment as our Chief Technology Officer. Dr. Lim also serves as the president and co-founder of Pleiades Battery Manufacturing, a Chinese lithium-ion battery development and manufacturing company, of which Carl E. Berg is a director and principal stockholder. From 2005 to 2007, Dr. Lim served as the general manager and co-founder of Energy Sciences International, LLC, a consulting firm specializing in lithium-ion battery manufacturing technologies and advanced production machine designs. From 1998 to 2005, Dr. Lim served as the chief technology officer, general manager and co-founder of Macro Energy-Tech, Inc., a consumer electronics lithium-ion battery producer. Additionally, Dr. Lim held positions with Hughes Research Laboratory and The Institute of Conducting Polymer and Organic Solids. He was a post doctoral fellow of Los Alamos National Laboratory. Dr. Lim holds a Ph.D. in Physics from SUNY-Buffalo and both a Masters of Education and a Bachelors of Science in Physics from the University of Malaya in Kuala Lampur. He is a member of the American Institute of Physics and the Electrochemical Society. Roger A. Williams. Mr. Williams joined us in April 2001 and serves as our Vice President, General Counsel and Secretary. Mr. Williams has been a practicing intellectual property attorney for 35 years, having practiced in both private law firms and corporate positions. From 1991 to 2001, Mr. Williams served as chief patent counsel and associate general counsel for the pharmaceutical company G.D. Searle & Co. Mr. Williams has his Juris Doctor degree from Drake University Law School and a Bachelor of Science degree in Chemistry from Western Illinois University. He is a member of the California and Indiana bars. Board Leadership and Independence Our Board separates the role of Chairman of the Board (held by Mr. Berg) from the role of Chief Executive Officer (held by Mr. Kanode) because it believes that this structure currently provides the most efficient and effective leadership model for us. Our Board was comprised of a majority of independent directors for the fiscal year ended March 31, 2011. Our independent directors, as defined in the applicable NASDAQ listing standards and SEC rules, are Vassilis G. Keramidas, Bert C. Roberts, Jr., and Donn V. Tognazzini.

Meetings and Committees The Board held six meetings during fiscal year 2011 and acted three times by unanimous written consent. The Board has an Audit Committee and a Compensation Committee. It currently does not have a Nominating Committee. Each director attended 75% or more of all the meetings of the Board and those committees on which he served in fiscal year 2011. Audit Committee During fiscal year 2011, the Audit Committee consisted of Dr. Keramidas and Messrs. Roberts and Tognazzini. Each of Dr. Keramidas and Messrs. Roberts and Tognazzini are independent directors, within the meaning of the applicable NASDAQ listing standards and SEC rules. The Audit Committee approves the engagement of our registered independent public accounting firm, reviews the scope of the audit to be conducted by the registered independent public accounting firm and periodically meets with the registered independent public accounting firm and our Chief Financial Officer to review matters relating to our financial statements, our accounting principles and our system of internal accounting controls, and reports its recommendations as to the approval of our financial statements to the Board. The role and responsibilities of the Audit Committee are more fully set forth in a written charter adopted by the Board. A copy of the Amended and Restated Charter of the Audit Committee can be found in the Investor Relations section of our website at www.valence.com. Dr. Keramidas and Messrs. Roberts and Tognazzini qualified as financially sophisticated audit committee members as required by the applicable NASDAQ listing standards. The Board has determined that each of Dr. Keramidas and Messrs. Roberts and Tognazzini is an audit committee financial expert as defined under the SEC rules. The Board has determined that the Audit Committee can satisfactorily discharge its duties and responsibilities. The Audit Committee held five meetings during fiscal year 2011. Compensation Committee During fiscal 2011, the Compensation Committee consisted of Dr. Keramidas and Messrs. Roberts and Tognazzini. Each of Dr. Keramidas and Messrs. Roberts and Tognazzini are independent directors, within the meaning of the applicable NASDAQ listing standards. The Compensation Committee is responsible for considering and making recommendations to the Board regarding executive compensation and is responsible for administering our stock option and executive incentive compensation plans. The Board has adopted a written charter for the Compensation Committee, a copy of which can be found in the Investor Relations section of our website at ww.valence.com. The Compensation Committee held eight meetings during fiscal year 2011. Director Nominations We do not have a standing nominating committee. Our Board does not believe that it is necessary for us to have a standing nominating committee as we have a relatively small Board and our independent directors will serve in the capacity of a nominating committee when necessary. All of our directors participate in the consideration of director nominees. However, consistent with applicable NASDAQ listing standards, each director nominee must be selected or recommended for the Boards selection by a majority of the independent directors on our Board. We currently do not have a charter or written policy with regard to the nomination process. In considering candidates for directorship, the Board considers the entirety of each candidates credentials and does not have any specific minimum qualifications that must be met in order to be recommended as a nominee. The Board does believe, however, that all Board members should have the highest character and integrity, a reputation for working constructively with others, sufficient time to devote to Board matters and no conflict of interest that would interfere with their performance as a director of a public corporation. Our Board may employ a variety of methods for identifying and evaluating nominees for director, including stockholder recommendations. The Board regularly assesses its size, the need for particular expertise on the Board and whether any vacancies are expected due to retirement or otherwise. If vacancies are anticipated or otherwise arise, the Board will consider various potential candidates for director who may come to the Boards attention through current Board members, professional search firms or consultants, stockholders or other persons. The Board may hire and pay a fee to consultants or search firms to assist in the process of identifying and evaluating candidates. No such consultants or search firms have been used to date and, accordingly, no fees have been paid to consultants or search firms in the past fiscal year. The Board does not evaluate candidates differently based on who made the recommendation for consideration. Although we 7

do not have a formal policy concerning diversity considerations, the Board does consider diversity with respect to viewpoint, skills and experience in determining the appropriate composition of the Board and identifying director nominees. Stockholders who wish to recommend a nominee for election as director at an annual stockholder meeting must submit their recommendations at least 120 calendar days before the date that our proxy statement is released to stockholders in connection with the previous years annual meeting of stockholders, or March 23, 2012 for the 2012 Annual Meeting of Stockholders. Stockholders may recommend candidates for consideration by the Board by writing to our Secretary at 12303 Technology Blvd., Suite 950, Austin, Texas 78727, giving the candidates name, age, business and residence contact information, biographical data, including the principal occupation or employment of the candidate, qualifications, the class and number of our shares, if any, beneficially owned by such candidate, a description of all arrangements or understandings between the stockholder and the candidate and any other person or persons (naming them) pursuant to which the nominations are to be made by the stockholder, and any other information relating to the candidate that is required to be disclosed in solicitations of proxies for election of directors, or as otherwise required, pursuant to Regulation 14A under the Exchange Act. A written statement from the candidate consenting to be named as a candidate and, if nominated and elected, to serve as a director should accompany any stockholder recommendation. Any stockholder who wishes to recommend a nominee for election as director also must provide his, her or its name and address, as they appear in our books, the number and class of shares beneficially owned by such stockholder and any other information that is required to be provided by the stockholder pursuant to our Fourth Amended and Restated Bylaws and Regulation 14A under the Exchange Act. Policy on Attending the Annual Meeting We encourage, but do not require, all incumbent directors and director nominees to attend our annual meetings of stockholders. At our 2010 Annual Meeting of Stockholders, one director was in attendance. Stockholder Communications with the Board of Directors Stockholders may communicate with the Board by sending a letter to the Board of Directors of Valence Technology, Inc., c/o Office of the Secretary, 12303 Technology Blvd., Suite 950, Austin, Texas 78727. All communications must contain a clear notation indicating that they are a StockholderBoard Communication or StockholderDirector Communication, and must identify the author as a stockholder. The office of the Secretary will receive the correspondence and forward it to the Chairman of the Board or to any individual director or directors to whom the communication is directed, unless the communication is unduly hostile, threatening, illegal, or does not reasonably relate to our company or our business, or is similarly inappropriate. The office of the Secretary has authority to discard any inappropriate communications or to take other appropriate actions with respect to any inappropriate communications. Risk Oversight The Board oversees our management, which is responsible for the day-to-day issues of risk management. Such oversight is facilitated in large part by the Audit Committee, which receives reports regarding areas of material risk from management and the Companys independent registered public accounting firm, and regularly reports to the full Board with respect to such risks. In addition, members of management may also report directly to the Board on significant risk management issues. Director Compensation Our non-employee directors are eligible to receive cash compensation of $2,000 for each regularly scheduled quarterly Board meeting and are eligible for reimbursement for their expenses incurred in connection with attendance at Board meetings in accordance with our policy. Directors who are employees do not receive separate compensation for their services as directors. Historically, our directors received stock option grants pursuant to our 2000 Stock Option Plan. Our policy, as established by the Compensation Committee, was to grant each new director initial stock options to purchase shares of common stock upon election to the Board. These options vested in equal installments over three years. In addition, each director re-elected to the Board was eligible to receive stock options to purchase shares of common stock in connection with such re-election or otherwise, at the discretion of the Compensation Committee. These options vest in equal installments over three years. The per share exercise price for these options was the fair market value of a share of our common stock on the day the options were granted. 8

The Board adopted the 2009 Equity Incentive Plan (the 2009 Plan) in April 2009, and our stockholders approved the 2009 Plan at the 2009 Annual Meeting. Each of our non-employee directors will receive annual stock option grants pursuant to the 2009 Plan. Our policy, as established by the Board, is to grant each new director a non-statutory option to purchase 100,000 shares of common stock upon election or appointment to the Board. The per share exercise price for these options will be the fair market value of a share of our common stock on the day the option is granted. On the date of each annual stockholders meeting thereafter, each individual who is to continue to serve as a non-employee Board member after that meeting will receive an automatic option grant for an additional 50,000 shares of common stock, provided such individual has served as a non-employee Board member for the six months leading up to such meeting. There will be no limit on the number of annual option grants any one non-employee Board member may receive over his or her period of Board service. The shares subject to each initial and annual option grant will vest in four equal annual installments over the members period of Board service, with the first such installment to vest upon completion of one year of Board service measured from the grant date. The following table sets forth information concerning compensation paid or accrued for services rendered to us by our directors for fiscal year 2011. The table excludes Mr. Kanode, who is a named executive officer, and did not receive any compensation from us in his role as a director in fiscal year 2011. Name Fees Earned Or Paid in Cash $ 8,000 8,000 8,000 8,000 Stock Awards Option Awards (1) $ 56,324 56,324 56,324 56,324 Total

Carl E. Berg Vassilis G. Keramidas Bert C. Roberts, Jr. Donn V. Tognazzini

(1) (2)

(2) (2) (2) (2)

64,324 64,324 64,324 64,324

Represents the total grant date fair value, as calculated in accordance with ASC 718 Compensation Stock Compensation, for stock options granted during the fiscal year ended March 31, 2011. For each of the directors listed above, option awards of 100,000 options were granted on September 2, 2010. These options will vest in equal quarterly installments over three years from the grant date.

Compensation Committee Interlocks and Insider Participation During the fiscal year ended March 31, 2011, the Compensation Committee consisted of Dr. Keramidas and Messrs. Roberts and Tognazzini. None of the members of the Compensation Committee has a relationship that would constitute a compensation committee interlock under applicable SEC rules. During the fiscal year 2011, none of our executive officers served on the compensation committee (or equivalent) or the board of directors of another entity whose executive officer(s) served on the Compensation Committee of our Board.

EXECUTIVE COMPENSATION Compensation Discussion and Analysis The following discussion and analysis of our compensation arrangements with our named executive officers for fiscal year 2011, as well as material changes in our executive compensation arrangements to be effective with respect to our named executive officers after fiscal year 2011, should be read together with the compensation tables and related disclosures that follow this discussion. Overview The Compensation Committee is responsible for designing, recommending for approval by our Board, and overseeing our executive compensation programs. Our policies for setting compensation for each of our named executive officers (consisting of our Chief Executive Officer, our Chief Financial Officer and our three other most highly paid executive officers) are similar to those for the rest of our executive officers. Our executive compensation program is a comprehensive package designed to motivate the executive officers to achieve our corporate objectives and is intended to be competitive and allow us to attract and retain highly qualified executive officers. Compensation Philosophy and Objectives Our executive compensation philosophy is to provide competitive compensation packages designed to attract and retain executives capable of leading us in pursuit of our business objectives and to motivate them in order to enhance longterm stockholder value. The main elements of our executive compensation program are salary, cash bonuses, and equity incentives. We currently do not have a formal management bonus plan; however, it is expected that as we make further progress in achieving the goals of our strategic business plan, the Compensation Committee will recommend the institution of a formal bonus plan as well. The principal objective of our executive compensation program is to establish aggregate compensation levels sufficient to retain and attract executives capable of leading us to our business objectives including, but not limited to, the achievement of performance objectives, compliance with corporate governance requirements and the analysis and implementation of our strategic initiatives. We conduct an annual review of the aggregate level of our executive compensation as part of the annual budget review and annual performance review processes, which includes determining the financial and non-financial operating metrics used to measure our performance and to compensate our executive officers. Role and Responsibilities of the Compensation Committee The Compensation Committee meets regularly to discuss executive compensation matters. At least annually, usually near the beginning of the fiscal year, the Committee performs a review of the total compensation packages of our named executive officers. In determining a named executive officers total compensation package, the Compensation Committee considers and reviews each of the components of compensation that we offer our named executive officers to ensure consistency with our compensation philosophy and objectives. The Compensation Committee then determines whether the existing compensation programs are meeting our overall compensation objectives and philosophy and may implement adjustments to achieve a package of total compensation for each of our named executive officers. The Compensation Committee considers whether and to what extent developments in compensation trends should affect our compensation policies and objectives. If compensation information is reviewed for other companies, it is obtained from published materials such as proxy statements. We have not engaged consultants to advise on executive compensation matters and we do not utilize a specific peer group. Our Chief Executive Officer makes recommendations and provides input to the Compensation Committee with respect to the performance of, and compensation levels for, the named executive officers other than himself. Additionally, our Chief Executive Officer may be present during the Compensation Committees voting or final deliberations regarding the compensation of our named executive officers other than himself but does not participate in deliberations relating to his own compensation.

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Setting Executive Compensation The Compensation Committee considers a variety of individual and corporate factors in assessing our executive officers and making informed compensation decisions. These factors include each named executive officers contributions to our business objectives, the compensation paid by comparable companies to employees in similar situations, and, most importantly, our progress toward our long-term business objectives. When determining compensation for executive officers, the Compensation Committee looks to the following measures in evaluating our progress: the acquisition and management of capital to allow us to complete development and ultimately realize significant revenues; the recruitment and retention of officers and other important personnel; the progress of our product development program; and the progress in our manufacturing capabilities.

As a result of this annual review, the Compensation Committee did not make any changes to the compensation arrangements existing prior to the beginning of fiscal year 2011 for our named executive officers other than our Chief Executive Officer. With respect to our Chief Executive Officer, the Compensation Committee approved a FY2011 Incentive Compensation and Stock Option Incentive Award for our Chief Executive Officer, the terms of which are described under the heading Employment AgreementsRobert L. Kanode President and Chief Executive Officer. 2011 Executive Compensation Components For the fiscal year ended March 31, 2011, the principal components of compensation for our named executive officers were base salary, cash bonuses and equity incentive awards in the form of stock options. Base Salary. We provide executive officers with competitive base salaries to compensate them for services rendered to us during the fiscal year. The Compensation Committee conducts an annual compensation review of the executive officers. The salary of each executive officer is determined through mutual negotiations between the executive, the Chief Executive Officer (except in his own case), and the Compensation Committee. We may enter into employment agreements with executive officers, in which case we are required to compensate those executive officers in accordance with their employment agreements. We currently have employment agreements with our Chief Executive Officer, Chief Technology Officer, Vice President of Sales and Marketing, and General Counsel. We believe that employment agreements with key executives are in our best interests to assure continuity of management. Minimum base salaries for our Chief Executive Officer, former Chief Financial Officer, Chief Technology Officer, Vice President of Sales and Marketing, and General Counsel are determined pursuant to their employment agreements. These minimum salaries, the amount of any increase over these minimums and base salaries for the executive officers whose salaries are not specified in an agreement are determined by the Compensation Committee based on a variety of factors, including: compensation levels of similarly positioned executive officers in comparable companies; our performance as a whole; the performance of the business area or function for which the executive officer is responsible; qualitative factors reflecting the individual performance of the particular executive officer; and the recommendations of the Chief Executive Officer (except in the case of his own compensation).

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The base salary paid to each named executive officer in fiscal year 2011 is reflected in the column titled Salary of the Summary Compensation Table of this Proxy Statement. Bonus. We award bonuses in order to align the financial incentives of our executives with our operating goals and to reward exceptional performance. The Compensation Committee has flexibility and discretion in determining executive bonuses, provided that bonus eligibility for our Chief Executive Officer, our former Chief Financial Officer and our Vice President of Sales and Marketing is determined pursuant to their respective employment agreements. Specifically, for fiscal year 2011, our former Chief Financial Officer was eligible for an annual bonus of up to 40% of his base salary based on achievement of cost reductions, improved margins and increased responsibility levels, each as determined in the discretion of the Compensation Committee. For fiscal year 2011, our Vice President of Sales and Marketing was eligible for an annual bonus of up to 55% of his base salary based on a target revenue of $35,945,000, and up to 71.4% of his base salary at 125% of such plan. Additionally, during fiscal year 2011, the Compensation Committee approved a FY2011 Incentive Compensation and Stock Option Incentive Award for our Chief Executive Officer, pursuant to which our Chief Executive Officer was entitled to a bonus of $100,000 based on our achievement of both a revenue target of $35,945,000 and an EBIT target of $(13,832,582) with respect to the fiscal year ending March 31, 2011, and an additional bonus of $50,000 in the event that we exceeded both of these targets by 25%. The Compensation Committees decision regarding bonuses to be paid to other named executive officers are subjective. Factors the Compensation Committee considers when determining whether to give a bonus, or the terms of such bonus, include: our overall financial performance; an executives performance during the year; and with respect to named executive officers other than our Chief Executive Officer, the general recommendations and performance evaluations of the Chief Executive Officer.

For fiscal year 2011, the Compensation Committee awarded a bonus of $150,000 to our Chief Executive Officer, which represented 100% of the full amount of his bonus eligibility pursuant to our FY2011 Incentive Compensation and Stock Option Incentive Award, based upon our exceeding each of the applicable revenue and EBIT targets for the fiscal year ending March 31, 2011 by at least 25%. For fiscal year 2011, the Compensation Committee awarded a bonus of $115,000 to our former Chief Financial Officer, which represented 125% of the full amount of his bonus eligibility pursuant to his employment agreement. Of such award, 100% of the amount of his bonus eligibility amount was based upon his achievement of the applicable goals as determined in the discretion of the Compensation Committee and 25% of the amount of his bonus eligibility was awarded to convert such officer from a calendar year bonus program to a fiscal year bonus program which resulted in a five quarter payout instead of a four quarter payout during fiscal year 2011. For fiscal year 2011, the Compensation Committee awarded a bonus of $125,000 to our Vice President of Sales and Marketing, which represented 100% of the full amount of his bonus eligibility pursuant to his employment agreement, based upon our achievement of applicable plan and revenue growth targets. For fiscal year 2011, the Compensation Committee awarded a bonus of $50,000 to our Chief Technology Officer as a discretionary award in recognition of such officers performance during the year with respect to improving manufacturing yields, key development efforts and leadership achievements. Long-Term Incentive Equity Awards. We grant equity awards in an effort to retain talent, to align the interests of our executive officers and stockholders, to provide incentives to maximize stockholder value, to promote executives focus on our long-term financial performance, and to enhance long-term retention. We have adopted equity incentive plans which provide for the grant of incentive stock options (within the meaning of Section 422 of the Internal Revenue Code) and nonqualified stock options to our eligible employees and consultants, and our non-employee directors. We rely on long-term equity awards as a key element of compensation for our executive officers so that a substantial portion of their total direct compensation is tied directly to increasing our market value. In determining the size of equity-based awards, the Compensation Committee considers competitive grant values for comparable positions as well as various subjective factors primarily relating to the responsibilities of the individual executive, past performance and the executives expected future 12

contributions and value to us. The Compensation Committee also considers the executives historical total compensation, including prior equity grants, as well as the number and value of options or shares which continue to be subject to vesting under outstanding equity grants. Options previously granted under the Plans generally vest in equal installments over 3-5 years from the grant date, subject to the optionees continued service with us. Generally, options to be granted under the 2009 Plan, unless otherwise provided, are expected to vest 25% on each annual anniversary of the date of grant until all such options are fully vested or forfeited at the end of a 4-year period. We granted options to named executive officers during fiscal 2011 as set forth in the table under the heading Grants of Plan-Based Awards. Severance and Change in Control Benefits. Please see the discussion of severance benefits detailed below under the heading Employment Agreements and the tabular disclosure under the Potential Payments upon Termination or Change in Control. We believe that we have structured our severance arrangements so as to be able to attract and retain needed talent. Employee Benefits. Our named executive officers are eligible for the same benefits available to our full-time employees generally. These include participation in a tax-qualified 401(k) plan and group life, health, dental, and disability insurance plans. Tax Treatment Section 162(m) of the Internal Revenue Code generally disallows public companies a tax deduction for compensation in excess of $1,000,000 paid to their chief executive officer and the four other most highly compensated executive officers unless certain performance and other requirements are met. Our intent generally is to design and administer executive compensation programs in a manner that will preserve the deductibility of compensation paid to our executive officers, and we believe that a substantial portion of our current executive compensation program (including the stock options that may be granted to our executive officers as described above) satisfies the requirements for exemption from the $1,000,000 deduction limitation. However, we reserve the right to design programs that recognize a full range of performance criteria important to our success, even where the compensation paid under such programs may not be deductible. The Compensation Committee will continue to monitor the tax and other consequences of our executive compensation program as part of its primary objective of ensuring that compensation paid to our executive officers is reasonable, performance-based and consistent with our goals. Risk Considerations The Compensation Committee considers, in establishing and reviewing the executive compensation program, whether the program encourages unnecessary or excessive risk taking and has concluded that it does not. Base salaries are fixed in amount and thus do not encourage risk taking. While the performance-based cash bonus awards focus on achievement of short-term or annual goals, and short-term goals may encourage the taking of short-term risks at the expense of long-term results, the Compensation Committee believes that the bonus program appropriately balances risk and the desire to focus executives on specific short-term goals important to our success, and that it does not encourage unnecessary or excessive risk taking. The Compensation Committee believes that its long-term equity incentive awards do not encourage unnecessary or excessive risk taking, since the ultimate value of the awards is tied to our stock price, and since awards are subject to long-term vesting schedules to help ensure that executives have significant value tied to long-term stock price performance.

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SUMMARY COMPENSATION TABLE The following table sets forth, as to our Chief Executive Officer, our former Chief Financial Officer and each of our other three most highly compensated executive officers during fiscal year 2011 (referred to as the named executive officers), information concerning all compensation paid for services to us in all capacities for the fiscal years ended March 31, 2011, 2010, and 2009, as indicated below. Name and Principal Position Robert L. Kanode President and Chief Executive Officer Ross A. Goolsby (2) Former Chief Financial Officer Randall J. Adleman Vice President of Sales and Marketing Khoon Cheng Lim Chief Technology Officer Roger A. Williams General Counsel and Assistant Secretary
(1) (2) (3) (4) (5) (6)

Fiscal Year 2011 2010 2009 2011 2010 2009 2011 2010 2009 2011 2010 2009 2011 2010 2009

Salary $ 250,000 250,000 250,000 230,000 230,000 79,615 (3) 175,000 10,096 (5) 200,000 200,000 83,231 (6) 200,000 200,000 200,000

Option All Other Bonus Awards (1) Compensation $ 150,000 $ 347,889 $ 87,500 115,000 60,000 125,000 50,000 507 56,731 435,960 135,282 123,290 (4)

Total 747,889 250,000 337,500 345,000 346,731 515,575 423,290 145,378 250,000 200,507 83,231 200,000 200,000 200,000

Represents the total grant date fair value, as calculated in accordance with Accounting Standards Codification 718 Compensation Stock Compensation, for stock options granted during the fiscal year ended March 31. Mr. Goolsby resigned effective June 3, 2011. Represents Mr. Goolsbys salary from November 17, 2008, his first day of employment with us, until the 2009 fiscal year end. Represents relocation costs paid in fiscal 2011, which includes a tax gross up of $30,739. Represents Mr. Adelmans salary from March 1, 2010, his first day of employment with us, until the 2010 fiscal year end. Represents Dr. Lims salary from November 3, 2008, his first day of employment with us, until the 2009 fiscal year end.

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GRANTS OF PLAN-BASED AWARDS The following table shows for the fiscal year ended March 31, 2011, certain information regarding equity and nonequity incentive plan awards to our named executive officers. All Other Option Exercise or Grant Date Awards: Number Base Price of Fair Value of of Securities Options Stock or Underlying Awards Option Options ($/Share) Awards (1) 500,000 $ 0.96 $ 347,889

Robert L. Kanode (2) Ross A. Goolsby Randall J. Adleman Khoon Cheng Lim Roger A. Williams
(1) (2)

Name

Grant Date 6/16/2010

Represents the total grant date fair value, as calculated in accordance with Accounting Standards Codification 718 Compensation Stock Compensation, for stock options granted during the fiscal year ended March 31, 2011. These options vest upon the achievement of specified EBIT targets with respect to our fiscal years 2011 (100,000 shares), 2012 (up to 200,000 shares) and 2013 (up to 200,000 shares). On May 26, 2011, 100,000 shares subject to the option vested upon the issuance of our audited financial statements for fiscal year 2011 based on our achievement of EBIT of not greater than $(13,832,582) for such fiscal year.

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OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END The following table shows certain information regarding unexercised options, stock that has not vested, and equity incentive plan awards for each named executive officer as of the fiscal year ended March 31, 2011. OPTION AWARDS Equity Incentive Number of Number of Plan Securities Securities Awards: Number of Underlying Underlying Securities Unexercised Unexercised Underlying Option Option Expiration Options Options Unexercised Date Exercisable Unexercisable Unearned Options Exercise Price 1,500,000 (1) $ 1.61 3/13/2017 500,000 (2) 0.96 06/16/2020 271,250 78,750 (3) 1.81 11/17/2018 33,333 67,667 (4) 0.78 2/8/2020 66,667 133,333 (5) 0.93 3/01/2020 500,000 (1) 1.65 1/2/2017 50,000 (1) 5.12 4/16/2011 14,645 (1) 6.05 7/30/2011 10,355 (1) 6.05 7/30/2011 300 (1) 3.82 11/29/2011 3,750 (1) 3.95 2/4/2012 41,250 (1) 3.95 2/4/2012 694 (1) 2.99 4/1/2012 3,474 (1) 2.99 4/1/2012 4,581 (1) 1.30 7/1/2012 13,752 (1) 1.30 7/1/2012 3,609 (1) 0.70 10/1/2012 7,224 (1) 0.70 10/1/2012 25,000 (1) 1.69 12/20/2012 25,000 (1) 1.69 12/20/2012 22,298 (1) 3.34 6/29/2014 7,702 (1) 3.34 6/29/2014 13,333 (1) 3.35 11/16/2014 6,667 (1) 3.35 11/16/2014 13,333 (1) 3.32 12/22/2014 6,667 (1) 3.32 12/22/2014 25,000 (1) 1.73 8/8/2016 50,000 (1) 1.49 10/9/2017

Name Robert L. Kanode Ross A. Goolsby Randall J. Adleman Khoon Cheng Lim Roger A. Williams

(1) (2)

(3) (4) (5)

Each of these options was fully vested as of March 31, 2010. These options vest upon the achievement of specified EBIT targets with respect to our fiscal years 2011 (100,000 shares), 2012 (up to 200,000 shares) and 2013 (up to 200,000 shares). On May 26, 2011, 100,000 shares subject to the option vested upon the issuance of our audited financial statements for fiscal year 2011 based on our achievement of EBIT of not greater than $(13,832,582) for such fiscal year. These options vest as follows: 87,500 shares will vest on the six month anniversary date of the grant, and the remaining options will vest quarterly over the next thirty months. These options vest as follows: 33,333 shares will vest on the twelve month anniversary date of the grant, and the remaining shares will vest quarterly over the next 2 years. These options vest as follows: 66,667 shares will vest on the twelve month anniversary date of the grant, and the remaining shares will vest quarterly over the next 2 years.

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OPTION EXERCISES AND STOCK VESTED None of our named executive officers exercised stock options during fiscal year 2011. Employment Agreements Robert L. Kanode President and Chief Executive Officer Effective March 13, 2007, we entered into an employment agreement with Robert L. Kanode pursuant to which we retained Mr. Kanode as President and Chief Executive Officer at an initial salary of $250,000 per year. On June 16, 2010, the Compensation Committee approved a FY2011 Incentive Compensation and Stock Option Incentive Award for Mr. Kanode for the fiscal year ending March 31, 2011, which supplements the terms of his employment agreement. Pursuant to this award, Mr. Kanodes salary for fiscal year 2011 was set at $250,000 and Mr. Kanode was eligible for a bonus of $100,000, contingent on our achievement of both a revenue target of $35,945,000 and an EBIT target of $(13,832,582) with respect to the fiscal year ending March 31, 2011, and an additional bonus of $50,000 in the event that we exceeded both of these targets by 25%. In addition, pursuant to the FY2011 Incentive Compensation and Stock Option Incentive Award, Mr. Kanode was granted performance-based stock options to purchase up to 500,000 shares of the our common stock, which options vest upon our achievement of EBIT targets with respect to our fiscal years 2011 (100,000 shares), 2012 (up to 200,000 shares) and 2013 (up to 200,000 shares). The Board reviews his salary each year, or from time to time at the sole discretion of the Board, and may increase, but not decrease, his salary at the sole discretion of the Board. For future fiscal years, the Compensation Committee will review his cash bonus targets and stock incentive compensation and set targets or make awards as it determines to be appropriate at the time. Any bonus is at the discretion of the Compensation Committee. Under his employment agreement, we granted Mr. Kanode stock options to purchase an aggregate of 1,500,000 shares of common stock at an exercise price of $1.61 per share, which was the closing price of our stock on the day the grant was awarded. The options vest as follows: 250,000 shares vested on September 13, 2007, and the remaining 1,250,000 vested monthly over the remaining two and one-half years. In accordance with the terms of his employment agreement, Mr. Kanode was reimbursed for his relocation expenses of $150,000 plus a tax gross up of $57,351 during fiscal year 2008. We agreed to nominate Mr. Kanode to the Board for the entire period of his employment as President and Chief Executive Officer and to use our best efforts to cause our stockholders to cast their votes in favor of his continued election to the Board. Mr. Kanode agreed to resign from the Board when he no longer serves as President and Chief Executive Officer. Our agreement with Mr. Kanode also provides that, in the event Mr. Kanode is involuntarily separated from us, and conditioned upon his signing an appropriate release document, he will be entitled to a one-time payment equal to his thencurrent six (6) month base salary. Ross A. Goolsby Former Chief Financial Officer Effective November 17, 2008, we entered into an employment agreement with Ross A. Goolsby, pursuant to which we retained Mr. Goolsby as our Chief Financial Officer at a salary of $230,000 per year. Under his employment agreement, Mr. Goolsby is eligible for consideration of an annual bonus of up to 40% of his annual salary. Any bonus will be at the discretion of the Compensation Committee. Mr. Goolsby was granted stock options to purchase 350,000 shares of our common stock with an exercise price of $1.81 per share, which was the closing price of our stock on the day Mr. Goolsby commenced employment with us, November 17, 2008. The options vest over a three year period; twenty-five percent of the options vested on the six month anniversary of his commencement of employment, and the remaining options vest in equal installments quarterly over the following thirty months. In the event that Mr. Goolsby is terminated for other than for Good Cause (as defined in the employment agreement), all options that have vested at the time of termination, will become exercisable within ninety days following the date of termination. Additionally, in the event that Mr. Goolsby is terminated for other than for Good Cause (as defined in the employment agreement), he will be entitled to 30-days notice and three months salary payable as of the date of termination. In the event of a Change in Control (as defined in the employment agreement), all options that have vested on the date of the Change in Control, plus those options scheduled to vest within six months of the date of the Change of Control, will become exercisable within ninety days following the date of the Change of Control.

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Khoon Cheng Lim Chief Technology Officer From March 2006 through October 2008, Khoon Cheng Lim, Ph.D., provided consulting services to us. Effective November 3, 2008, we entered into an employment agreement with Dr. Lim, pursuant to which we retained Dr. Lim as our Chief Technology Officer at an annual salary of $200,000 per year. Dr. Lim received an option grant to purchase 500,000 shares of common stock in January 2007 as a consultant at an exercise price of $1.65 per share, which was the closing price of our stock on the day the grant was awarded. The options vest as follows: 50,000 vested immediately upon the date of the grant, and the remaining options vested quarterly over the next four years. In the event that Dr. Lim is terminated for other than for Good Cause (as defined in the employment agreement), all of his unvested options shall immediately vest at the time of termination and will become immediately exercisable on the date of termination. Additionally, in the event that Mr. Lim is terminated for other than for Good Cause (as defined in the employment agreement), he will be entitled to three months salary payable as of the date of termination. Randall J. Adleman Vice President of Sales and Marketing Effective March 1, 2010, we entered into an employment agreement with Randall J. Adleman, pursuant to which we retained Mr. Adleman as our Vice President of Sales and Marketing at a base salary of $175,000 per year. Under his employment agreement, Mr. Adleman is eligible for consideration of an annual bonus of up to 55% of his annual salary. Any bonus will be at the discretion of the Compensation Committee. Mr. Adleman was granted stock options to purchase 200,000 shares of common stock at a price of $0.93 per share, which was the closing price of our common stock on the day Mr. Adleman commenced employment with us, March 1, 2010. The options are to vest over a three-year period, with 33% vesting on March 1, 2011 and the remaining 67% vesting in equal quarterly installments over the remaining two years. In accordance with the terms of his employment agreement, Mr. Adleman was reimbursed for his relocation expenses of $92,551 plus a tax gross up of $30,739 during fiscal year 2011. In the event that Mr. Adleman is terminated for other than Good Cause (as defined in the employment agreement), he will be entitled to 30-days notice and four months salary payable as of the date of termination. Roger A. Williams General Counsel Effective April 16, 2001, we entered into an employment agreement with Roger A. Williams, pursuant to which we retained Mr. Williams as our General Counsel. Mr. Williams received an option grant to purchase 50,000 shares of common stock at an exercise price of $5.12 per share, which was the closing price of our common stock on the day Mr. Williams commenced employment with us, April 16, 2001, and those shares were fully vested and expired unexercised on April 16, 2011..

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Potential Payments upon Termination or Change in Control The following table sets forth the aggregate dollar value of payments, to the extent calculable, in the event of a termination of a named executive officer on March 31, 2011, the last business day of our last completed fiscal year, as a result of the severance provisions described above under the heading Employment Agreements. Equity Compensation Due to Accelerated Vesting $ N/A (3) N/A (5)

Robert L. Kanode Ross A. Goolsby Randall J. Adleman Khoon Cheng Lim

(1) (2) (3)

Name

One-Time Payment $ 125,000(1) 57,500(2) 58,300(4) 50,000(2)

(4) (5)

Represents an amount equal to six months salary. Represents an amount equal to three months salary. The employment agreement with Mr. Goolsby includes accelerated vesting of stock options held by Mr. Goolsby upon Mr. Goolsbys termination other than for Good Cause (as defined in Mr. Goolsbys employment agreement); however, there was no value associated with such vesting acceleration as of March 31, 2011 because the exercise price of Mr. Goolsbys stock options was greater than the closing price of our common stock on such date. Represents an amount equal to four months salary. The employment agreement with Mr. Lim includes accelerated vesting of stock options held by Mr. Lim upon Mr. Lims termination other than for Good Cause (as defined in Mr. Lims employment agreement); however, there was no value associated with such vesting acceleration as of March 31, 2011 because Mr. Lims outstanding stock options were fully vested as of such date. COMPENSATION COMMITTEE REPORT

The information in this Compensation Committee Report shall not be deemed to be soliciting material, or to be filed with the SEC or to be subject to Regulation 14A or 14C as promulgated by the SEC, or to the liabilities of Section 18 of the Exchange Act, and is not incorporated by reference into any filings of Valence under the Securities Act of 1933 or the Exchange Act, whether made before or after the date of this Proxy Statement and irrespective of any general incorporation language contained in such filings. The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis section of this Proxy Statement with management. Based on such reviews and discussions, the Compensation Committee recommends to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement. Respectfully Submitted by the Compensation Committee of the Board of the Directors Bert C. Roberts, Jr. (Chairman) Vassilis G. Keramidas Donn V. Tognazzini

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REPORT OF AUDIT COMMITTEE The information in this Audit Committee Report shall not be deemed to be soliciting material, or to be filed with the SEC or to be subject to Regulation 14A or 14C as promulgated by the SEC, or to the liabilities of Section 18 of the Exchange Act, and is not incorporated by reference into any filings of Valence under the Securities Act of 1933 or the Exchange Act, whether made before or after the date of this Proxy Statement and irrespective of any general incorporation language contained in such filings. For fiscal year 2011, the Audit Committee of the Board of Directors consisted of Dr. Keramidas and Messrs. Roberts and Tognazzini. The Audit Committee has furnished the following report: The Audit Committee recommended to the Board of Directors that Valences audited financial statements be included in Valences Annual Report on Form 10-K for the fiscal year ended March 31, 2011 for filing with the SEC based on the following review and discussions: The Audit Committee met with PMB Helin Donovan, LLP, Valences registered independent public accounting firm, both with and without management present, to discuss the results of its audit, its evaluation of Valences internal accounting controls and the overall quality of Valences financial reporting; The Audit Committee reviewed and discussed the audited financial statements with management, including a discussion of the quality, not just the acceptability, of the accounting principles and the reasonableness of significant judgments; The Audit Committee discussed with the registered independent public accounting firm the matters required to be discussed by Statement of Auditing Standards No. 61, as amended, as adopted by the Public Company Accounting Oversight Board in Rule 3200T ; and The Audit Committee received the written disclosures and the letter from PMB Helin Donovan, LLP required Rule 3526 of the Public Company Accounting Oversight Board (Communication with Audit Committees Concerning Independence), and discussed with PMB Helin Donovan, LLP its independence from Valence. The Audit Committee considered whether, and determined that, the provision of the non-audit services rendered to us by PMB Helin Donovan, LLP during fiscal 2011 was compatible with maintaining the independence of PMB Helin Donovan, LLP. Respectfully Submitted by the Audit Committee of the Board of Directors Donn V. Tognazzini (Chairman) Vassilis G. Keramidas Bert C. Roberts, Jr.

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CERTAIN TRANSACTIONS WITH DIRECTORS AND EXECUTIVE OFFICERS Our Board has the responsibility to review and approve all related party transactions as described in Item 404 of Regulation S-K promulgated by the SEC, and has delegated concurrent responsibility for these matters to our Audit Committee. We do not currently have a written policy regarding the approval of all related party transactions. Each of our directors and executive officers is expected to notify the General Counsel (who, in turn, will provide such information to the Board or Audit Committee) of any proposed related party transaction. All other proposed related party transactions are subject to approval or ratification by the Board or Audit Committee, except for certain categories of transactions that are deemed to be pre-approved by the Board or Audit Committee. In determining whether to approve or ratify a related party transaction, the Board or Audit Committee will take into account, among other factors deemed appropriate, whether the related party transaction is on terms no more favorable to the counterparty than terms generally available to an unaffiliated third-party under the same or similar circumstances and the extent of the related partys interest in the transaction. On May 25, 2011, Berg & Berg loaned $2,000,000 to Valence, and in connection with the loan, we executed a promissory note in favor of Berg & Berg. The promissory note is payable on August 15, 2011 and bears interest at a rate of 3.5% per annum. On January 11, 2011, we entered into an Amendment No. 3 to Loan and Security Agreement and Other Loan Documents (the Amendment) with iStar, and Carl E. Berg, to amend the Loan and Security Agreement dated as of July 13, 2005 (as amended to date, the Original Loan Agreement) among Valence, iStar and Mr. Berg. The Amendment extends the maturity date of the Loan from February 13, 2011 to March 10, 2012 (the New Maturity Date). We will be obligated continue to make monthly interest payments to iStar, as set forth in the Original Loan Agreement; provided that we shall also be obligated to continue to make monthly principal payments equal to $1,000,000, commencing with the monthly principal payment scheduled for February 2011. The remainder of the principal and any other outstanding obligations under the Loan shall be payable in full on the New Maturity Date. Additionally, in connection with the Amendment, we issued to iStar a Warrant to Purchase Common Stock of Valence Technology, Inc., pursuant to which iStar may purchase up to 100,000 shares of our common stock at an exercise price of $1.45 per share on or before January 11, 2014. Additionally, in connection with the Amendment, we paid iStar an extension fee of $260,000 upon the execution of the Amendment. On December 3, 2010, Berg & Berg purchased 3,759,789 shares of our common stock at a price per share of $1.20, the closing bid price of our common stock on December 2, 2010. The aggregate purchase price for the shares was $4,511,747. Payment of the purchase price consisted of $2,000,000 in cash and surrender of the promissory note issued on October 15, 2010 to Berg and Berg, under which $2,500,000 in principal and $11,747 in accrued interest was outstanding. On October 26, 2010, our Board of Directors authorized us to engage in financing transactions (including either loans or the sale of shares of its common stock) with Berg & Berg, Carl E. Berg, or their affiliates from time to time in an aggregate amount of up to $10.0 million when needed by us, and as may be mutually agreed. At this time, there is no binding agreement that requires such persons to provide additional funding and the timing and amount of any such funding will depend on future negotiations between the parties. On October 15, 2010, Berg & Berg loaned $2.5 million to us. In connection with the loan, we executed a promissory note in favor of Berg & Berg. The promissory note was payable on February 15, 2011, and bears interest at a rate of 3.5% per annum. On December 23, 2010, Berg & Berg surrendered the loan and paid an additional $2.0 million in cash in exchange for 3,759,789 shares of the our common stock at a price per share of $1.20. On September 28, 2010, Berg & Berg purchased 1,923,077 shares of our common stock at a price per share of $1.04, the closing bid price of our common stock on the purchase date. The aggregate purchase price for the shares was $2.0 million, which was paid in cash. On August 26, 2010, Berg & Berg purchased 7,247,882 shares of our common stock at a price per share of $0.76, the closing bid price of our common stock on the purchase date. The aggregate purchase price for the shares was approximately $5.5 million. Payment of the purchase price consisted of $3.0 million in cash and surrender of the promissory note issued on July 23, 2010 to Berg and Berg, under which approximately $2.5 million in principal and accrued interest was outstanding.

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On June 8, 2010, we established a letter of credit with Silicon Valley Bank in the amount of $1.1 million for the purpose of purchasing inventory materials from a certain supplier. A condition of this letter of credit was that we maintain an encumbered bank account for the full amount of the letter of credit. This letter of credit was used to pay our supplier as they delivered materials to us. The letter of credit was drawn down in full in August 2010. On September 2, 2010, in lieu of the requirement for a second letter of credit by the supplier, our chairman and principal shareholder, Carl Berg, gave a personal guaranty to the supplier in the amount of $2.5 million. Except as disclosed in this Proxy Statement, neither the nominees for election as directors, our directors or executive officers, nor any stockholder owning more than five percent of our issued shares, nor any of their respective associates or affiliates, had any material interest, direct or indirect, in any material transaction to which we were a party during fiscal year 2011, or which is presently proposed. Stock Options Granted to Executive Officers and Directors For more information regarding the grant of stock options to executive officers and directors in fiscal year 2011, please see the table included in Director Compensation and the footnotes thereto included in the Management section of this Proxy Statement and the table Grant of Plan-Based Awards and the footnotes thereto included in the Executive Compensation section of this Proxy Statement. Employment Agreements See Employment Agreements included in the Executive Compensation section of this Proxy Statement, for a description of employment agreements between us and our officers. Indemnification and Insurance Our bylaws require us to indemnify our directors and executive officers to the fullest extent permitted by Delaware law. We have entered into indemnification agreements with all of our directors and officers and have purchased directors and officers liability insurance. In addition, our certificate of incorporation limits the personal liability of our Board members for breaches of their fiduciary duties. No Loans to Officers or Directors We currently have no outstanding loans to any officers or directors. Furthermore, our Board of Directors has resolved that we shall not offer or provide any loans to any officer or director. PRINCIPAL STOCKHOLDERS Security Ownership of Certain Beneficial Owners and Management The following table sets forth certain information that has been provided to us with respect to beneficial ownership of our common stock as of July 8, 2011, by: Each of our directors and director nominees; Each of the named executive officers; All directors and executive officers as a group; and All other stockholders known by us to beneficially own more than 5% of the outstanding common stock.

The number of shares beneficially owned by each person or group as of July 8, 2011 includes shares of common stock that such person or group had the right to acquire on or within 60 days after that date, including, but not limited to, upon the exercise of options.

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For each person and group included in the table, percentage ownership is calculated by dividing the number of shares beneficially owned by such person or group as described above by the 166,024,232 shares of our common stock outstanding on July 8, 2011 and the number of shares of common stock that such person or group had the right to acquire on or within 60 days of that date, including, but not limited to, upon the exercise of options. This table is based upon information supplied by officers, directors, and principal stockholders and Schedules 13D and 13G filed with the SEC. Unless otherwise indicated in the footnotes to this table and subject to community property laws where applicable, each of the stockholders named in this table has sole voting and investment power with respect to the shares indicated as beneficially owned. Unless otherwise indicated, the address for each of the stockholders listed below is c/o Valence Technology, Inc., 12303 Technology Boulevard, Suite 950, Austin Texas 78727. Beneficial Ownership Number of Percent of Shares Total 8,604,270 (1) 5.0 % 75,342,689 (2) 1,600,000 (3) 361,193 (4) 888,336 (5) 405,336 (6) 285,634 (7) 500,000 (8) 99,999 (9) 86,541,457 (10) 43.8 * * * * * * * 50.3

Beneficial Owner 1981 Kara Ann Berg Trust, Clyde J. Berg, Trustee; and Clyde J. Berg 10050 Bandley Drive, Cupertino, CA 95014 Carl E. Berg; Berg & Berg Enterprises, LLC; and West Coast Venture Capital, Inc. 10050 Bandley Drive, Cupertino, CA 95014 Robert L. Kanode Vassilis G. Keramidas Bert C. Roberts, Jr. Donn V. Tognazzini Roger A. Williams Khoon Cheng Lim Randall J. Adleman All directors and executive officers as a group (9 persons). * less than one percent of the outstanding shares of common stock
(1)

1981 Kara Ann Berg Trust, Clyde J. Berg, Trustee; and Clyde J. Berg. Based on information contained in a Schedule 13G filed jointly by 1981 Kara Ann Berg Trust, Clyde J. Berg, Trustee and Clyde J. Berg with the SEC on February 14, 2003. The Trust has no sole voting and dispositive power with respect to any shares and has shared voting and dispositive power with respect to 8,129,270 shares. Clyde J. Berg has sole voting and dispositive power with respect to 475,000 shares and shared voting and dispositive power with respect to 8,129,270 shares. Carl E. Berg, Berg & Berg Enterprises, LLC, and West Coast Venture Capital, Inc. Includes 2,469,506 shares held directly by Mr. Berg, 383,336 shares issuable upon exercise of options held by Mr. Berg that are exercisable within 60 days of July 8, 2011; 49,074,127 shares held by Berg & Berg, of which Mr. Berg is the sole manager; and 23,415,720 shares held by West Coast Venture Capital, Inc. (West Coast Venture Capital), of which Mr. Berg is the President. The aggregate number of shares held by Berg & Berg consists of 45,444,657 shares held directly by Berg & Berg and 3,629,470 shares of common stock issuable upon the conversion of an aggregate of 430 shares of Series C-1 Convertible Preferred Stock and 431 shares of Series C-2 Convertible Preferred Stock. Mr. Berg has sole voting and dispositive power with respect to 2,852,842 shares and shared voting and dispositive power with respect to 72,489,847 shares. Berg & Berg has no sole voting and dispositive power with respect to any shares and has shared voting and dispositive power with respect to 49,074,127 shares. West Coast Venture Capital has no sole voting and dispositive power with respect to any shares and has shared voting and dispositive power with respect to 23,415,720 shares. Robert L. Kanode. Includes 1,600,000 shares issuable upon exercise of options that are exercisable within 60 days of July 8, 2011. Vassilis G. Keramidas. Includes 2,857 shares held by Dr. Keramidas and 358,336 shares issuable upon exercise of options that are exercisable within 60 days of July 8, 2011. Bert C. Roberts, Jr. Includes 130,000 shares held by Mr. Roberts, 70,000 shares held indirectly through various entities, 10,000 shares held by his spouse and 678,336 shares issuable upon exercise of options that are exercisable within 60 days of July 8, 2011. 23

(2)

(3)

(4)

(5)

(6)

Donn V. Tognazzini. Includes 257,000 shares held by Mr. Tognazzini, 40,000 shares held by Donn V. and Daisy J. Tognazzini, TTEEs of Tognazzini 2003 Trust, and 108,336 shares issuable upon exercise of options that are exercisable within 60 days of July 8, 2011. Roger A. Williams. Includes 12,000 shares held by Mr. Williams and 273,634 shares issuable upon exercise of options that are exercisable within 60 days of July 8, 2011. Khoon Cheng Lim. Includes 500,000 shares issuable upon exercise of options that are exercisable within 60 days of July 8, 2011. Randall J. Adleman. Includes 443,750 shares issuable upon exercise of options that are exercisable within 60 days of July 8, 2011. All Directors and Executive Officers as a Group (9 persons). All directors and officers as a group does not include Ross A. Goolsby, our former Chief Financial Officer, who resigned on May 9, 2011. PROPOSAL TWO RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

(7)

(8)

(9)

(10)

Proposal Two is the ratification the Audit Committees engagement of PMB Helin Donovan, LLP (PMB) to serve as our independent registered public accounting firm for the current fiscal year ending March 31, 2012. Stockholder ratification of the appointment of our independent registered public accounting firm is not required by our bylaws or otherwise. However, we are submitting this proposal to the stockholders as a matter of good corporate practice. The ratification of PMB as our independent registered public accounting firm for the fiscal year ending March 31, 2012, will require the affirmative vote of a majority of the shares of common stock present or represented and entitled to vote at the Annual Meeting. All proxies will be voted to approve the appointment unless a contrary vote is indicated on the proxy card. If the appointment of PMB is not ratified, the Audit Committee will reconsider the appointment but shall nonetheless have the authority to continue the appointment of PMB. Even if the appointment is ratified, the Audit Committee in its sole discretion may direct the appointment of a different independent registered public accounting firm at any time during the year if it is determined that such change would be in the best interests of Valence and its stockholders. Fees billed to Valence Technology, Inc. by PMB Helin Donovan, LLP for Fiscal Years 2011 and 2010 The following table sets forth the aggregate fees billed to us by PMB Helin Donovan, LLP for the fiscal years ended March 31, 2011 and 2010. Fees Billed 2011 2010 264,315 $ 263,181 30,064 19,212 65,760 111,191 360,139 $ 393,584 Percentage of Services 2011 2010 73 % 67 % 8 5 18 28 100 % 100 %

Audit fees Audit-related fees Tax fees All other fees Total fees

Audit Fees billed during fiscal years 2011 and 2010 were for professional services rendered for the audit of our financial statements. Audit-Related Fees billed during fiscal years 2011 and 2010 were for services related to accounting consultation and reviews of a Form S-3 filed with the Securities and Exchange Commission. Tax Fees billed during fiscal years 2011 and 2010 were for professional services rendered for tax compliance, tax advice and tax planning. All Other Fees billed in fiscal years 2011 and 2010 were for testing internal controls under the requirements of Section 404 of the Sarbanes-Oxley Act of 2002.

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The Audit Committee has adopted a policy for the pre-approval of all audit and non-audit services to be performed for us by our independent registered public accounting firm. During fiscal year 2011, all such services were preapproved. The Audit Committee considered the role of PMB in providing audit, audit-related and tax services to us and concluded that such services are compatible with PMBs role as our independent registered public accounting firm. The Audit Committee has engaged the accounting firm of PMB Helin Donovan, LLP to serve as our registered independent public accounting firm since the fiscal year ended March 31, 2007. The Audit Committee approved the appointment of PMB as our principal independent registered public accounting firm. Representatives of PMB are expected to be present at the 2011 Annual Meeting, will have an opportunity to make a statement, if they desire to do so, and are expected to be available to respond to appropriate questions. Our Board of Directors unanimously recommends a vote FOR the ratification of the appointment of PMB Helin Donovan, LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2012. PROPOSAL THREE: APPROVAL OF EXECUTIVE COMPENSATION The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the Dodd-Frank Act) enables our stockholders to vote to approve, on an advisory (non-binding) basis, the compensation of our named executive officers as disclosed in this Proxy Statement in accordance with the SECs rules (commonly referred to as a Say-on-Pay). As described under the heading Executive CompensationCompensation Discussion and Analysis, our executive compensation programs are designed to attract and retain executives capable of leading us in pursuit of our business objectives and to motivate them in order to enhance long-term stockholder value. We believe that the various elements of our executive compensation program work together to promote our objective of ensuring that aggregate compensation levels are sufficient to retain and attract executives capable of leading us to our business objectives. Stockholders are urged to read the Executive CompensationCompensation Discussion and Analysis section of this Proxy Statement, beginning on page 11, which discusses how our executive compensation policies implement our compensation philosophy, and the Summary Compensation Table and other related tables and disclosures that follow, for additional details about our executive compensation programs, including information about fiscal 2011 compensation of our named executive officers. The Compensation Committee believes that these policies are effective in implementing our compensation philosophy and in achieving its goals. We are asking our stockholders to indicate their support for our executive compensation as described in this Proxy Statement. This Say-on-Pay proposal gives our stockholders the opportunity to express their views on our named executive officers compensation. This vote is not intended to address any specific item of compensation, but rather the overall compensation of our named executive officers and the philosophy, policies and practices described in this Proxy Statement. Accordingly, we are asking our stockholders to approve, on an advisory basis, the compensation of the named executive officers, as disclosed in this Proxy Statement pursuant to the compensation disclosure rules of the SEC, including the Compensation Discussion and Analysis, the Summary Compensation Table and the other related tables and disclosure. The Say-on-Pay vote is advisory, and therefore not binding on us, the Compensation Committee or our Board. However, our Board and the Compensation Committee value the opinions of our stockholders and to the extent there is any significant vote against this proposal, we will consider our stockholders concerns and the Compensation Committee will evaluate whether any actions are necessary to address those concerns. Vote Required; Recommendation of Board of Directors The affirmative vote of a majority of the votes cast on the proposal at the Annual Meeting is required to approve our executive compensation program on an advisory basis. Abstentions will have the same effect as a vote against this proposal. Our Board of Directors unanimously recommends a vote FOR the approval of our executive compensation program as described in the Executive Compensation section of this Proxy Statement.

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PROPOSAL FOUR: APPROVAL OF FREQUENCY OF STOCKHOLDER VOTE ON EXECUTIVE COMPENSATION In connection with Proposal Three, the Dodd-Frank Act also requires that we include in this Proxy Statement a separate advisory (non-binding) stockholder vote to advise on how frequently we should seek a Say-on-Pay vote. By voting on this Proposal Four, stockholders may indicate whether they would prefer an advisory vote on named executive officer compensation once every one, two, or three years. Because compensation programs include both short and long-term components, our Board believes that Say-on-Pay votes should be conducted every three years. You may cast your vote on your preferred voting frequency by choosing the option of one year, two years, three years or abstain from voting. Under SEC rules, we will be required to permit our stockholders to vote on the frequency of the Say-on-Pay vote at least once every six years. Vote Required; Recommendation of the Board of Directors The selection regarding the frequency of the stockholder vote on executive compensation receiving the highest number of FOR votes shall be approved. However, because this vote is advisory and not binding on the Board in any way, the Board may decide that it is in the best interests of us and our stockholders to hold an advisory vote on executive compensation more or less frequently than the option approved by our stockholders. Our Board of Directors unanimously recommends that stockholders vote on Proposal Four to hold Say-onPay votes every three years (as opposed to every year or every two years). NO INCORPORATION BY REFERENCE OF CERTAIN PORTIONS OF THIS PROXY STATEMENT Notwithstanding anything to the contrary set forth in any of our previous filings made under the Securities Act of 1933, as amended, or the Exchange Act that might incorporate future filings made by us under those statutes, neither the preceding Audit Committee Report nor the Compensation Committee Report is to be incorporated by reference into any such prior filings, nor shall such report be incorporated by reference into any future filings made by us under those statutes. SECTION 16(A) BENFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Exchange Act requires our directors, officers (including a person performing a principal policymaking function), and persons who own more than 10% of our common stock to file with the SEC initial reports of ownership and reports of changes in ownership of our common stock and other equity securities of ours. Directors, officers and 10% holders are required by SEC regulations to send us copies of all of the Section 16(a) reports they file. Based solely upon a review of the copies of the forms sent to us and the representations made by the reporting persons to us, we believe that all Section 16(a) filing requirements applicable to our directors, executive officers and 10% holders were met for fiscal 2011. ANNUAL REPORT We filed an Annual Report on Form 10-K for the fiscal year ended March 31, 2011 with the SEC on on May 26, 2011. We may mail or email a copy of our Annual Report on Form 10-K to Stockholders for the fiscal year ended March 31, 2011 concurrently with this Proxy Statement to stockholders requesting that we send mail or email copies of such documents. In accordance with the rules adopted by the SEC, except for stockholders who have requested otherwise, we have generally mailed to our stockholders a Notice of Internet Availability of Proxy Materials, which we refer to as the Notice of Internet Availability. The Notice of Internet Availability provides instructions either for accessing this Proxy Statement and the Annual Report on Form 10-K at the website address referred to in the Notice of Internet Availability, or for requesting printed copies of such materials by mail or electronically by mail.

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OTHER MATTERS We know of no other matters that will be presented for consideration at the Annual Meeting. If any other matters properly come before the Annual Meeting, it is the intention of the persons named in the form of proxy to vote the shares they represent as our Board of Directors may recommend. Discretionary authority with respect to such other matters is granted by the execution of the proxy. ON BEHALF OF THE BOARD OF DIRECTORS /s/ Robert L. Kanode Robert L. Kanode Chief Executive Officer

July 21, 2011 12303 Technology Blvd., Suite 950 Austin, Texas 78727

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Combined Document, including Annual Reports on Form 10-K and Proxy Statement, is available at www.proxyvote.com.

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APPENDIX A

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Combined Document, including Annual Reports on Form 10-K and Proxy Statement, is available at www.proxyvote.com.

VALENCE TECHNOLOGY, INC. Annual Meeting of Shareholders September 1, 2011 9:00 AM This proxy is solicited by the Board of Directors The 2011 Annual Meeting of the Stockholders of Valence Technology, Inc. (the Company) will be held on Thursday, September 1, 2011 at 9:00 a.m. local time, Central Daylight Time, at the corporate headquarters of Valence Technology, Inc., 12303 Technology Boulevard, Suite 950, Austin, Texas 78727. The undersigned, having received the notice and accompanying Proxy Statement for said meeting, hereby constitutes and appoints Robert L. Kanode or Roger A. Williams, or any of them, his/her true and lawful agents and proxies, with power of substitution and resubstitution in each, to represent and vote at the 2011 Annual Meeting scheduled to be held on September 1, 2011, or at any adjournment or postponement thereof, on all matters coming before said meeting, all shares of Common Stock of the Company which the undersigned may be entitled to vote. The above proxies are hereby instructed to vote as shown on the reverse side of this card. YOUR VOTE IS IMPORTANT TO ASSURE YOUR REPRESENTATION AT THE MEETINGS, PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY AS PROMPTLY AS POSSIBLE. AN ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES, IS ENCLOSED FOR THIS PURPOSE.

Continued and to be signed on reverse side

VALENCE TECHNOLOGY, INC 12303 TECHNOLOGY BLVD. SUITE 950 AUSTIN, TX 78727

VOTE BY INTERNET www.proxyvote.com Use the internet to transmit your voting instructions and for electronic delivery of information up until 11:59 p.m. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the internet. To sign up for electronic delivery, please follow the instructions above to vote using the internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years. VOTE BY PHONE 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 p.m. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions. VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.

TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:

KEEP THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY

THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.

VALENCE TECHNOLOGY, INC. The Board of Directors recommends that you vote FOR the following nominees: For All

Withhold For All To withhold authority to vote for any individual All Except nominees, mark For all Except and write the number(s) of the nominees on the line below.

1. Election of Directors: 01) Carl E. Berg 02) Robert L. Kanode 03) Vassilis G. Keramidas For The Board of Directors recommends that you vote FOR Proposals Two and Three: 2. To ratify the selection of PMB Helin Donovan, LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2011. 3. To approve our executive compensation program on an advisory (non-binding) basis The Board of Directors recommends you vote 3 YEARS on Proposal Four 3 years 2 years 4. To approve the frequency of stockholder votes on our executive compensation program on an advisory (non-binding) basis. NOTE: In the discretion of the proxies, such other business as may properly come before the meeting and at any adjournments or postponements thereof. This proxy, when properly executed, will be voted in the manner directed herein. If no direction is made, this proxy will be voted FOR the election of the nominees as director, FOR the ratification of the selection of PMB Helin Donovan, LLP as our independent registered public accounting firm, FOR the approval of our executive compensation program and FOR a frequency of every 3 YEARS for stockholder votes on executive compensation. Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name, by authorized officer. 1 year Abstain Against Abstain 04) Bert C. Roberts, Jr. 05) Donn V. Tognazzini

Signature [PLEASE SIGN WITHIN BOX]

Date

Signature (Joint Owners)

Date

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SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the fiscal year ended March 31, 2011 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to

Commission file number 0-20028 VALENCE TECHNOLOGY, INC. (Exact name of Registrant as specified in its charter) DELAWARE (State or other jurisdiction of incorporation or organization) 12303 TECHNOLOGY BOULEVARD, SUITE 950 AUSTIN, TEXAS (Address of principal executive offices) 77-0214673 (I.R.S. Employer Identification No.) 78727 (Zip Code)

Registrants telephone number, including area code: (512) 527-2900 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common stock, $.001 par value Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes No Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes No Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No Indicate by check mark if disclosure of delinquent filers, pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. -1-

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of accelerated filer or large accelerated filer in Rule 12b-2 of the Exchange Act. Large Accelerated Filer Non-accelerated filer (do not check if a smaller reporting company) Accelerated Filer Smaller reporting Company

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No

The aggregate market value of the Registrants common equity held by non-affiliates was $89,704,120 as of September 30, 2010, the last business day of the registrants most recently completed second fiscal quarter and based upon the closing price of the Registrants common stock on the NASDAQ Capital Market on such date. This calculation excludes 76,697,057 shares of common stock held by directors, officers and holders of 5% or more of Registrants outstanding common stock and such exclusion of shares held by any such person should not be construed to indicate that such person possesses the power, direct or indirect, to direct or cause the direction of the management or policies of the Registrant, or that such person is controlled by or under common control with the Registrant. The number of shares outstanding of the Registrants common stock as of April 30, 2011, was 154,985,082. Documents Incorporated by Reference Document Proxy Statement for the FY 2011 Annual Meeting of Stockholders Part of Form 10-K III

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VALENCE TECHNOLOGY, INC. ANNUAL REPORT ON FORM 10-K FISCAL YEAR ENDED MARCH 31, 2011 Table of Contents Forward-Looking Statements PART I Item 1. Business Item 1A. Risk Factors Item 1B. Unresolved Staff Comments Item 2. Properties Item 3. Legal Proceedings PART II Item 4. Reserved Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Item 6. Selected Financial Data Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operation Item 7A. Quantitative and Qualitative Disclosures About Market Risk Item 8. Financial Statements and Supplementary Data Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure Item 9A. Controls and Procedures Item 9B. Other Information PART III Item 10. Directors, Executive Officers, and Corporate Governance Item 11. Executive Compensation Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Item 13. Certain Relationships and Related Transactions, and Director Independence Item 14. Principal Accountant Fees and Services PART IV Item 15. Exhibits and Financial Statement Schedules Signatures Page 4 5 5 13 31 31 31 32 32 34 35 44 F-1 45 45 48 48 48 48 48 48 48 49 49 57

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FORWARD-LOOKING STATEMENTS This Annual Report on Form 10-K, Form 10-K or this Report, contains statements that constitute forward-looking statements within the meaning of Section 21E of the Exchange Act and Section 27A of the Securities Act. The words may, will, expect, intend, estimate, continue, anticipate, project, predict, believe and similar expressions and variations thereof are intended to identify forward-looking statements. These statements appear in a number of places in this Report and include statements regarding the intent, belief or current expectations of Valence Technology, Inc., to which we refer in this Report as Valence, the Company, we or us, with respect to, among other things: trends affecting our financial condition or results of operations; our product development strategies; trends affecting our manufacturing capabilities; trends affecting the commercial acceptability of our products; and our business and growth strategies.

You are cautioned not to put undue reliance on forward-looking statements. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those in such forward looking statements in this Report and the documents incorporated herein by reference. Factors that could cause our actual results to differ materially from our forward looking statements include those discussed under Risk Factors, which include, but are not limited to the following: our ability to develop and market products that compete effectively in our targeted market segments; market acceptance of our current and future products; our ability to meet customer demand; our ability to obtain sufficient funding to continue to pursue our business plan; our ability to perform our obligations under our loan agreements; a loss of one of our key customers, or a reduction in orders from one of such customers; our ability to implement a long-term business strategy that will be profitable or generate sufficient cash flow; the ability of our vendors to provide conforming materials for our products on a timely basis; the loss of any of our key executive officers; our ability to manage our foreign manufacturing and development operations; international business risks; our ability to attract skilled personnel; our ability to protect and enforce our current and future intellectual property; our need for additional financing; and future economic, business and regulatory conditions.

We believe that it is important to communicate our future expectations to investors. However, there may be events in the future that we are not able to accurately predict or control. The factors discussed under Item 1A - Risk Factors or the documents incorporated by reference herein, as well as any cautionary language in this Report or the documents incorporated by reference herein, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we described in our forward-looking statements. Except as required by law, we undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

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PART I ITEM 1. BUSINESS We were founded in 1989 and develop, manufacture and sell advanced energy storage systems utilizing our proprietary phosphate-based lithium-ion technology. Our mission is to promote the wide adoption of high-performance, safe, environmentally friendly energy storage systems. To accomplish our mission and address the significant market opportunity we believe is available we utilize the numerous benefits of our latest energy storage technology, worldwide intellectual property portfolio and extensive experience of our management team. We are a global leader in the development of patented lithium iron magnesium phosphate advanced energy storage systems. We have redefined lithium battery technology and performance by marketing the industrys first safe, reliable and rechargeable lithium iron magnesium phosphate battery for diverse applications, with special emphasis on motive, marine, industrial, military and stationary markets. Valance is a diverse, vertically aligned company. From our patented cathode materials to our standard family of scalable U-Charge systems and customs systems designed for specific applications, we offer commercially proven solutions. For many applications our scalable U-Charge systems, complete with programmable Battery Management Systems (BMS), are the logical choice in avoiding the expense and long development cycles of custom systems. However, when a custom system is required, Valence has the technology, tools and experience to fulfill our customers requirements. We believe that the improved features and functionality of our lithium iron magnesium phosphate energy storage systems are well suited for motive, marine, industrial, military, stationary and other applications that require safety, improved performance and long run times. Following years of commercial use, we believe our experience is paving the way for the lower cost and higher performance solutions that our next generation lithium vanadium technologies will offer. Markets We are shipping commercial lithium phosphate energy storage solutions into five key market sectors that we believe will benefit most from our performance, long life and safety advantages: Motive We are enabling efficient transportation solutions from all-electric and hybrid personal transporters to commercial delivery vehicles and mass transit buses. These quiet, powerful, low to zero-emission vehicles need portable power solutions to operate efficiently. Our patented Lithium Iron Magnesium Phosphate Energy Storage Systems offer enhanced performance, safety, reliability and environmentally friendly characteristics and lower lifetime cost. We are working with a global customer base to deliver motive solutions for hybrid electric vehicles (HEV), plug-in hybrid electric vehicles (PHEV) , electric vehicles (EV), and neighborhood electric vehicles (NEV) including car, bus, truck, tram and scooter applications. Marine The Marine market sector includes applications such as hybrid yachts, ocean going tug boats, and other private and commercial vessels. Harbors are one of the most polluted areas in the world in terms of water, air and noise. Our products enable yachts, such as those made by BJ Technologie, a subsidiary of Bnteau Group, to enter and exit harbors in an allelectric, non-polluting mode. Industrial The Industrial market sector includes applications where the majority of the batterys energy is used in cleaning and lifting, powering or handling goods or materials, rather than propelling the application. These applications include floor cleaners, forklifts, medical carts, defibrillators, wheelchairs, robotics and other industrial tools. Military The Military market sector includes applications from each of the above market sectors; however this market is different due to its unique requirements and barriers to entry. The main focus for military applications includes robotics, communications, survey equipment, auxiliary power systems and weaponry. The motive applications in the Military sector include EVs, HEVs and PHEVs in armored and non-armored vehicles, as well as marine, submarine and aviation applications. -5-

Stationary Stationary Energy Storage Systems are designed to provide electrical power to large systems during instances of power outages. They are used in equipment dedicated to stabilizing voltages by eliminating irregularities in systems that generate electrical power. The storage systems can hold large loads temporarily as utility power switches from one generation source to another. Hence, applications such as uninterruptible power supplies (UPS), Direct Current (DC) power systems, frequency regulation, community storage, emergency lighting, starter systems, security alarms, and switchgear primarily drive the market for stationary batteries. Strategy Our business plan and strategy focuses on the generation of revenue from sales of advanced energy storage systems, while controlling costs through partnerships with contract manufacturers and internal manufacturing efforts through our two wholly-owned subsidiaries in Suzhou, China. We expect to develop target markets through the sales of our scalable UCharge and custom energy storage systems, complete with our programmable BMS. In addition, as the alternative energy sector matures we expect to pursue licensing or other alliance opportunities to expand our presence in the lithium phosphate sector. Key elements of our business strategy include: Develop and market differentiated battery solutions for a wide array of applications that leverage the advantages of our technologies. We are committed to the improvement of our technologies, our energy storage systems, integration of our energy storage systems into our customer applications and further development of worldwide suppliers to serve the rapidly expanding lithium phosphate sector. Our product development and marketing efforts are focused on large-format battery solutions, such as our scalable U-Charge systems, and custom energy storage systems such as the next generation London hybrid double deck bus manufactured by Wrightbus. Our products are positioned to fulfill the needs of a wide variety of applications as alternative energy devices enter commercial markets. Manufacture high-quality, cost-competitive products using a combination of owned facilities and contract manufacturing facilities. Our products are manufactured in China, using both internal and contract manufacturing resources. Our company-owned China facility includes two plants: one manufactures our advanced lithium iron magnesium phosphate materials with our patented carbon-thermal reduction process, and the second manufactures our advanced standard large-format packs such as U-Charge and custom packs for customers such as Segway Inc. (Segway). We have arrangements with contract manufacturers for cylindrical cell production. We believe this manufacturing strategy will allow us to directly control our intellectual property and operations management as well as deliver high-quality products that meet the needs of a broad range of customers and applications. Our business strategy is being implemented in phases. We are moving beyond Phase 1 toward Phase 2: Phase 1: Our current business strategy is focused on developing applications that deliver an improved energy storage solution to address the desired performance goals of the end user. We are utilizing our mature technology, the intellectual property developed during the 21 year life of Valence, and critical on-the-road, on-line experience to expand our commercial opportunities. Our scalable U-Charge Systems are designed for a broad base of motive, marine, military, industrial, and stationary applications offering improved performance, safety, long life, lower lifetime cost and no maintenance. During this phase, we are relying on the word-of-mouth recommendations of our early customers, the engineering benefits we enjoy with emerging development partners and reliable in-use experience to expand our presence in target global markets. Phase 2: Looking toward the immediate future, our business strategy will entail the commercialization of our patented Lithium Vanadium Phosphate (LVP) and Lithium Vanadium Phosphate Fluoride (LVPF) cathode materials into large-format, high capacity cells. These materials offer improved performance and the protection for our customers afforded by our worldwide intellectual patent portfolio.

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We believe our commercial growth strategy will allow us to expand into emerging market applications through the sales of Valence products based on our differentiated technology, design and application engineering capabilities, global fulfillment services and our proven lower cost, high volume manufacturing. Further, we believe Valence is well positioned to license our technology to key component and material manufacturers, such as manufacturers of lithium phosphate cells, to further accelerate growth within the worldwide lithium phosphate sector. We believe we are well positioned for growth due to the following: Leading Technology. We believe that our phosphate-based lithium-ion technologies and manufacturing processes offer many performance and economic advantages over competing battery technologies. The safety, long life and other advantages inherent in our technology enable the design of large-format, lower cost lithium-ion energy systems. As the first company in the battery industry to commercialize phosphates, we believe that we have a significant advantage in terms of time to market as well as chemistry, advanced energy storage system development and manufacturing expertise. New Market Opportunities. Our technology enables the production of high energy density, large-format batteries while reducing the safety concerns presented by oxide-based lithium-ion batteries. Consequently, our lithium phosphate technology energy and power systems can be designed into a wide variety of products and markets. In 2007 we concluded that it would be difficult to predict which markets or devices would adopt lithium solutions early and which markets or devices would follow later. Also, standards had not yet developed in the lithium sector. Based on what we knew of commercial fleet needs compared to our capabilities, we choose to pursue fleets aggressively. We felt fleets would serve as a proving ground of our technology and business economics. We believe this approach has served us well and prepared us to pursue additional opportunities as they materialize. New Valence Market Focus. Over 20 years we have transitioned from a technology developer to a commercial provider of advanced energy storage systems. Our patent portfolio continues to expand. Our technology is maturing and has been tested for years in commercial applications. Our manufacturing capability has matured, is ISO 9001 certified, and can be easily expanded as markets develop. Our application engineers are recognized experts in the integration of our systems into customer applications. We have strengthened our marketing and sales resources. Our full service fulfillment services in Europe, North America and China are on-line. We have developed what we believe to be a world-class supplier base of raw materials and components to support our manufacturing, and our senior management team has extensive international technology and business experience. Lithium Phosphate-Based Technology. We developed and commercialized the first lithium phosphate energy power systems with our lithium iron magnesium phosphate technology. We have two following generations of cathode materials in our proprietary Lithium Vanadium Phosphate and Lithium Vanadium Fluorophosphates cathode applications, both positioned to advance lithium phosphate cathode applications to the next level of applications and use. Our business headquarters is in Austin, Texas. Our materials research and development center is in Las Vegas, Nevada. Our European sales and OEM manufacturing support center is in Mallusk, Northern Ireland. Our manufacturing and product development center is in Suzhou, China. We have the following subsidiaries: Valence Technology Cayman Islands, Inc., Valence Technology (Suzhou) Co., Ltd., and Valence Energy-Tech (Suzhou) Co., Ltd. Fiscal Year 2011 Highlights Following are some of our key events and accomplishments in pursuit of our strategy during the 2011 fiscal year: During the year we set a revenue record of $45.9 million which is a 185% improvement over fiscal year 2010 We introduced the 36 volt scalable U-Charge system We introduced a custom energy storage system for the next generation London double deck hybrid bus We prevailed in a lawsuit regarding the patent infringement of the carbothermal reduction process used in our cathode material manufacturing We were awarded 4 new patents in the U.S. and 13 worldwide patents during the 2011 fiscal year

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Evolution of our Battery Technology Continuing Development of Valence Lithium Phosphate Technology & Systems In 2002, we successfully produced our first generation Lithium Iron Magnesium Phosphate Material In 2004, we introduced our Lithium Iron Magnesium Phosphate Material in a cylindrical construction, and we launched our Segway Custom Pack product. In 2005, we increased the capacity of our energy cell which was included in our 12 Volt U-Charge Scalable Modules In 2007, we launched our 18 Volt U-Charge Scalable Modules In 2010, we launched our 36 Volt U-Charge Scalable Modules In 2012, we plan to launch several Next Generation High Power Custom Systems We continue to develop two next-generation lithium phosphate cathode materials: Lithium Vanadium Phosphate and Lithium Vanadium Fluorophosphate. These materials are not only intended to augment our current commercial lithium iron magnesium phosphate, but also offer improved performance with additional energy storage and higher voltage capabilities for the motive, stationary power, consumer appliance, telecommunication, utility and other industries. We are committed to the improvement of our technologies, our energy storage systems, integration of our energy storage systems into our customer applications, and further development of worldwide suppliers to serve the rapidly expanding lithium phosphate sector. We are continuing to develop our scalable U-Charge systems and custom systems. We continue to improve our programmable BMS, which continues to provide improved control of our battery system, better battery protection, and enhanced performance data reporting, including reporting information to a remote command center or monitoring center. We feel these unique characteristics of our BMS are an improvement over other rechargeable battery pack systems. Our BMS also reduces the level of effort and technical risk required to develop customized hardware and software for new product designs, thus reducing the development cycle time and expense. We offer worldwide customer application engineering support to assure that first system installations satisfy our customers requirements. During fiscal year 2011 we improved the performance and capabilities of our fulfillment centers in the US and Europe where U-Charge systems are stocked for immediate customer delivery. Lithium Iron Magnesium Phosphate Energy Storage Systems Lithium-ion cobalt-oxide technology was originally developed to meet consumer demand for high-energy, small battery solutions to power portable electronic devices. Lithium-ion cobalt-oxide technology was a significant advancement in battery technology for the small battery market. However, due to the safety concerns associated with producing and using traditional lithium-ion cobalt-oxide technology in large-format applications, many markets today such as automotive, industrial, UPS and telecommunications markets remain served by older technologies, such as lead-acid, nickel-cadmium, and nickel metal hydride, which offer low energy density and significant maintenance costs. We believe all of our Lithium Iron Magnesium Phosphate Energy Storage Systems, which utilize safer and more environmentally friendly phosphate-based cathode materials in place of other less stable and more costly cathode materials, address the current challenges facing the rechargeable battery industry and provide us with several competitive advantages. Key attributes of our Lithium Iron Magnesium Phosphate Energy Storage Systems include: Increased safety. We believe that our Lithium Iron Magnesium Phosphate Energy Storage Systems significantly reduce the safety risks associated with oxide-based lithium-ion technologies. The unique chemical properties of phosphates render them almost incombustible if mishandled during charging or discharging. As a result, we believe our technology is more stable under overcharge or short circuit conditions than existing lithium-ion oxide technology and has the ability to withstand higher temperatures and electrical stress. The thermal and chemical stability inherent in our technology provides safety over lithium metal oxides, enabling large-format, high energy density lithium-ion solutions. Performance advantages. Our Lithium Iron Magnesium Phosphate Energy Storage Systems offer several performance advantages over the competing battery chemistries of lead-acid, nickel-cadmium, nickel metal hydride and traditional lithium-ion oxide technologies, including higher charge and discharge rate capability, longer cycle life, longer shelf life, and lower total cost of ownership. Other system advantages include lighter weight, excellent -8-

energy storage characteristics, and high-energy efficiency during charge and discharge. High energy density. In its large-format application, our Lithium Iron Magnesium Phosphate Energy Storage Systems exhibit an energy density that can exceed other battery chemistries such as lead-acid, nickel metal hydride and nickelcadmium. High rate capability. In the power cell construction, our Lithium Iron Magnesium Phosphate Energy Storage Systems offer an exceptional rate capability with sustained 10 to 15C discharges and low impedance of less than 20m Ohms. These two characteristics result in a cell that provides larger bursts of power while generating less heat than energy cells. Increased exceptional cycle life. Current testing of our Lithium Iron Magnesium Phosphate Energy Storage Systems at 50% depth of discharge has yielded a cycle life greater than 9,000 cycles, or greater than 26 years of daily service. At 80% depth of discharge, our systems exceeded over 4,000 cycles, or over 11 years of daily service. This extended life demonstrates the return on investment that commercial fleet and other applications demand. Maintenance-free. Our Lithium Iron Magnesium Phosphate Energy Storage Systems are maintenance-free. Lower lifetime cost. We believe that our proprietary phosphate material used in our Lithium Iron Magnesium Phosphate Energy Storage Systems is less expensive than the cobalt-oxide material used in competing lithium-ion technologies. As our production volume increases due to greater demand for Lithium Iron Magnesium Phosphate Energy Storage Systems, material costs have decreased. For example our cost to manufacture our patented cathode material has decreased by 50% during the last four years. Finally, the lower maintenance costs, longer cycle life and longer service life associated with Lithium Phosphate Energy Storage Systems lead to a lower total cost of ownership in numerous applications Flexibility. Our BMS is programmable and therefore can easily be applied to custom energy storage systems of various sizes for various applications such as our scalable U-Charge Energy Storage Systems and custom pack solutions. Environmental friendliness. Rechargeable batteries that contain nickel metal hydride, nickel-cadmium or lead-acid are toxic and harmful to the environment. In contrast, our proprietary phosphate technologies do not contain any heavy metals. Our Lithium Iron Magnesium Phosphate Energy Storage Systems incorporate an environmentally friendly, phosphate-based cathode material that reduces the disposal issues inherent in other types of batteries. Products The U-Charge Energy Storage System Our U-Charge Energy Storage System is a family of products based on Valences proprietary Lithium Iron Magnesium Phosphate technology and is designed to be a direct replacement for standard-sized lead-acid energy storage systems. These 12, 19 and 30 volt energy storage systems offer twice the run-time and half the weight of lead-acid systems, expanded calendar life and greater cycle life with deep depth of discharge, resulting in significantly lower total costs of ownership. U-Charge Energy Storage Systems are used in a variety of applications such as hybrid and full electric vehicles, wheelchairs, scooters, robotics, marine, remote power, military, back-up and many other devices. Announced in March 2009, the latest U-Charge Energy Storage Systems became commercially available in the fourth quarter of fiscal year 2010. These systems are designed to offer significant performance advantages that include common communication protocol, programmable logic, advanced cell balancing and improved fuel gauge reporting. They also are backward compatible to prior U-Charge products. Custom Energy Storage Systems Through partnerships with customers such as Segway Inc. ("Segway") and Wrightbus, among others, we have been a leader in developing lithium phosphate energy storage systems. These systems, designed in tandem with the engineering and product design teams of our customers, offer unique, dynamic solutions to the individual needs of our customers product requirements. From the Segway personal transporter energy pack, to the Wrightbus advanced hybrid energy storage system, Valence has been able to manufacture our lithium phosphate technology and BMS control systems to fit within the specific -9-

and challenging form and function requirements of our customers, yielding exceptional power storage and delivery results, in conjunction with efficient system monitoring, management and reporting functions delivered by our customizable BMS system. We feel there are significant market opportunities in the custom energy storage system areas, and are actively working in conjunction with customers and partners to realize results from these efforts. Operational Achievements Valence energy storage systems are now in daily use in delivery fleet, medical, marine, military and other markets. Our research, development and design efforts are focused on new products utilizing our patented lithium iron magnesium phosphate materials, manufacturing process and battery management system expertise. Next generation patented lithium vanadium cathode materials are now being tested in commercial grade cells. Vanadium exhibits improved performance over traditional magnesium phosphate cathode materials with higher voltage and higher discharge rates, among other performance advantages. As our manufacturing volume continues to increase, significant reductions were made in our manufacturing costs, primarily due to lower raw material costs, higher production yields, improved manufacturing efficiency and increased overhead absorption into our inventory. Our customer base is expanding into a variety of markets. Some of our top customers include: Smith Electric Vehicles (which includes Smith Electric Vehicles, US and Tanfield, PLC ), Segway, Howard Medical Solutions (Howard), Oxygen S.p.A. (Oxygen), Rubbermaid Medical Solutions (Rubbermaid), Enova Systems (Enova), PVI, Tennant Company (Tennant), and Wrightbus. Our battery pack, powder, and engineering operations are conducted in our two manufacturing plants located in Suzhou, China. We continue to improve the batch-to-batch yield of our proprietary Lithium Phosphate cathode materials, increase output and lower our costs. Pack assembly operations have been simplified and expanded. In addition, our engineering operations have been expanded to support continuous manufacturing processes and quality control improvements. Development of our patented next-generation LVP and LVPF cathode materials has been focused and accelerated. Recognized as the next generation of Lithium Phosphate energy solutions, we believe LVP and LVPF will offer higher performance solutions to a new generation of motive and other demanding applications. Competition Competition in the rechargeable battery industry is intense. In the rechargeable battery market, the principal competitive technologies currently marketed are lead-acid, nickel-cadmium, nickel metal hydride, liquid lithium-ion and lithium-ion polymer energy storage systems. The industry consists of major domestic and international companies with substantial financial, technical, marketing, sales, manufacturing, distribution and other resources available to them. Our principal competitors generally have greater financial and marketing resources than we do and they may therefore develop batteries similar or superior to ours or otherwise compete more successfully than we do. In addition, many of these companies have name recognition, established positions in the market, and long-standing relationships with OEMs and other customers. We believe our principal competitors are LG Chem, Matsushita Industrial Co., Ltd. (Panasonic), Sony, Toshiba and SAFT, A123 Systems, Dow - Kokam, Thundersky Winston Battery, Altair Nanotechnologies, and Ener1. A123 Systems, and Ener1 have heavily invested in manufacturing capacity for their chosen markets and have received significant financial support from private investors, public offerings and United States federal, local and state grants, subsidies and incentives. The performance characteristics of lithium-ion energy storage systems have consistently improved over time as market leaders continued to improve the technology. However, Valence intends to maintain competitive leadership in the lithium phosphate sector with patented Lithium Phosphate technologies and advanced energy storage solutions for todays and tomorrows demanding high-energy applications. We believe that we have several technological advantages over competitors in terms of our ability to compete in the rechargeable battery market. Our Lithium Iron Magnesium Phosphate energy storage solutions including materials, cells and intelligent technology, and our unique ability to integrate our packs into customer applications enable us to serve a wide range of markets that do not currently use lithium-ion energy storage systems.

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Sales and Marketing U-Charge Energy Storage Systems are a family of standard form factor systems that can be configured to meet the energy storage needs of a wide range of customers applications. The customer evaluation and approval process is generally between three and eighteen months. We anticipate sales will typically be made through separately negotiated supply agreements and standard purchase orders. U-Charge Energy Storage Systems are expected to be sold in standard and custom configurations. In addition, we expect to design and sell custom battery systems based on our Lithium Phosphate technology and programmable Command and Control Logic. We also provide pack level application engineering services to assist our customers with the integration of our packs into their specific applications. We have not experienced seasonality in any of our product sales. None of our customers are contractually committed to purchase any minimum quantities of products from us, and orders are generally cancelable prior to shipment. As a result, we do not disclose our order backlog, since we believe that our order backlog at any particular date is not necessarily indicative of actual revenue for any future period. Sales of products are typically denominated in U.S. dollars. Consequently, sales historically have not been subject to currency fluctuation risk. For additional information, please Note 19 Segment and Geographic Information, of the Notes to our Condensed Consolidated Financial Statements. Manufacturing and Raw Materials Our base Lithium Iron Magnesium Phosphate Cathode Material is manufactured in one of our two Suzhou, China manufacturing plants. Our second plant manufactures both custom and standard U-Charge Energy Storage Systems. To meet or exceed expected fiscal year 2012 demand, we have plans to expand both our cathode material and assembly plants during fiscal year 2012. We depend on a limited number of suppliers for certain key raw materials and components used in manufacturing and developing our power systems. We have undertaken efforts to diversify our supplier base for certain key raw materials and components, and we added second sources for several of these materials and components during fiscal year 2011. We will continue to diversify our supplier base for certain materials and components in the future, as appropriate. The quality and availability of our sourced components and materials used in our production continues to improve. We generally purchase raw materials pursuant to purchase orders placed from time to time. We have developed supply agreements with larger suppliers and continue to seek dual sourcing of critical components to guarantee continuity of supply to our customers. Research and Product Development We conduct materials research and development at our Las Vegas, Nevada facility, and new product development at our Austin, Texas and Suzhou, China facilities. Our battery research and development group continuously develops and improves our technology including cathode materials, cells, module, systems and our BMS. Our manufacturing processes have been developed over a number of years and deliver low cost and high quality. Our areas of expertise include: chemical engineering; process control; safety; anode, cathode, and electrolyte chemistry and physics; polymer and radiation chemistries; thin film technologies; coating technologies; analytical chemistry; material science and energy storage system control logic development. Our research and development efforts over the past year have focused and will continue to focus on five areas: Continuing development of our Lithium Phosphate technology in multiple constructions; Development of our next generation Lithium Phosphate technology; Large-format applications for Lithium Phosphate technology; Development of next generation Standard and Custom Battery Packs. Continued improvement of our BMS system. We continuously seek to improve our technology, and are currently focusing on improving the energy density of our products and advancing these improvements into production. We also are working with new materials to make further improvements to the performance of our products. We believe the safety features of our technology and the ongoing improvements in the performance of our batteries will allow us to maintain our competitive advantage.

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Research and product development expenses consist primarily of personnel, equipment, and materials to support our efforts to develop battery chemistry and products and improve our manufacturing processes. Research and product development expenses totaled $3.6 million in fiscal year 2011, $4.5 million in fiscal year 2010, and $4.3 million in fiscal year 2009. Safety; Regulatory Matters; Environmental Considerations Before we commercially introduce our batteries into certain markets, we may be required, or may voluntarily determine to obtain approval of our materials and/or products from one or more of the organizations engaged in regulating product safety. These approvals could require significant time and resources from our technical staff, and, if redesign were necessary, could result in a delay in the introduction of our products in those markets. National, state and local regulations impose various environmental requirements on the transportation, storage, use and disposal of lithium batteries and certain chemicals used in the manufacture of lithium batteries and energy storage systems. Although we believe that our operations are in material compliance with current applicable environmental regulations, there can be no assurance that changes in such laws and regulations will not impose costly compliance requirements on us or otherwise subject us to future liabilities. Moreover, state and local governments may enact additional restrictions relating to the transportation, storage, use and disposal of lithium batteries used by our customers that could adversely affect the demand for our products. There can be no assurance that additional or modified regulations relating to the transportation, storage, use and disposal of chemicals used to manufacture batteries, or restricting disposal of batteries will not be imposed. In fiscal year 2011, we spent less than $0.1 million on environmental controls, including costs to properly dispose of potentially hazardous waste. For example, the United States Department of Transportation, or DOT, and the International Air Transport Association, or IATA, regulate the shipment of hazardous materials. The United Nations Committee of Experts for the Transportation of Dangerous Goods has adopted amendments to the international regulations for lithium equivalency tests to determine the aggregate lithium content of lithium-ion polymer batteries. In addition, IATA has adopted special size limitations for applying exemptions to these batteries. Under IATA, our U-Charge Power Systems currently fall within the level such that they are not exempt and require a Class 9 designation for transportation. We materially comply with applicable safety-packaging requirements worldwide, as required by the DOT, IATA, and other organizations with jurisdiction over our operations, and these regulations or enforcement policies could impose costly transportation requirements. In addition, compliance with any new DOT or IATA approval regulations or requirements could require significant time and resources from our technical staff and if redesign were necessary, could delay the introduction of new products. The Nevada Occupational Safety and Health Administration and other regulatory agencies have jurisdiction over the operations of our Las Vegas, Nevada facility. Because of the risks generally associated with the use of flammable solvents and other hazardous materials, we expect rigorous enforcement of applicable health and safety regulations. In addition, we currently are regulated by the State Fire Marshalls office and local Fire Departments. Frequent audits by or changes in the regulations issued by the Nevada Occupational Safety and Health Administration, or other regulatory agencies with jurisdiction over our operations, may cause unforeseen delays and require significant time and resources from our technical staff. Chinas Management Methods for Controlling Pollution Caused by Electronic Information Products Regulation (China RoHS) provides a broad regulatory framework including similar hazardous substance restrictions as are imposed by the European RoHS Directive, and applies to methods for the control and reduction of pollution and other public hazards to the environment caused during the production, sale, and import of electronic information products in China affecting a broad range of electronic products and parts, with an effective implementation date of March 1, 2007. However, these methods do not apply to the production of products destined for export. Our compliance system is sufficient to meet such requirements. Our current estimated costs associated with our compliance with this regulation based on our current market share are not significant. However, we continue to evaluate the effect of this regulation on our operation and actual costs could differ from our current estimates. In fiscal year 2011, we spent less than $0.1 million on environmental controls, including costs to properly dispose of potentially hazardous waste.

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Employees At March 31, 2011, we had a total of 433 regular full-time employees. In the U.S., we had a total of 45 regular fulltime employees at our Austin, Texas headquarters and our Las Vegas, Nevada research and development facility. We had 11 regular full-time employees in the areas of engineering and sales located in the United Kingdom and Northern Ireland. Our China manufacturing operation had 377 regular full-time employees. None of our employees are covered by a collective bargaining agreement, and we consider our relations with our employees to be good. Available Information We make available on our website (www.valence.com) under Investor Relations - SEC Filings, free of charge, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports, as soon as reasonably practicable after we electronically file such material with the Securities and Exchange Commission. We will provide copies of these reports upon written request to 12303 Technology Blvd., Suite 950, Austin, Texas 78727. Our filings with the SEC are also available through the SEC website at www.sec.gov or at the SEC Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549 or by calling 1-800-SEC-0330. ITEM 1A. RISK FACTORS Risks Related to Our Company and Our Business Due to our ongoing losses, lack of liquidity and debt obligations, there is doubt about our ability to continue as a going concern. We have experienced significant operating losses in the current and prior fiscal years. At March 31, 2011, our principal sources of liquidity were cash and cash equivalents of $2.9 million. We do not expect that our cash on hand and cash generated by operations will be sufficient to fund our operating and capital needs for the next 12 months. As a result of our limited cash resources and history of operating losses, our auditors have expressed in their report on our consolidated financial statements that there is doubt about our ability to continue as a going concern. We presently have no further commitments for financing by affiliates of our Chairman Carl Berg. Recently, we have depended on sales of common stock under an At-Market Issuance Agreement with Wm. Smith & Co. If we are unable to obtain further financing under the AtMarket Issuance Agreement or from affiliates of Mr. Berg or others on terms acceptable to us, or at all, we may not be able to fulfill our customer commitments and/or be forced to cease our operations and liquidate our assets. Our limited financial resources could materially affect our business, our ability to commercially exploit our technology and our ability to respond to unanticipated developments, and could place us at a disadvantage to our competitors. Currently, we do not have sufficient capital resources or cash flow from operations to generate the cash flows required to meet our operating and capital needs. Our ability to raise capital may be adversely affected by a variety of risks discussed elsewhere herein, including the volatility of the stock market and our ability to raise funds via share sales under our At The Market Agreement with Wm Smith. Our inability to raise adequate funds, or any funds, via the At The Market Agreement, or other capital-raising transactions, limits our financial resources and could materially adversely affect our ability to commercially exploit our technologies and products. For example, it could: limit the research and development resources we are able to commit to the further development of our technology and the development of products that can be commercially exploited in our marketplace; limit the sales and marketing resources that we are able to commit to the marketing of our technology; have an adverse effect on our ability to attract top-tier companies as our technology and marketing partners; have an adverse effect on our ability to employ and retain qualified employees with the skills and expertise necessary to implement our business plan; make us more vulnerable to failing to achieve our forecasted results, economic downturns, adverse industry conditions or catastrophic external events; -13-

 limit our ability to withstand competitive pressures and reduce our flexibility in planning for, or responding to, changing business and economic conditions; and place us at a disadvantage to our competitors that have greater financial resources than we have. We have a history of losses and an accumulated deficit and may never achieve or sustain significant revenues or profitability. We have incurred operating losses each year since our inception in 1989 and had an accumulated deficit of $594 million as of March 31, 2011. We have sustained recurring losses related primarily to the research and development and marketing of our products combined with the lack of sufficient sales to provide for these needs. We anticipate that we will continue to incur operating losses and negative cash flows over the next fiscal year. We may never achieve or sustain sufficient revenues or profitability in the future. We reported a net loss available to common stockholders of $12.9 million for the fiscal year ended March 31, 2011. We reported a net loss available to common stockholders of $23.2 million for the fiscal year ended March 31, 2010, and a net loss available to common stockholders of $21.4 million for the fiscal year ended March 31, 2009. If we cannot achieve a competitive cost structure, achieve profitability, and acquire access to capital markets on acceptable terms, we will be unable to fund our obligations and sustain our operations, and may be required to liquidate our assets, cease operations or file for bankruptcy protection. We depend on a small number of customers for our revenues, and our results of operations and financial condition could be harmed if we were to lose all or a part of the business from any one of them. To date, our existing purchase orders in commercial quantities are from a limited number of customers. During the fiscal year ended March 31, 2011, Smith Electric Vehicles and Segway Inc. contributed 42%, and 24%, of our revenues, respectively. We anticipate that sales of our products to a limited number of key customers will continue to account for a significant portion of our total revenues. We do not have long-term agreements with any of these customers committing them to purchase any specified amount of our products. As a result, we face the substantial risk that one or more of the following events could occur: reduction, delay or cancellation of orders from a customer; development by a customer of other sources of supply; selection by a customer of devices manufactured by one of our competitors for inclusion in future product generations; loss of a customer or a disruption in our sales and distribution channels; or failure of a customer to make timely payment of our invoices. If we were to lose one or more customers, or if we were to lose revenues due to a customers inability or refusal to continue to purchase our batteries, our business, results of operations and financial condition would be harmed. Any adverse economic conditions, including a future recession or credit constraints, or unfavorable economic conditions in a particular region, business or industry sector, may lead our customers to delay or forego technology investments and could have other effects, such as limiting our ability to access funds on credit and reducing the value of our equity securities, any of which could adversely affect our business, financial condition, operating results and cash flow. Any future disruptions in the credit and financial markets could have a significant material adverse effect on the global economy. A future recession or slowdown in the financial markets or other economic conditions, including but not limited to, consumer spending, employment rates, business conditions, inflation, fuel and energy costs, consumer debt levels, lack of available credit, the state of the financial markets, interest rates, and tax rates may result in reduced demand for -14-

products utilizing our advanced battery technology and difficulties in us obtaining financing, which may adversely affect our growth and business prospects. Risks we might face could include: potential declines in revenues due to reduced orders or other factors caused by economic challenges faced by our customers and prospective customers; potential adverse effects on our customers ability to pay, when due, amounts payable to us and related increases in our cost of capital associated with any increased working capital or borrowing needs we may have if this occurs, or to collect amounts payable to us in full (or at all) if any of our customers fail or seek protection under applicable bankruptcy or insolvency laws; potential adverse effects on our ability to access credit and other financing sources (and the cost thereof). This may affect our ability to finance our operations or make significant capital expenditures relating to new products; lengthening sales cycles and/or delayed or cancelled decisions to purchase our products and/or our technology; and potential adverse effects on the valuation of our equity securities as a result of the devaluation and volatility of global stock markets. The occurrence of such events could adversely affect our business, financial condition, operating results and cash flow. Such a future economic slowdown or recession in the global economy is likely to materially affect the global banking system including individual institutions as well as a particular business or industry sector, which could cause further consolidations or failures in such a sector. These adverse financial events could also result in further government intervention in the United States and world markets. Any of these results could affect the manner in which we are able to conduct business including within a particular industry sector or market and could adversely affect our business, financial condition, operating results and cash flow or cash position. Our working capital requirements may increase beyond those currently anticipated. We have planned for an increase in sales and, if we experience sales in excess of our plan, our working capital needs and capital expenditures would likely increase from that currently anticipated. Our ability to meet this additional customer demand would depend on our ability to arrange for additional equity or debt financing since it is likely that cash flow from sales will lag behind these increased working capital requirements. Our indebtedness and other obligations are substantial and could materially affect our business and our ability to incur additional debt to fund future needs. We have and will continue to have a significant amount of indebtedness and other obligations. As of March 31, 2011, we had approximately $76.0 million of total consolidated indebtedness. Included in this amount are $34.9 million of loans outstanding, net of discount, to an affiliate of Carl Berg, $30.4 million of accumulated interest associated with those loans and $10.7 million of principal and interest outstanding with a third party finance company, iStar. The loan to iStar matures in the fourth quarter of fiscal 2012. We are currently obligated to pay off this debt by making payments to iStar equal to $1.0 million in principal plus accrued interest per month. Our outstanding shares of Series C-1 Convertible Preferred Stock and Series C-2 Convertible Preferred Stock held by affiliates of Carl Berg are redeemable by the holders for up to $8.6 million, plus accrued dividends which, as of March 31, 2011, which were approximately $0.9 million. Our substantial indebtedness and other obligations could negatively affect our current and future operations. For example, it could: limit our ability to obtain additional financing for working capital, capital expenditures, acquisitions and general corporate purposes; require us to dedicate a substantial portion of our cash flow from operations to the payment of principal of, and interest on, our indebtedness, thereby reducing the funds available to us for other purposes; make us more vulnerable to failure to achieve our forecasted results, economic downturns, adverse industry conditions or catastrophic external events, limit our ability to withstand competitive pressures and reduce our -15-

flexibility in planning for, or responding to, changing business and economic conditions; place us at a disadvantage to our competitors that have relatively less debt than we have; or cause us to cease business and liquidate our assets and operations. All of our assets are pledged as collateral under various loan agreements with Mr. Berg or related entities. If we fail to meet our obligations pursuant to these loan agreements, these lenders may declare all amounts borrowed from them, together with accrued and unpaid interest thereon, to be due and payable. If this were to occur, we would not have the financial resources to repay our debt and these lenders could proceed against our assets. Our financial results may vary significantly from quarter to quarter. Our product revenue, operating expenses and quarterly operating results have varied in the past and may fluctuate significantly from quarter to quarter in the future due to a variety of factors, many of which are outside of our control. As a result you should not rely on our operating results during any particular quarter as an indication of our future performance in any quarterly period or fiscal year. These factors include, among others: timing of orders from our customers and the possibility that customers may change their order requirements with little or no notice to us; rate of adoption of our energy storage systems; deferral of customer orders in anticipation of new products from us or other providers of batteries and related technologies; timing of deferred revenue components associated with large orders; new product releases, licensing or pricing decisions by our competitors; commodity and raw materials component prices; lack of order backlog; loss of a significant customer or distributor; effect of changes to our product distribution strategy and pricing policies; changes in the mix of domestic and international sales; rate of growth of the markets for our products; and other risks described below. The market for our products is evolving and it is difficult to predict its potential size or future growth rate. Many of the organizations that may purchase our products have invested substantial resources in their existing power systems and, as a result, have been reluctant or slow to adopt a new approach, particularly during a period of limited or reduced capital expenditures. Moreover, our current products are alternatives to existing systems and may never be accepted by our customers or may be made obsolete by other advances in related technologies. Significant portions of our expenses are not variable in the short term and cannot be quickly reduced to respond to decreases in revenue. Therefore, if our revenue is below our expectations, our operating results are likely to be adversely and disproportionately affected. In addition, we may change our prices, modify our distribution strategy and policies, accelerate our investment in research and development, increase our sales or marketing efforts in response to competitive pressures or to pursue new market opportunities. Any one of these activities may further limit our ability to adjust spending in response to revenue fluctuations. We use forecasted revenue to establish our expense budget. Because most of our expenses are fixed in the short term or incurred in advance of anticipated revenue, any shortfall in revenue may result in significant losses. -16-

Our business will be adversely affected if our Lithium Iron Magnesium Phosphate technology-based batteries are not commercially accepted. We are researching and developing batteries based upon lithium iron phosphate chemistry. Our batteries are designed and manufactured as components for other companies and end-user customers. Our success depends on the acceptance of our batteries and the products using our batteries in their markets. Technical issues may arise that may affect the acceptance of our products by our customers. Market acceptance may also depend on a variety of other factors, including educating the target market regarding the benefits of our products. Market acceptance and market share are also affected by the timing of market introduction of competitive products. If we, or our customers, are unable to gain any significant market acceptance for our lithium phosphate technology-based batteries, our business will be adversely affected. It is too early to determine if our lithium phosphate technology-based batteries will achieve significant market acceptance. If we are unable to develop, manufacture and market products that gain wide customer acceptance, our business will be adversely affected. The process of developing our products is complex and our failure to anticipate our customers changing needs and to develop products that receive widespread customer acceptance could significantly harm our results of operations. We must make long-term investments and commit significant resources before knowing whether our expectations will eventually result in products that the market will accept. After a product is developed, we must be able to manufacture sufficient volumes quickly and at low costs. To accomplish this, we must accurately forecast volumes, mix of products and configurations that meet customer requirements, and we may not succeed. For example, if we are unable to develop, manufacture and market our Energy Storage Systems and gain wide customer acceptance of those systems, our business, results of operations and financial condition would be harmed. The demand for batteries in the transportation and other markets depends on the continuation of current trends resulting from dependence on fossil fuels. Extended periods of low fuel prices, changes in government regulations and public perception of fossil fuels and developments in alternative technologies could adversely affect demand for our batteries. We believe that much of the present and projected demand for advanced batteries in the transportation and other markets results from recent increases in the cost of oil, the dependency of the United States on oil from unstable or hostile countries, government regulations and economic incentives promoting fuel efficiency and alternate forms of energy, as well as the belief that climate change results in part from the burning of fossil fuels. Gasoline, diesel and other fuel prices have been extremely volatile, and this continuing volatility is expected to persist. Lower fuel prices over extended periods of time may lower the perception in government and the private sector that cheaper, more readily available energy alternatives should be developed and produced. Additionally, significant developments in alternative technologies, such as advanced diesel, ethanol, fuel cells or compressed natural gas, or improvements in the fuel economy of the internal combustion engine, may materially and adversely affect our business and prospects in ways we do not currently anticipate. For example, fuel which is abundant and relatively inexpensive in North America, such as compressed natural gas, may emerge as consumers preferred alternative to petroleum based propulsion. If the cost of oil decreased significantly, the outlook for the long-term supply of oil to the United States improved, the government eliminated or modified its regulations or economic incentives related to fuel efficiency and alternate forms of energy, there were significant developments in alternative technologies or if there is a change in the perception that the burning of fossil fuels negatively affects the environment, the demand for our batteries could be reduced, and our business, prospects and revenue may be harmed. Adverse business or financial conditions affecting the automotive industry may have a material adverse effect on our development and marketing partners and our battery business. We are seeking to enter into certain agreements with certain worldwide automotive manufacturers and tier 1 suppliers regarding their PHEV and EV development efforts. Certain of these manufacturers and suppliers have in recent years experienced static or reduced revenues, increased costs, net losses, loss of market share, labor issues and other business and financial challenges. As a result, automotive manufacturers may discontinue or delay their planned introduction of HEVs, PHEVs or EVs as a result of adverse changes in their financial condition or other factors. Automotive manufacturers may also seek alternative battery systems from other suppliers which may be more cost-effective or require fewer modifications in standard manufacturing processes than our products. Adverse business or financial conditions affecting individual automotive manufacturers or tier 1 suppliers or the automotive industry generally, including potential additional -17-

bankruptcies of automotive companies and their suppliers, as well as market disruption that could result from future consolidation in the automotive industry, could have a material adverse effect on our business. Automotive manufacturers may discontinue or delay their planned introduction of PHEVs or EVs as a result of adverse changes in their financial condition or other factors. Automotive manufacturers may also seek alternative battery systems from other suppliers which may be more cost-effective or require fewer modifications in standard manufacturing processes than our products, or which such firms believe are more stable financially. We also may experience delays or losses with respect to the collection of payments due from customers in the automotive industry experiencing financial difficulties. Problems in our production processes could limit our ability to grow revenues and maintain our customer base. The manufacturing and assembly of our batteries and battery systems is a highly complex process that requires extreme precision and quality control throughout a number of production stages. Any defects in battery packaging, impurities in the materials used, contamination of the manufacturing environment, incorrect welding, excess moisture, equipment failure or other difficulties in the production process could reduce yields and affect our ability to produce a sufficient number of batteries to meet the demands of our customers. In the past, we have experienced production problems that limited our ability to produce a sufficient number of batteries to meet the demands of certain customers. For example, during the fourth quarter of fiscal year 2010 and the first and second quarters of fiscal year 2011, we experienced component shortages from certain manufacturing supply vendors, and we also experienced quality issues with certain components supplied by third party suppliers during fiscal year 2011. These problems resulted in the temporary postponements of certain shipments to our customers, and the problems also resulted in the return of certain products already shipped to our customers for rework or replacement. Although we identified and have taken corrective actions for these issues, if these or other production problems recur and we are unable to resolve them in a timely fashion, it could have a material adverse effect on our ability to grow revenues and maintain our customer base. We have underutilized manufacturing capacity that may limit our ability to become profitable. Through our Chinese wholly owned foreign entities we lease and have equipped a 120,000 square foot facility for manufacturing and testing of our batteries. To be financially successful, and to fully utilize the capacity of this facility and allocate its associated overhead, we must achieve significantly higher sales volumes. We must accomplish this while also preserving the quality levels we achieved when manufacturing these products in more limited quantities. To date, we have not been successful at increasing our sales volume to a level that fully utilizes the capacity of the facility and we may never increase our sales volume to necessary levels. If we do not reach these necessary sales volume levels, or if we cannot sell our products at our suggested prices, our ability to reach profitability will be materially limited. We have limited experience manufacturing our products in large quantities. Achieving the necessary production levels presents a number of technological and engineering challenges for us. We have limited experience manufacturing our products in high volume. We do not know whether or when we will be able to develop efficient, low-cost manufacturing capability and processes that will enable us to meet the quality, price, engineering, design and product standards or production volumes required to successfully manufacture large quantities of our products. Even if we are successful in developing our manufacturing capability and processes, we do not know whether we will do so in time to meet our product commercialization schedule or to satisfy the requirements of our customers. If our products fail to perform as expected, we could lose existing and future business, and our ability to develop, market and sell our batteries could be harmed. The market perception of our products and related acceptance of the products is highly dependent upon the quality and reliability of the products that we build. Any quality problems attributable to our product lines may substantially impair our revenue prospects. Moreover, quality problems for our product lines could cause us to delay or cease shipments of products or have to recall or field upgrade products, thus adversely affecting our ability to meet revenue or cost targets. In addition, while we seek to limit our liability as a result of product failure or defects through warranty and other limitations, if one of our products fails, a customer could suffer a significant loss and seek to hold us responsible for that loss.

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Our failure to cost-effectively manufacture our technologically-complex batteries in commercial quantities which satisfy our customers product specifications and their expectations for product quality and delivery could damage our customer relationships and result in significant lost business opportunities for us. To be successful, we must cost-effectively manufacture commercial quantities of our technologically-complex batteries that meet our customer specifications for quality and timely delivery. To facilitate commercialization of our products, we will need to continuously reduce our manufacturing costs, which we intend to do through the effective utilization of manufacturing partners and continuous improvement of our manufacturing and development operations in our wholly owned foreign enterprises in China. We currently manufacture our batteries and assemble our products in China. We are dependent on the performance of our manufacturing partners, as well as our own manufacturing operations to manufacture and deliver our products to our customers. We have experienced component supply issues, which in some cases has limited our ability to produce a sufficient number of batteries to fulfill our customers demands. For example, during the fourth quarter of fiscal year 2010 and the first quarter of fiscal year 2011, our anticipated revenue was adversely affected due to quality issues with the cylindrical cells we purchased from a third party supplier that are included in our batteries, and the temporary suspension of certain areas of production and certain shipments at our China facility in order to implement a component change on a circuit board. If we fail to correct these issues in a manner that allows us to meet customer demand, or if any of our manufacturing partners are unable to manufacture products in commercial quantities on a timely and costeffective basis, we could lose our customers and adversely affect our ability to attract future customers. In addition to being used in our own product lines, our battery cells are intended to be incorporated into other products. If we do not form effective arrangements with OEMs to commercialize these products, our profitability could be impaired. Our business strategy contemplates that we will be required to rely on assistance from OEMs to gain market acceptance for our products. We therefore will need to identify acceptable OEMs and enter into agreements with them. Once we identify acceptable OEMs and enter into agreements with them, we will need to meet these companies requirements by developing and introducing new products and enhanced or modified versions of our existing products on a timely basis. OEMs often require unique configurations or custom designs for batteries, which must be developed and integrated into their product well before the product is launched. This development process not only requires substantial lead-time between the commencement of design efforts for a customized power system and the commencement of volume shipments of the power systems to the customer, but also requires the cooperation and assistance of the OEMs for purposes of determining the requirements for each specific application. We may have technical issues that arise that may affect the acceptance of our product by OEMs. If we are unable to design, develop, and introduce products that meet OEMs requirements, we may lose opportunities to enter into additional purchase orders and our reputation may be damaged. As a result, we may not receive adequate assistance from OEMs or pack assemblers to further commercialize our products, which could impair our profitability. Failure to implement an effective licensing business strategy will adversely affect our revenue, cash flow and profitability. Our long-term business strategy anticipates achieving significant revenue from the licensing of our intellectual property assets, such as our patented lithium iron magnesium phosphate technology. However, we have not yet entered into any licensing agreements for our patented lithium iron magnesium phosphate technology. Our future operating results could be adversely affected by a variety of factors including: our ability to secure and maintain significant licensees of our proprietary technology; the extent to which our future licensees successfully incorporate our technology into their products; the acceptance of new or enhanced versions of our technology; the rate at which our licensees manufacture and distribute their products to OEMs; and our ability to secure one-time license fees and ongoing royalties for our technology from licensees.

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Our future success will also depend on our ability to execute our licensing operations simultaneously with our other business activities. If we fail to substantially expand our licensing activities while maintaining our other business activities, our results of operations and financial condition will be adversely affected. Our dependence on a limited number of suppliers for key raw materials may delay our production of batteries. We depend on a limited number of suppliers for our cylindrical cells, and a limited number of suppliers for certain other key raw materials, such as electrolyte anode material, cylindrical cell manufacturing, and printed circuit boards used in manufacturing and developing our power systems. We generally purchase raw materials pursuant to purchase orders placed from time to time and have no long-term contracts or other guaranteed supply arrangements with our sole or limited source suppliers. As a result, our suppliers may not be able to meet our requirements relative to specifications and volumes for key raw materials, and we may not be able to locate alternative sources of supply at an acceptable cost. For example, during the fourth quarter of fiscal year 2010 and the first quarter of fiscal year 2011, we experienced production delays as a result of quality issues with cylindrical cells supplied by our sole supplier of cylindrical cells at that time, Tianjin Lishen Battery JointStock Co., Ltd. In an attempt to mitigate this type of issue in the future, we engaged Amperex Technology Ltd. as an additional cell supplier in the first quarter of fiscal year 2011. Where practical, we will continue to procure like products from multiple suppliers. In the past, we have also experienced delays in product development due to the delivery of nonconforming raw materials from our suppliers. If in the future we are unable to obtain high quality raw materials in sufficient quantities, on competitive pricing terms and on a timely basis, it may delay battery production, impede our ability to fulfill existing or future purchase orders and harm our reputation and profitability. We expect to sell an increasing portion of our products to, and derive a significant portion of our licensing income from, customers located outside the United States. Foreign government regulations, currency fluctuations and increased costs associated with international sales could make our products and licenses unaffordable in foreign markets, which would reduce our future profitability. International sales of our product and licenses, as well as licensing royalties, represent a significant portion of our sales potential. International business can be subject to many inherent risks that are difficult or impossible for us to predict or control, including: changes in foreign government regulations and technical standards, including additional regulation of rechargeable batteries, technology, or the transport of lithium or phosphate, which may reduce or eliminate our ability to sell or license in certain markets; foreign governments may impose tariffs, quotas, and taxes on our batteries or our import of technology into their countries; requirements or preferences of foreign nations for domestic products could reduce demand for our batteries and our technology; fluctuations in currency exchange rates relative to the U.S. dollar could make our batteries and our technology unaffordable to foreign purchasers and licensees or more expensive compared to those of foreign manufacturers and licensors; longer payment cycles typically associated with international sales and potential difficulties in collecting accounts receivable, which may reduce the future profitability of foreign sales and royalties; import and export licensing requirements in Europe and other regions, including China, where we intend to conduct business, which may reduce or eliminate our ability to sell or license in certain markets; and political and economic instability in countries, including China, where we intend to conduct business, which may reduce the demand for our batteries and our technology or our ability to market our batteries and our technology in those countries.

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These risks may increase our costs of doing business internationally and reduce our sales and royalties or future profitability. Our business depends on certain key personnel, the loss of whom could weaken our management team, and on attracting and retaining qualified personnel. The growth of our business and our success depends on our ability to attract and retain highly-skilled management, technical, research and development, manufacturing, sales and marketing and other operating and administrative personnel, particularly those who are familiar with and experienced in the battery industry. If we cannot attract and retain experienced sales and marketing executives, we may not achieve the visibility in the marketplace that we need to obtain purchase orders, which would have the result of lowering our sales and earnings. Our key personnel include our Chief Executive Officer, Robert L. Kanode, all of our other executive officers and vice presidents, many of whom have very specialized scientific or operational knowledge regarding one or more of our key products. Such persons are in high demand and often receive competing employment offers from numerous other companies, including larger, more established competitors who have significantly greater financial resources than we do. On May 9, 2011, our Chief Financial Officer, Ross A. Goolsby, announced his resignation from our company, effective June 3, 2011. Although we are actively engaged in seeking a replacement for Mr. Goolsby, there can be no guarantee that we will find a suitable replacement for him in a reasonable period of time. We do not maintain key-person life insurance on any of our employees. The loss of the services of one or more of our key personnel or the inability to attract and retain additional personnel and develop expertise as needed could limit our ability to develop and commercialize our existing and future products. We may need to expand our employee base and operations to effectively distribute our products commercially, which may strain our management and resources and could harm our business. To implement our growth strategy successfully, we will have to increase our staff in China, with personnel in manufacturing, engineering, sales, marketing, and product support capabilities, as well as third party and direct distribution channels. However, we face the risk that we may not be able to attract new employees or retain existing employees to sufficiently increase our staff or product support capabilities, or that we will not be successful in our sales and marketing efforts. Additionally, turnover in key management positions in China could impair our ability to execute our plans for growth and adversely affect our future profitability. Product liability or other claims could cause us to incur losses or damage our reputation. The risk of product liability claims and associated adverse publicity is inherent in the development, manufacturing, marketing and sale of our batteries and battery systems, which are incorporated in third party commercial products, such as automotive and marine vehicles, industrial products, military transport and equipment and medical equipment. Certain materials we use in our batteries, as well as our batteries and battery systems, could, if used improperly, cause injuries to persons and damage to property. We are also subject to a risk of claims for injuries and damages caused by third party products that incorporate our batteries. In addition, our business could be harmed by adverse publicity resulting from problems or accidents caused by our batteries or third party products that incorporate our batteries. Although we maintain general liability insurance and product liability insurance, our insurance may not be adequate to cover all potential types of product liability claims to which we are exposed or may not be adequate to indemnify us for all liability that may be imposed on us. In addition, while we often seek to limit our product liability in our contracts, such limits may not be enforceable or may be subject to exceptions.Any successful product liability claim against us in excess of our coverage, or outside of our coverage, could require us to pay a substantial monetary award and could have a material adverse affect on our business, financial condition and reputation. We cannot be assured that such claims against us will not be made in the future. Our patent applications may not result in issued patents, which would have a material adverse effect on our ability to commercially exploit our products. Patent applications in the United States are maintained in secrecy until the patents are issued or are published. Since publication of discoveries in the scientific or patent literature tends to lag behind actual discoveries by several months, we cannot be certain that we are the first creator of inventions covered by pending patent applications or the first to file patent applications on these inventions. We also cannot be certain that our pending patent applications will result in issued patents or that any of our issued patents will afford protection against a competitor. In addition, patent applications filed in foreign -21-

countries are subject to laws, rules and procedures that differ from those of the United States, and thus we cannot be certain that foreign patent applications related to issued U.S. patents will be issued. Furthermore, if these patent applications issue, some foreign countries provide significantly less effective patent enforcement than in the United States. The status of patents involves complex legal and factual questions and the breadth of claims allowed is uncertain. Accordingly, we cannot be certain that the patent applications that we file will result in patents being issued, or that our patents and any patents that may be issued to us in the future will afford protection against competitors with similar technology. In addition, patents issued to us may be infringed upon or designed around by others and others may obtain patents that we need to license or design around, either of which would increase costs and may adversely affect our operations. If we cannot protect or enforce our existing intellectual property rights or if our pending patent applications do not result in issued patents, we may lose the advantages of our research and manufacturing systems. Our ability to compete successfully will depend on whether we can protect our existing proprietary technology and manufacturing processes. We rely on a combination of patent and trade secret protection, non-disclosure agreements and cross-licensing agreements. These measures may not be adequate to safeguard the proprietary technology underlying our batteries. Employees, consultants, and others who participate in the development of our products may breach their nondisclosure agreements with us, and we may not have adequate remedies in the event of their breaches. Furthermore, our competitors may be able to develop products that are equal or superior to our products without infringing on any of our intellectual property rights. We currently manufacture and export some of our products from China. The legal regime protecting intellectual property rights in China is weak. Because the Chinese legal system in general, and the intellectual property regime in particular, are weak, it is often difficult to enforce intellectual property rights in China. Moreover, there are other countries where effective copyright, trademark and trade secret protection may be unavailable or limited. Even where intellectual property enforcement is strong, enforcing our intellectual property against competitors and other infringers is time-consuming and extremely expensive. Financial and human resources for further enforcement efforts concurrent with those already underway are limited. Accordingly, we may not be able to effectively protect our intellectual property rights outside of the United States. Intellectual property infringement claims brought against us could be time-consuming and expensive to defend, and if any of our products or processes is found to be infringing, we may not be able to procure licenses to use patents necessary to our business on reasonable terms, if at all. In recent years, there has been significant litigation in the United States involving patents and other intellectual property rights. For example, we have been named in a lawsuit which alleges that our patented lithium iron magnesium phosphate cathode material infringes two patents owned by the Hydro Quebec that we describe in further detail in Item 3. Legal Proceedings. An adverse decision in this or any other similar litigation could force us to do one or more of the following: stop selling, incorporating, or using our products that use the patented lithium iron magnesium phosphate cathode material intellectual property; pay damages for the use of patented lithium iron magnesium phosphate cathode material; obtain a license to sell or use the patented lithium iron magnesium phosphate cathode material, which license may not be available on reasonable terms, or at all; or redesign those products or manufacturing processes that use the patented lithium iron magnesium phosphate cathode material, which may not be economically or technologically feasible. We may become involved in additional litigation and proceedings in the future. Likewise, we may in the future be subject to claims or an inquiry regarding our alleged unauthorized use of a third partys intellectual property. An adverse outcome in such future litigation could result in similar risks as noted above with respect to the third partys intellectual property. Whether or not an intellectual property litigation claim is valid, the cost of responding to it, in terms of legal fees and expenses and the diversion of management resources, could be expensive and harm our business.

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In the past, we have identified material weaknesses in our internal control over financial reporting. Although we believe that we have remediated those material weaknesses and concluded our controls are effective as of March 31, 2011, if we fail to maintain proper and effective internal controls in the future, our ability to produce accurate and timely financial statements could be impaired, which could harm our operating results, our ability to operate our business and investors' views of us. Pursuant to the Sarbanes-Oxley Act of 2002, we are required to provide a report by management on internal control over financial reporting, including managements assessment of the effectiveness of such control. Internal control over financial reporting may not prevent or detect misstatements because of its inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud. Therefore, even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. In addition, projections of any evaluation of effectiveness of internal control over financial reporting to future periods are subject to the risk that the control may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Ensuring that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be evaluated frequently. In connection with our prior financial audit in the fiscal year ended March 31, 2009, we had identified material weaknesses in our internal control over financial reporting. A material weakness is defined as a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis by the company's internal controls. The material weakness was that during fiscal year 2009, the position of Chief Financial Officer was held by three different people, acting consecutively. This caused management to determine that there was a failure to consistently adhere to certain control disciplines and to evaluate and properly record certain non-routine and complex transactions, which constituted a material weakness in internal control over financial reporting. While we hired Ross A. Goolsby as our Chief Financial Officer in November 2008 and have otherwise expanded our finance, accounting and disclosure staff, we cannot assure you that similar material weaknesses or other material weaknesses will not recur. Implementing any appropriate changes to our internal controls may distract our officers and employees from other matters, entail substantial costs to implement new processes and modify our existing processes and take significant time to complete. Moreover, these changes do not guarantee that we will be effective in maintaining the adequacy of our internal controls, and any failure to maintain that adequacy, or consequent inability to produce accurate financial statements on a timely basis, could increase our operating costs and harm our business. In addition, investors' perceptions that our internal controls are inadequate or that we are unable to produce accurate financial statements on a timely basis may harm our stock price and make it more difficult for us to effectively market and sell our products to new and existing customers. Our international business operations could be disrupted. Our headquarters is located in Austin, Texas and our research and development center is in Las Vegas, Nevada. We also operate a sales and service facility in Mallusk, Northern Ireland, and our manufacturing operations in Suzhou, China. If major disasters such as earthquakes, fires, floods, hurricanes, tsunamis, wars, terrorist attacks, computer viruses, pandemics or other events occur, or our information system or communications network breaks down or operates improperly, our facilities may be seriously damaged, or we may have to stop or delay production and shipment of our products. We may incur expenses relating to such damages. In addition, a renewed outbreak of SARS, avian flu, swine flu or another widespread public health problem in China, Northern Ireland or the United States could have a negative effect on our operations.

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Risks Associated With Doing Business In China Since our products are manufactured in China and we have transferred additional operations to China, we face risks if China loses normal trade relations status with the United States. We manufacture and export our products from China. Our products sold in the United States are currently not subject to U.S. import duties. On September 19, 2000, the United States Senate voted to permanently normalize trade with China, which provides a favorable category of United States import duties. In addition, on December 11, 2001, China was accepted into the World Trade Organization, or WTO, a global international organization that regulates international trade. As a result of opposition to certain policies of the Chinese government and Chinas growing trade surpluses with the United States, there has been, and in the future may be, opposition to the extension of Normal Trade Relations, or NTR, status for China. The loss of NTR status for China, changes in current tariff structures or adoption in the United States of other trade policies adverse to China could have an adverse affect on our business. Furthermore, our business may be adversely affected by the diplomatic and political relationships between the United States and China. These influences may adversely affect our ability to operate in China. If the relationship between the United States and China were to materially deteriorate, it could negatively affect our ability to control our operations and relationships in China, enforce any agreements we have with Chinese manufacturers or otherwise deal with any assets or investments we may have in China. Because the Chinese legal system in general, and the intellectual property regime in particular, are weak, we may not be able to enforce intellectual property rights in China and elsewhere. We currently manufacture and export our products from China. The legal regime protecting intellectual property rights in China is weak. Because the Chinese legal system in general, and the intellectual property regime in particular, are weak, it is often difficult to create and enforce intellectual property rights in China. Even where adequate laws exist in China, it may not be possible to obtain swift and equitable enforcement of such laws, or to obtain enforcement of a court judgment or an arbitration award delivered in another jurisdiction, and accordingly, we may not be able to effectively protect our intellectual property rights in China. Enforcing agreements and laws in China is difficult or may be impossible as China does not have a comprehensive system of laws. We are dependent on our agreements with our Chinese manufacturing partners. Enforcement of agreements may be sporadic and implementation and interpretation of laws may be inconsistent. The Chinese judiciary is relatively inexperienced in interpreting agreements and enforcing the laws, leading to a higher than usual degree of uncertainty as to the outcome of any litigation. Even where adequate law exists in China, it may be impossible to obtain swift and equitable enforcement of such law, or to obtain enforcement of a judgment by a court of another jurisdiction. The government of China may change or even reverse its policies of promoting private industry and foreign investment, in which case our assets and operations may be at risk. China is a socialist state, which since 1949 has been, and is expected to continue to be, controlled by the Communist Party of China. Our existing and planned operations in China are subject to the general risks of doing business internationally and the specific risks related to the business, economic and political conditions in China, which include the possibility that the central government of China will change or even reverse its policies of promoting private industry and foreign investment in China. Many of the current reforms which support private business in China are unprecedented or experimental. Other political, economic and social factors, such as political changes, changes in the rates of economic growth, unemployment or inflation, or in the disparities of per capita wealth among citizens of China and between regions within China, could also lead to further readjustment of the governments reform measures. It is not possible to predict whether the Chinese government will continue to be as supportive of private business in China, nor is it possible to predict how future reforms will affect our business.

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The government of China continues to exercise substantial control over the Chinese economy which could have a negative effect on our business. The government of China has exercised and continues to exercise substantial control over virtually every section of the Chinese economy through regulation and state ownership. Chinas continued commitment to reform and the development of a vital private sector in that country have, to some extent, limited the practical effects of the control currently exercised by the government over individual enterprises. However, the economy continues to be subject to significant government controls, which, if directed towards our business activities, could have a significant adverse effect on us. For example, if the government were to limit the number of foreign personnel who could work in the country, substantially increase taxes on foreign businesses or impose any number of other possible types of limitations on our operations, our ability to conduct our business would be significantly adversely affected. Changes in Chinas political and economic policies could harm our business. The economy of China has historically been a planned economy subject to governmental plans and quotas and has, in certain aspects, been transitioning to a more market-oriented economy. Although we believe that the economic reform and the macroeconomic measures adopted by the Chinese government have had a positive effect on the economic development of China, we cannot predict the future direction of these economic reforms or the effects these measures may have on our business, financial position or results of operations. In addition, the Chinese economy differs from the economies of most countries belonging to the Organization for Economic Cooperation and Development, or OECD. These differences include: economic structure; level of government involvement in the economy; level of development; level of capital reinvestment; control of foreign exchange; methods of allocating resources; and balance of payments position. As a result of these differences, our operations, including our current manufacturing operations in China, may not develop in the same way or at the same rate as might be expected if the Chinese economy were similar to the OECD member countries. Business practices in China may entail greater risk and dependence upon the personal relationships of senior management than is common in North America and therefore some of our agreements with other parties in China could be difficult or impossible to enforce. The business structure of China is, in many respects, different from the business culture in Western countries and may present some difficulty for Western investors reviewing contractual relationships among companies in China and evaluating the merits of an investment. Personal relationships among business principals of companies and business entities in China are very significant in the business culture. In some cases, because so much reliance is based upon personal relationships, written contracts among businesses in China may be less detailed and specific than is commonly accepted for similar written agreements in Western countries. In some cases, the material terms of an understanding are not contained in the written agreement but exist as oral agreements only. In other cases, the terms of transactions which may involve material amounts of money are not documented at all. In addition, in contrast to Western business practices where a written agreement specifically defines the terms, rights and obligations of the parties in a legally-binding and enforceable manner, the parties to a written agreement in China may view that agreement more as a starting point for an ongoing business relationship which will evolve and require ongoing modification. As a result, written agreements in China may appear to the Western reader to look more like outline agreements that precede a formal written agreement. While these documents may appear incomplete or unenforceable to a Western reader, the parties to the agreement in China may feel that they have a more complete understanding than is apparent to someone who is only reading the written agreement without having attended the -25-

negotiations. As a result, contractual arrangements in China may be more difficult to review and understand. Also, despite legal developments in China over the past 20 years, adequate laws, comparable with Western standards, do not exist in all areas and it is unclear how many of our business arrangements would be interpreted or enforced by a court in China. Our ongoing manufacturing and development operations in China are complex and having these remote operations may divert managements attention, lead to disruptions in operations and delay implementation of our business strategy. We have relocated most of our manufacturing and development operations to China. We may not be able to find or retain suitable employees in China and we may have to train personnel to perform necessary functions for our manufacturing, senior management and development operations. This may divert managements attention, lead to disruptions in operations and delay implementation of our business strategy, all of which could negatively affect our profitability. Our operations could be materially interrupted, and we may suffer significant loss, in the case of fire, casualty or theft at one of our manufacturing or other facilities. Firefighting and disaster relief or assistance in China is substandard by Western standards. In the event of any material damage to, or loss of, the manufacturing plants where our products are or will be produced due to fire, casualty, theft, severe weather, flood, tsunami or other similar causes, we would be forced to replace any assets lost in such disaster. Thus our financial position could be materially compromised or we might have to cease doing business. We maintain insurance in China in an attempt to minimize this risk, but we cannot be sure that such insurance will be sufficient. In October 2009, we experienced a fire in a leased, unoccupied, offsite warehouse facility housing certain of our raw materials, finished goods inventory, and fixed assets, in Suzhou, China. Management concluded that a material charge for impairment with respect to certain inventory and fixed assets was required under GAAP, and we recorded a liability for the payment of Chinese VAT with respect to certain inventory which was consumed by the fire. Although insurance proceeds covered a significant portion of this loss, we cannot be sure that a fire or other similarly destructive event at one of our facilities in the future would not materially affect our financial position or disrupt our operations. In addition, as a result of this claim, our insurance costs may rise. The system of taxation in China is uncertain and subject to unpredictable change that could affect our profitability. Many tax rules are not published in China and those that are published can be ambiguous and contradictory, leaving a considerable amount of discretion to local tax authorities. China currently offers tax and other preferential incentives to encourage foreign investment. However, the countrys tax regime is undergoing review and there is no assurance that such tax and other incentives will continue to be made available. If we no longer receive such preferential incentives, our business, prospects and results of operations would be adversely affected. It is uncertain whether we will be able to recover value-added taxes imposed by the Chinese taxing authority. Chinas turnover tax system consists of value-added tax, or VAT, consumption tax and business tax. Export sales are exempted under VAT rules and an exporter who incurs VAT on purchase or manufacture of goods should be able to claim a refund from Chinese tax authorities. However, due to a reduction in the VAT export refund rate of some goods, exporters might bear part of the VAT they incurred in conjunction with the exported goods. Continued efforts by the Chinese government to increase tax revenues could result in revisions to tax laws or their interpretation, which could increase our VAT and various tax liabilities.

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Risks Associated With Our Industry If competing technologies were developed and successfully introduced, then our products might not be able to compete effectively in our targeted market segments. Rapid and ongoing changes in technology and product standards could quickly render our products less competitive, or even obsolete. Other companies who are seeking to enhance traditional battery technologies, such as lead-acid and nickelcadmium, have introduced or are developing batteries based on nickel metal-hydride, liquid lithium-ion and other emerging and potential technologies. These competitors are engaged in significant development work on these various battery systems, and we believe that much of this effort is focused on achieving higher energy densities for low power applications such as portable electronics. One or more new, higher energy rechargeable battery technologies could be introduced which could be directly competitive with, or superior to, our technology. The capabilities of many of these competing technologies have improved over the past several years. Competing technologies that outperform our batteries could be developed and successfully introduced, and as a result, there is a risk that our products may not be able to compete effectively in our targeted market segments. We have invested in research and development of next-generation technology in energy solutions. If we are not successful in developing and commercially exploiting new energy solutions based on new materials, or we experience delays in the development and exploitations of new energy solutions compared to our competitors, our future growth and revenues will be adversely affected. Our principal competitors generally have greater financial and marketing resources than we do and they may therefore develop batteries similar or superior to ours or otherwise compete more successfully than we do. Competition in the rechargeable battery industry is intense. The industry consists of several major and emerging domestic and international companies, most of which have financial, technical, marketing, sales, manufacturing, distribution and other resources substantially greater than ours. There is a risk that other companies may develop batteries similar or superior to ours. In addition, many of these companies have strong name recognition, established positions in the market, and long-standing relationships with OEMs and other customers. Further, a number of our competitors have received or may in the future receive grants, subsidies or incentives from federal, local and state governments, which may provide them with lower cost capital and a competitive advantage. We believe that our primary competitors are existing suppliers of cylindrical lithium-ion, nickel cadmium, nickel metal-hydride and in some cases, non-SLI lead-acid batteries. These suppliers include, but are not limited to; A123 Systems, Sanyo, Matsushita Industrial Co., Ltd. (Panasonic), Sony, Toshiba, SAFT, and Ener1, as well as numerous lead-acid manufacturers throughout the world. Most of these companies are very large and have substantial resources and market presence. We expect that we will compete against manufacturers of other types of batteries in our targeted application segments. There is also a risk that we may not be able to compete successfully against manufacturers of other types of batteries in any of our targeted applications. Laws regulating the manufacture, transportation and disposal of batteries may be enacted which could result in a delay in the production of our batteries or the imposition of additional costs that could harm our ability to be profitable. At the present time, international, federal, state and local laws do not directly regulate the storage, use and disposal of the component parts of our batteries. However, laws and regulations may be enacted in the future which could impose environmental, health and safety controls on the storage, use and disposal of certain chemicals and metals used in the manufacture of lithium polymer batteries. Satisfying any future laws or regulations could require significant time and resources from our technical staff, including those related to possible redesign which may result in substantial expenditures and delays in the production of our product, all of which could harm our business and adversely impact our ability to become profitable in the future. The transportation of lithium-ion batteries is regulated both domestically and internationally. Our U-Charge Power System is classified as a Class 9 hazardous material for shipping purposes pursuant to regulations published by the U.S. Department of Transportation (DOT) and the International Air Transport Association (IATA). We package and offer for transport the U-Charge Power System in compliance with all DOT and IATA regulatory requirements. On January 11, 2010, the DOT proposed new regulations on lithium ion batteries. At present, it is not known if or when the proposed regulations would be adopted or whether these new regulations may eventually be adopted by IATA. Compliance with these -27-

new DOT regulations could result in additional costs for shipping the U-Charge Power System and delay the introduction of new products. National, state and local regulations impose various environmental controls on the transportation, storage, use, and disposal of lithium batteries and of certain chemicals used in the manufacture of lithium batteries. Although we believe that our operations are in material compliance with current environmental regulations, there can be no assurance that changes in such laws and regulations will not impose costly compliance requirements on us or otherwise subject us to future liabilities. Moreover, state and local governments may enact additional restrictions relating to the transportation, storage and disposal of lithium batteries used by our customers that could adversely affect the demand for our products. There can be no assurance that additional or modified regulations relating to the transportation, storage, use, and disposal of chemicals used to manufacture batteries, or restricting disposal of batteries will not be imposed. Satisfying these existing and any future laws or regulations not currently enacted or imposed could require significant time and resources from our technical staff, including those related to possible redesign of our products, which may result in substantial expenditures and delays in the production of our product, all of which could harm our business and reduce our future profitability. Risks Associated With Ownership of Our Stock Corporate insiders or their affiliates will be able to exercise significant control over matters requiring stockholder approval that might not be in the best interests of our stockholders as a whole. As of March 31, 2011, our officers, directors and their affiliates as a group beneficially owned approximately 52.0% of our outstanding common stock, of which our Chairman Carl Berg and his affiliates beneficially owned approximately 51.7% of our outstanding common stock. As a result, these stockholders will be able to exercise significant control over all matters requiring stockholder approval, including the election of directors and the approval of significant corporate transactions, which could delay or prevent someone from acquiring or merging with us. The interest of our officers and directors, when acting in their capacity as stockholders, may lead them to: vote for the election of directors who agree with the incumbent officers or directors preferred corporate policy; or oppose or support significant corporate transactions when these transactions further their interest as incumbent officers or directors, even if these interests differ from the interests of other stockholders. Some provisions of our charter documents may make takeover attempts difficult, which could depress the price of our stock and limit the price that potential acquirers may be willing to pay for our common stock. Our Board of Directors has the authority, without any action by non-affiliate stockholders, to issue additional shares of our preferred stock, which shares may be given superior voting, liquidation, distribution, and other rights compared to those of our common stock. The rights of the holders of our capital stock will be subject to, and may be adversely affected by, the rights of the holders of any preferred stock that may be issued in the future. The issuance of additional shares of preferred stock could have the effect of making it more difficult for a third party to acquire a majority of our outstanding voting stock. These provisions may have the effect of delaying, deferring or preventing a change in control, may discourage bids for our common stock at a premium over its market price, may decrease the market price and may infringe upon the voting and other rights of the holders of our common stock. At any given time we might not meet the continued listing requirements of the NASDAQ Capital Market. Given the volatility of our stock and trends in the stock market in general, at any given time we might not meet the continued listing requirements of The NASDAQ Capital Market. Among other requirements, NASDAQ requires the minimum bid price of a companys registered shares to be $1.00. On March 8, 2010, we received written notice from The NASDAQ Stock Market indicating that we were not in compliance with the $1.00 minimum bid price requirement for continued listing on The NASDAQ Capital Market, as set forth in Listing Rule 5550(a)(2). We were provided a 180-day grace period to regain compliance with the Listing Rule. On April 20, 2010, we received a letter from The NASDAQ Stock Market confirming that the closing bid price of our common stock had been at $1.00 per share or greater for at least 10 consecutive business days and that, as a result, we had regained compliance with the minimum bid price requirement for continued listing. However, on June 29, 2010, we received written notice from The NASDAQ Stock Market indicating that we were not in compliance with the $1.00 minimum bid price requirement for continued listing on The NASDAQ Capital Market, as set forth in Listing Rule 5550(a)(2). We were provided a 180-day grace period to regain compliance with the -28-

Listing Rule. On October 11, 2010, we received a letter from The NASDAQ Stock Market confirming that the closing bid price of our common stock had been at $1.00 per share or greater for at least 10 consecutive business days and that, as a result, we had regained compliance with the minimum bid price requirement for continued listing. If we are not able to maintain the requirements for continued listing on The NASDAQ Capital Market, we could be de-listed and it could have a materially adverse effect on the price and liquidity of our common stock. Our stock price is volatile, which could result in a loss of your investment. The market price of our common stock has been and is likely to continue to be highly volatile. During the fiscal year ended March 31, 2011, the sales price of our common stock ranged from $0.65 to $1.77 per share. Factors that may have a significant effect on the market price of our common stock include the following: fluctuation in our operating results, the loss of or reduction in business from one or more of our key customers, announcements of technological innovations or new commercial products by us or our competitors, failure to achieve operating results projected by securities analysts or public guidance, governmental regulation, developments in our patent or other proprietary rights or our competitors developments, our relationships with current or future collaborative partners, and other factors and events beyond our control. In addition, the stock market in general has experienced extreme volatility that often has been unrelated to the operating performance of particular companies. These broad market and industry fluctuations may adversely affect the trading price of our common stock, regardless of our actual operating performance. As a result of this potential stock price volatility, investors may be unable to sell their shares of our common stock at or above the cost of their shares. In addition, companies that have experienced volatility in the market price of their stock have often been the object of securities class action litigation. If we were the subject of securities class action litigation, this could result in substantial costs, a diversion of our managements attention and resources and harm to our business and financial condition. Future sales of currently outstanding shares could adversely affect our stock price. The market price of our common stock could drop as a result of sales of a large number of shares in the market or in response to the perception that these sales could occur. In addition, these sales might make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem appropriate. As of March 31, 2011, we had 154,959,209 shares of common stock outstanding and 1,803,144 shares in treasury stock. In addition, at March 31, 2011, we had 7,878,513 shares of our common stock reserved for issuance under stock options plans and 215,000 of our common stock reserved for issuance upon excercise of warrants. In connection with the potential conversion of the Series C-1 Convertible Preferred Stock and Series C-2 Convertible Preferred Stock, issued on December 1, 2004, we may need to issue up to 2,174,242 and 1,454,392 shares, respectively, of our common stock (based on a conversion price per share of $1.98 and $2.96, respectively, which is the lowest conversion price that may apply) (in addition to any shares that may be issued with respect to the conversion of accrued dividends). Equity transactions occurring in the future, including sales under our At Market Issuance Sales Agreement, would result in immediate ownership dilution to current equity holders and, as a result, our stock price may go down. Future equity transactions, including the sale of shares of common stock or preferred stock, sales under our At Market Issuance Sales Agreement, or the exercise of options or warrants or other convertible securities, would result in ownership dilution and, as a result, our stock price may go down. In February 2008 we entered into an At Market Issuance Sales Agreement with Wm. Smith & Co., amended in July 2009, December 2010 and January 2011, which provides that, upon the terms and subject to the conditions set forth therein, we may, through Wm. Smith & Co. acting as sales agent, issue -29-

and sell up to 20 million shares of our common stock. As of March 31, 2011, a total of 13.5 million of the aggregate shares authorized for sale through Wm. Smith & Co. have been sold and 6.5 million remain available for future issuance under the agreement. Further, as opportunities present themselves from time to time, we may sell restricted stock and warrants or convertible debt to investors in private placements conducted by broker-dealers, or in negotiated transactions. Because the securities may be restricted, the securities may be sold at a greater discount to market prices compared to a public securities offering, and the exercise price of the warrants may be at or even lower than market prices. These transactions cause ownership dilution to existing stockholders. Also, from time to time, options may be issued to employees and third parties. Exercise of in-the-money options, warrants and other convertible securities will result in ownership dilution to existing stockholders, and the amount of dilution will depend on the spread between market and exercise price, and the number of shares involved. Our management team has broad discretion over the use of the net proceeds from any offering by us of our equity securities, including sales under our At Market Issuance Sales Agreement. Our management will use its discretion to direct the net proceeds from any offering of our equity securities. We intend to use all of the net proceeds of any additional sales under our At Market Issuance Sales Agreement, together with cash on hand, for general corporate purposes, although we could use the proceeds for other purposes as well. General corporate purposes may include working capital, capital expenditures, development costs, strategic investments or possible acquisitions. Our managements judgments may not result in positive returns on shareholders investments and our shareholders will not have an opportunity to evaluate the economic, financial or other information upon which our management bases its decisions. We do not intend to pay dividends on our common stock, and therefore stockholders will be able to recover their investment in our common stock, if at all, only by selling the shares of stock that they hold. Some investors favor companies that pay dividends on common stock. We have never declared or paid any cash dividends on our common stock. We currently intend to retain any future earnings for funding growth and we do not anticipate paying cash dividends on our common stock in the foreseeable future. Because we may not pay dividends, a return on an investment in our stock likely depends on the ability to sell our stock at a profit. Our business is subject to changing regulations relating to corporate governance and public disclosure that has increased both our costs and the risk of noncompliance. Because our common stock is publicly traded, we are subject to certain rules and regulations of federal, state and financial market exchange entities charged with the protection of investors and the oversight of companies whose securities are publicly traded. These entities, including the Public Company Accounting Oversight Board, the SEC, and NASDAQ continue to develop additional regulations and requirements in response to laws enacted by Congress, including the SarbanesOxley Act of 2002 and the Dodd-Frank Wall Street Reform and Consumer Protection Act. Our efforts to comply with these regulations have resulted in, and are likely to continue to result in, materially increased general and administrative expenses and a significant diversion of management time and attention from revenue-generating and cost-reduction activities to compliance activities. In particular, our efforts to comply with Section 404 of the Sarbanes-Oxley Act of 2002 and the related regulations regarding our required assessment of our internal control over financial reporting and our independent registered public accounting firms audit of that assessment has required, and continues to require, the commitment of significant financial and managerial resources. There is no assurance that these efforts will be completed on a timely and successful basis. Because these laws, regulations and standards are subject to varying interpretations, their application in practice may evolve over time as new guidance becomes available. This evolution may result in continuing uncertainty regarding compliance matters and additional costs necessitated by ongoing revisions to our disclosure and governance practices. In the event that our Chief Executive Officer, Chief Financial Officer, or independent registered public accounting firm determines that our internal control over financial reporting is not effective as defined under Section 404 of the Sarbanes-Oxley Act of 2002, there may be a material adverse effect in investor perceptions and a decline in the market price of our stock.

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ITEM 1B. UNRESOLVED STAFF COMMENTS None. ITEM 2. PROPERTIES We lease approximately 24,000 square feet in Austin, Texas for our corporate offices . We also lease approximately 14,000 square feet in Las Vegas, Nevada for our research and development facility. Our two wholly owned foreign enterprises in China lease three facilities, totaling approximately 120,000 square feet in Suzhou, China, which leases will expire during 2013. We believe that prior to the expiration of these leases we will be able to renew the leases or secure suitable replacement facilities on reasonable terms. In addition, we lease approximately 2,000 square feet in Mallusk, Northern Ireland for our sales and OEM manufacturing support center. We believe that our existing facilities are suitable and will be adequate to meet our requirements for at least the next 12 months. ITEM 3. LEGAL PROCEEDINGS On January 31, 2007, we filed a claim against Phostech Lithium Inc. in the Federal Court in Canada (Valence Technology, Inc. v. Phostech Lithium Inc. Court File No. T-219-07) alleging infringement of Valence Canadian Patent 2,395,115 (115 Patent). Subsequently, on April 2, 2007, we filed an amended claim alleging additional infringement of our Canadian Patents 2,483,918 (918 Patent) and 2,466,366 (366 Patent). The trial took place in September 2010 and ended on October 1, 2010. On February 17, 2011, the Canadian Court ruled in our favor, finding that Phostech infringed Valences 115 Patent. The 918 Patent was held invalid. The 366 Patent was not held invalid, but no decision was rendered with respect to the infringement of the 366 Patent. An immediate injunction was imposed by the Trial Court on Phostech. Phostech twice appealed the imposition of the injunction and on the second appeal, and the injunction was stayed by the Appellate Court, provided an expedited appeal would be undertaken and a bond posted by Phostech. The Appeal is to be heard on June 6, 2011. A favorable decision at trial permits us to seek monetary damages, reasonable attorney fees, costs and an injunction to stop Phostech from manufacturing, using and selling phosphate cathode material that infringes the valid Valence Canadian Patent 2,395,115. On February 14, 2006, Hydro-Quebec filed an action against us in the United States District Court for the Western District of Texas (Hydro-Quebec v. Valence Technology, Civil Action No. A06CA111). An amended complaint was filed April 13, 2006. A stay imposed due to the USPTO reexaminations of the two patents was lifted following completion of the reexaminations. On January 8, 2009, Hydro-Quebec filed a second amended complaint, wherein Hydro-Quebec alleges that Saphion I Technology, the technology utilized in all of our commercial products, infringes U.S. Reexamined Patent Nos. 5,910,382 and 6,514,640 exclusively licensed to Hydro-Quebec. Hydro-Quebec seeks injunctive relief and monetary damages. We have filed a response denying the allegations in the second amended complaint. A Markman hearing to determine the scope of the asserted claims in the two reexamined patents was completed in January 2010. The Special Master submitted recommended findings from the Markman Hearing to the Court in August 2010 and a Court hearing was held on those findings in November 2010. On April 27, 2011, the Court issued its order adopting the report of the Special Master. The Court set a trial date for October 2012. We are subject, from time to time, to various claims and litigation in the normal course of business. In our opinion, our pending legal matters will not have a material adverse impact on our consolidated financial statements. However, the outcome of any litigation is inherently uncertain and there can be no assurance as to the ultimate outcome of any such legal matters. Item 4. RESERVED

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PART II ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock is quoted on the NASDAQ Capital Market under the symbol VLNC. As of May 20, 2011, 2011 we had approximately 605 holders of record of our common stock, one of which is Cede & Co., a nominee for Depository Trust Company, or DTC. All of the shares of our common stock held by brokerage firms, banks and other financial institutions as nominees for beneficial owners are deposited into participant accounts at DTC, and are therefore considered to be held of record by Cede & Co. as one stockholder. The following table sets forth the quarterly high and low closing sales prices of our common stock during fiscal years 2011 and 2010: Closing Sales Prices High Low $ 1.36 1.15 1.70 1.77 2.30 1.95 1.78 1.09 $ 0.65 0.66 1.06 1.41 1.78 1.36 0.84 0.75

Fiscal year 2011: Quarter ended June 30, 2010 Quarter ended September 30, 2010 Quarter ended December 31, 2010 Quarter ended March 31, 2011 Fiscal year 2010: Quarter ended June 30, 2009 Quarter ended September 30, 2009 Quarter ended December 31, 2009 Quarter ended March 31, 2010

The following table includes, as of March 31, 2011, information regarding common stock authorized for issuance under our equity compensation plans: Weighted-average Number of securities to be issued exercise price of upon exercise of outstanding outstanding options, options, warrants and rights warrants and rights 4,783,313 $ 1,500,000 6,283,313 $ 1.83 1.61 1.78 Number of securities remaining available for future issuance under equity compensation plans 1,595,200 1,595,200

Plan Category Equity compensation plans approved by security holders Equity compensation plans not approved by security holders(1) Total

(1) Options to purchase 1,500,000 shares were granted to Robert L. Kanode in March 2007 pursuant to his employment agreement. The exercise price of his shares is $1.61 per share and as of the date of this report are fully vested. Recent Sales of Unregistered Securities None, except as has been previously disclosed in our quarterly reports on Form 10-Q and current reports on Form 8K filed with the Securities and Exchange Commission. Dividends We have never declared or paid any cash dividends on our common stock. We intend to retain earnings, if any, to finance future operations and expansion and, therefore, do not anticipate paying any cash dividends in the foreseeable future. -32-

Any future payment of dividends will depend upon our financial condition, capital requirements and earnings, as well as upon other factors that the Board of Directors may deem relevant. Performance Graph The graph below compares the cumulative 5-year total return of holders of Valence Technology, Inc.s common stock with the cumulative total returns of the NASDAQ Composite index and the NASDAQ Electronic Components index. The graph tracks the performance of a $100 investment in our common stock and in each of the indexes (with the reinvestment of all dividends) from March 31, 2006 to March 31, 2011. COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN* Among Valence Technology, Inc., The NASDAQ Composite Index And The NASDAQ Electronic Components Index

3/06 Valence Technology, Inc. NASDAQ Composite NASDAQ Electronic Components 100.00 100.00 100.00

3/07 47.39 106.44 90.78

3/08 177.11 101.14 89.71

3/09 85.54 67.88 59.15

3/10 34.14 107.06 94.48

3/11 62.65 125.30 106.53

The stock price performance included in this graph is not necessarily indicative of future stock price performance.

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ITEM 6. SELECTED FINANCIAL DATA This section presents selected historical financial data of Valence Technology, Inc. The information should be read in conjunction with the Managements Discussion and Analysis of Financial Condition and Results of Operations and our consolidated financial statements and notes thereto contained elsewhere in this Report. Our financial data as of and for the periods indicated is derived from our audited financial statements for such periods. The following is not necessarily indicative of future results: (in thousands except per share data) Statement of Operations Data Revenues Cost of sales Gross margin Operating Expenses: Research and product development Selling, general and administrative Loss / (gain) on disposal of assets Asset impairment charge Other Total operating expenses Operating loss Foreign exchange gain Interest (expense)/income, net Casualty loss Net Loss Dividends on preferred stock Net loss attributable to common stockholders Net loss per share-basic and diluted Weighted average shares outstandingbasic and diluted Balance Sheet Data: Cash and cash equivalents Working (deficit) capital Total assets Long-term debt, and long-term debt to stockholder, net of discount Redeemable convertible preferred stock Accumulated deficit Total stockholders deficit $ $ 2011 45,882 36,446 9,436 3,622 14,313 502 18,437 (9,001 ) 839 (4,524 ) (12,685 ) 172 (12,857 ) $ (0.09 ) $ 141,655 2,915 5,783 36,017 34,889 8,610 (593,702 ) (63,834 ) Fiscal Year ended March 31, 2010 2009 2008 16,080 14,093 1,987 4,464 15,032 301 19,797 (17,810 ) 44 (4,950 ) (300 ) (23,016 ) 172 (23,188 ) $ (0.18 ) $ 126,211 3,172 (13,076 ) 18,089 34,848 8,610 (580,845 ) (79,115 ) 26,157 25,682 475 4,333 11,994 137 731 17,195 (16,720 ) 605 (5,111 ) (21,226 ) 172 (21,398 ) $ (0.18 ) $ 119,370 4,009 13,889 29,636 34,766 8,610 (557,657 ) (67,185 ) 20,777 18,956 1,821 3,772 12,230 16 154 16,172 (14,351 ) 1,258 (6,347 ) (19,440 ) 173 (19,613 ) $ (0.18 ) $ 111,593 2,616 11,200 27,158 53,607 8,610 (536,260 ) (67,317 ) 2007 16,674 16,366 308 3,982 12,406 62 52 24 16,526 (16,218 ) 260 (6,293 ) (22,251 ) 172 (22,423 ) (0.22 ) 99,714 1,168 7,382 19,200 52,390 8,610 (516,647 ) (67,918 )

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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION General We develop, manufacture and sell advanced energy storage systems utilizing our proprietary phosphate-based lithium-ion technology for diverse applications, with special emphasis on hybrid and electric fleet vehicles, portable appliances, and other industry and consumer applications. Our mission is to promote the wide adoption of high-performance, safe, environmentally friendly energy storage systems. To accomplish our mission and address the significant market opportunity we believe is available, we utilize the numerous benefits of our latest energy storage technology, worldwide intellectual property portfolio and extensive experience of our management team. Total revenue in fiscal year 2011 was $45.9 million, an increase of 185% compared to the prior fiscal year. We believe revenue will grow in fiscal year 2012, compared to fiscal year 2011, from existing and new customer sales due to the increasing demand in the U.S. and EMEA (Europe, Middle East and Africa) markets for alternative energy solution systems. Going Concern As a result of our limited cash resources and history of operating losses there is substantial doubt about our ability to continue as a going concern. We presently have no further commitments for financing by our Chairman Carl Berg and or his affiliates. Recently, we have depended on sales of our common stock under the At-Market Issuance Agreement with Wm. Smith & Co., and to a lesser extent sales of our common stock under the Common Stock Purchase Agreement with Seaside 88, L.P. Our agreement with Seaside 88 expired in October 2010. If we are unable to obtain financing from Mr. Berg, Wm. Smith & Co, or others on terms acceptable to us, or at all, we may be forced to cease all operations and liquidate our assets. Our cash requirements may vary materially from those now planned because of changes in our operations, including the failure to achieve expected revenues, greater than expected expenses, changes in OEM relationships, market conditions, the failure to timely realize our product development goals, and other adverse developments. These events could have a negative effect on our available liquidity sources during fiscal year 2012. 2011 Highlights Key financial and product introductions and milestones based on our Lithium Iron Magnesium Phosphate technology during fiscal year 2011 include: We set a revenue record of $45.9 million in fiscal year 2011, which is a 185% improvement over fiscal year 2010 We introduced the 36 volt scalable U-Charge system We introduced a custom energy storage system for the next generation London double deck hybrid bus We prevailed in a lawsuit regarding the patent infringement of the carbothermal reduction process used in our cathode material manufacturing We were awarded 4 new patents in the U.S. and 13 worldwide patents during the 2011 fiscal year Continuing Development of Valence Lithium Phosphate Technology & Systems In 2002, we successfully produced our first generation Lithium Iron Magnesium Phosphate Material In 2004, we introduced our Lithium Iron Magnesium Phosphate Material in a cylindrical construction, and we launched our Segway Custom Pack product. In 2005, we increased the capacity of our energy cell which was included in our 12 Volt U-Charge Scalable Modules In 2007, we launched our 18 Volt U-Charge Scalable Modules In 2010, we launched our 36 Volt U-Charge Scalable Modules In 2012, we plan to launch several Next Generation High Power Custom Systems

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Our research and development efforts are focused on the design of new products utilizing our lithium iron magnesium phosphate chemistry, the continuous improvement of the manufacturing process of our second and third generation lithium phosphate technology, the development of different cell constructions to optimize power and size for new applications, as well as developing future materials based on our lithium ion phosphate technology platform. Our business headquarters is in Austin, Texas. Our materials research and development center is in Las Vegas, Nevada. Our European sales and OEM manufacturing support center is in Mallusk, Northern Ireland. Our manufacturing and product development center is in Suzhou, China. Result of Operations Fiscal Years Ended March 31, 2011 (Fiscal Year 2011), March 31, 2010 (Fiscal Year 2010) and March 31, 2009 (Fiscal Year 2009) The following table summarizes the results of our operations for the past three fiscal years (in thousands except for share data): Change Increase/(Decrease) $ % Fiscal Year Ended 3/31/2010 16,080 14,093 1,987 19,496 301 19,797 (17,810 ) (5,206 ) (23,016 ) 172 (23,188 ) $ Change Increase/(Decrease) $ % (10,077 ) (11,589 ) 1,512 3,169 (137 ) (430 ) 2,602 (1,090 ) (700 ) (1,790 ) (1,790 )

3/31/2011

3/31/2009 26,157 25,682 475 16,327 137 731 17,195 (16,720 ) (4,506 ) (21,226 ) 172 (21,398 )

Revenue $ 45,882 29,802 Cost of products sold 36,446 22,353 Gross margin 9,436 7,449 Operating and other expenses 17,935 (1,561 ) Loss on disposal of assets Impairments, restructuring, contract settlement charges 502 201 Total operating expenses 18,437 (1,360 ) Operating loss (9,001 ) 8,809 Other expense, net (3,684 ) 1,522 Net loss (12,685 ) 10,331 Dividends and accretion on preferred stock 172 Net loss available to common stockholders $ (12,857 ) $ (10,331 ) Net loss per share available to common stockholders, basic and diluted $ (0.09 ) $ 0.09 Shares used in computing net loss per share available to common stockholders, basic and diluted 141,655 15,444 Revenue and Gross Margin

185 % $ 159 % 375 % (8 )% 67 % (7 )% (50 )% (30 )% (45 )% (45 )% $

(39 )% $ (45 )% 318 % 19 % (100 )% (430 )% 15 % 7% 16 % 8% % 8% $

(51 )% $

(0.18 ) $

% $

(0.18 )

12 %

126,211

6,841

6%

119,370

Revenue. Revenue totaled $45.9 million for the fiscal year ended March 31, 2011, a $29.8 million, or a 185% increase, compared to $16.1 million in revenue for the fiscal year ended March 31, 2010. Revenue for fiscal year 2010 was $16.1 million, which was a decrease of $10.1 million, or a 39% decrease, compared to $26.2 million in revenue for the fiscal year ended March 31, 2009. The increase in revenue during fiscal year 2011, compared to fiscal year 2010, is primarily the result of increased sales to Smith Electric Vehicles, and Segway Inc (Segway). Smith Electric Vehicles and Segway sales -36-

in fiscal year 2011 were $19.1 million and $11.2 million, respectively, as compared to $2.0 million and $4.1 million, respectively, in fiscal year 2010. The decrease in revenue during fiscal year 2010, compared to fiscal year 2009, was primarily the result of decreased sales to Segway and Smith Electric Vehicles . Revenue for Segway and Smith Electric Vehciles were $4.0 million and $2.0 million, respectively, in fiscal year 2010, compared to $12.0 million and $4.2 million, respectively, in fiscal year 2009. Smith Electric Vehicles sales accounted for 42%, 12%, and 16% of our total revenue in fiscal years 2011, 2010, and 2009, respectively. Segway sales accounted for 24%, 25%, and 46% of our total product sales in fiscal years 2011, 2010, and 2009, respectively. Large-format battery system sales represented 74% , 65%, and 45%, of our total revenue for fiscal years 2011, 2010, and 2009, respectively. We expect sales of our large-format battery system to increase during fiscal year 2012, due to the growing demand of alternative energy storage systems and the fulfillment of current sales agreements. We believe the increase in demand in alternative energy solutions is being driven largely by the sustained high cost of fossil fuels and a market focus on environmentally friendly energy solutions. We expect sales of our large-format battery systems and custom packs to increase during the upcoming fiscal year due to anticipated continued strong demand for our products from a variety of customers. We did not experience any material effect of inflation on our revenues in the three most recent fiscal years. Gross Margin: Gross margin for the fiscal year ended March 31, 2011 was $9.4 million, compared to $2.0 million for fiscal year 2010, and $0.5 million for fiscal year 2009. Gross margin as a percentage of revenue was 21% for the fiscal year ended March 31, 2011, compared to 12% for the fiscal year ended March 31, 2010, and 2% for the fiscal year ended March 31, 2009. During fiscal year 2011, gross margin in dollars and as a percentage of revenue increased mainly due to improved manufacturing efficiencies and to the increased absorption of fixed overhead associated with our production facility in China and reduced raw material costs. During fiscal year 2010, gross margin in dollars and as a percentage of revenue increased mainly due to improved manufacturing efficiencies despite the decrease in overall demand, and the absence of significant material obsolescence charges for discontinued product lines, such as Epoch and N-Charge , which occurred in fiscal year 2009. We expect cost of sales, as a percentage of sales, to remain relatively consistent in fiscal year 2012. We did not experience any material effect of inflation on our gross margin or operating expense in the three most recent fiscal years. Operating Expenses The following table summarizes our operating expenses during each of the past three fiscal years (in thousands): Fiscal Year Ended Change Increase/(Decrease) $ % 3/31/2010 Change Increase/(Decrease) $ %

3/31/2011 Operating expenses Research and product development $ 3,622 Sales and marketing 2,665 General and administrative 11,648 Loss /(gain) on disposal of assets Asset impairment charge 502 Total operating expenses $ 18,437 Total operating expenses as a percent total revenue 40 %

3/31/2009

(842 ) 51 (769 ) 201 (1,360 )

(19 )% $ 2% (6 )% 67 % (7 )% $

4,464 2,614 12,418 301 19,797

131 (308 ) 3,346 (137 ) (430 ) 2,602

3% $ (11 )% (37 )% (100 )% (59 )% 15 % $

4,333 2,922 9,072 137 731 17,195

123 %

66 %

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Operating expenses as a percentage of revenue decreased to 40% in fiscal year 2011, versus 123% in fiscal year 2010, and 66% in fiscal year 2009. The dollar decrease in operating expenses in fiscal year 2011 is mainly due to reductions in research and development expense and general and administrative expenses, and the decrease in operating expenses as a percentage of revenue is due to higher recorded revenue in fiscal year 2011, compared to fiscal year 2010. Similarly, the increase in operating expenses as a percentage of revenue in fiscal year 2010, compared to fiscal year 2009, is due to the reduced revenue recorded in fiscal year 2010, compared to fiscal year 2009. Research and Product Development: Research and product development expenses consist primarily of personnel, equipment, and materials to support our efforts to develop battery chemistry and products, as well as to improve our manufacturing processes. Research and product development expenses totaled $3.6 million in fiscal year 2011, $4.5 million in fiscal year 2010, and $4.3 million in fiscal year 2009. During fiscal year 2011, research and development decreased by $0.9 million, or 19%, compared to fiscal year 2010. The decrease in research and development expenses in fiscal year 2011, compared to fiscal year 2010, was primarily due to decreased wage and salary expenses, and reduced share-based compensation expenses in fiscal year 2011. During fiscal year 2010, research and development remained relatively flat compared to fiscal year 2009. During fiscal year 2011, $0.1 million of share based compensation was allocated to research and development expenses, compared to $0.6 million in fiscal year 2010, and $0.1 million in fiscal year 2009. We expect research and development expenses to remain relatively steady as we create and develop new products during fiscal year 2012. Sales and Marketing: Sales and marketing expenses consist primarily of costs related to sales and marketing personnel, public relations and promotional materials. Sales and marketing expenses totaled $2.7 million in fiscal year 2011, $2.6 million in fiscal year 2010, and $2.9 million in fiscal year 2009. During fiscal year 2011, 2010, and 2009 sales and marketing expenses remained relatively flat. During fiscal year 2011, $0.1 million of share based compensation was allocated to marketing expenses, compared to $0.2 million in fiscal year 2010, and $0.3 million in fiscal year 2009. We expect sales and marketing expenses could increase moderately as we focus on growing our revenue during fiscal year 2012. General and Administrative: General and administrative expenses consist primarily of wage and salary expenses, share based compensation expense, and other related costs for finance, human resources, facilities, information technology, legal, audit, insurance and corporate-related expenses. General and administrative expenses totaled $11.7 million during fiscal year 2011, $12.4 million during fiscal year 2010, and $9.1 million in fiscal year 2009. General and administrative expenses decreased during fiscal year 2011, compared to fiscal year 2010, primarily as a result of reduced share-based compensation expense in fiscal year 2011, and a reduction in compensation related expenses as the result of the release of a liability for accrued foreign employment taxes related to our Ireland operations. General and administrative expenses increased $3.4 million in fiscal year 2010, or 37%, compared to fiscal year 2009 primarily due to a $1.9 million increase in legal costs associated with the defense of our intellectual property, and a $1.0 million increase in share based compensation expenses from the granting of stock option awards to directors and executives in fiscal year 2010. In addition, wages and salaries increased $0.4 million in fiscal year 2010, compared to fiscal year 2009, as a result of the addition of several finance and executive level personnel in fiscal year 2010. Share based compensation expense was $0.6 million in fiscal year 2011, compared to $1.4 million in fiscal year 2010, and $1.3 million in fiscal year 2009. We expect general and administrative expenses to increase in line with our associated needs as we grow. We also expect litigation expenses to increase as the litigation matters continue and advance to trial. Impairment Charge: Impairment charges of approximately $0.5 million, $0.3 million, and $0.7 million were recorded during fiscal years 2011, 2010 and 2009, respectively. The fiscal year 2011 and 2009 impairment charges related to fixed assets that were purchased for the expansion of our production facilities in China. These production assets were deemed to be impaired since the additional capacity provided by the acquisition of these assets was determined not to be necessary to meet expected demand until later than initially expected. The fiscal year 2010 impairment charge was the result of our annual fixed asset inventory count and audit for idle or damaged assets in our China production facility. Loss on Sale of Assets: Loss on sales of assets amounted to approximately $0.1 million in fiscal year 2009 and resulted primarily from consolidating our China operations into two plants in Suzhou, China, and the resulting sale of related equipment that was not required in our manufacturing and development operations in Suzhou, China.

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Interest Expense and Other Expense Interest Expense: Interest expense relates to our long-term debt with a stockholder and a third party creditor. Interest expense was $4.6 million, $5.0 million, and $5.2 million for the fiscal years 2011, 2010, and 2009, respectively. Interest expense fluctuations are a result of changes in the underlying interest rate on one of the loans, which is indexed to the LIBOR rate. Casualty Loss Property and Casualty Loss . In the second quarter of fiscal year 2010, we experienced a fire at an offsite warehouse in Suzhou, China, which contained certain fixed assets and inventory. Based upon our initial estimates of the casualty loss and expected insurance recoveries from this incident we recorded a casualty loss of $0.6 million in the quarter ended September 30, 2009, a receivable for the expected insurance recoveries of $3.5 million, a reduction of inventory and fixed assets of approximately $3.0 million, and related accrued liabilities for VAT taxes and expected clean up costs of approximately $1.0 million. We settled a claim with our insurance carrier during the fourth quarter of fiscal year 2010 for $3.2 million related to this fire, and recorded a $0.3 million reduction of the casualty loss previously recorded. Liquidity and Capital Resources At March 31, 2011, our principal source of liquidity was cash and cash equivalents of $2.9 million. We do not expect our cash and cash equivalents will be sufficient to fund our operating and capital needs for the next twelve months following March 31, 2011, nor do we anticipate that product sales during fiscal year 2012 will be sufficient to cover our operating expenses. Historically, we have relied upon managements ability to periodically arrange for additional equity or debt financing to meet our liquidity requirements. Unless our product sales are greater than management currently forecasts or there are other changes to our business plan, we will need to arrange for additional financing to fund operating and capital needs. This financing could take the form of debt or equity. Given our historical operating results and the amount of our existing debt, as well as the other factors, we may not be able to arrange for debt or equity financing on favorable terms or at all. Our cash requirements may vary materially from those now planned because of changes in our operations, including our failure to achieve expected revenues, changes in OEM relationships, market conditions, the failure to timely realize our product development goals, our stock price, and other adverse developments. These events could have a negative effect on our available liquidity sources during the next twelve months. The following table summarizes our statement of cash flows for the fiscal years ended March 31, 2011, 2010, and 2009 (in thousands): Fiscal Year Ended March 31, 2011 2010 $ (17,968 ) $ (473 ) 18,134 50 (257 ) $ (9,618 ) (231 ) 9,013 (1 ) (837 )

Net cash flows provided by (used in) Operating activities Investing activities Financing activities Effect of foreign exchange rates Net decrease in cash and cash equivalents

Cash used by operating activities during fiscal years 2011 and 2010 was $18.0 million, and $9.6 million, respectively. The cash used for operating activities during both fiscal years was primarily for operating losses and working capital requirements. Cash used by operations increased during fiscal year 2011 due to a $11.1 million increase in cash used in our accounts receivable and a $8.6 million increase in cash used in our inventory. The increased use of cash for our accounts receivable and inventory in fiscal year 2011, as compared to fiscal year 2010, was due to our increased sales and inventory production necessary to support the increased demand of our customers. Cash used for operating activities in fiscal year 2011 was higher than in fiscal year 2010 primarily due to increased sales activity in the current period, which required additional capital to support increased inventory levels and production salaries.

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Cash used by investing activities during fiscal years 2011 and 2010 was $0.5 million and $0.2 million, respectively. The cash used by investing activities in both years was primarily for the acquisition of capital equipment for our China facilities. We obtained net cash from financing activities of $18.1 million and $9.0 million during fiscal years 2011 and 2010, respectively. Net cash provided by financing activities in fiscal year 2011 consisted of $2.9 million of common stock sold under the Common Stock Purchase Agreement with Seaside, $12.0 million in sales of our common stock to Carl Berg, which consisted of cash payments and the settlements of certain promissory notes, as discussed in more detail below in Note 18 to Notes to the Consolidated Financial Statements, and $12.1 million of common stock sold under our At Market Issuance Sales Agreement with Wm. Smith & Co. In addition, we made payments on our short term debt to a third party financing company totaling $9.0 million in fiscal year 2011. Net cash provided by financing activities in fiscal year 2010 includes $4.3 million of common stock sold under the Common Stock Purchase Agreement with Seaside, $3.5 million in sales of our common stock to Carl Berg, $1.2 million of common stock sold under our At Market Issuance Sales Agreement with Wm. Smith & Co, and $0.1 million received from the exercise of stock options by employees. We filed a Form S-3 Registration Statement with the SEC utilizing a shelf registration process, and such registration statement was declared effective on January 21, 2011 (the New Registration Statement). Under this registration statement, we may sell debt or equity securities described in the accompanying prospectus in one or more offerings up to a total public offering price of $50.0 million. The New Registration Statement replaced our Form S-3 Registration Statement, which was declared effective on January 22, 2008 that expired on January 22, 2011 (the Expired Registration Statement). We believe that the New Registration Statement provides us additional flexibility with regard to potential financings that we may undertake when market conditions permit or that our financial condition may require. The shares sold to Seaside 88 and the shares sold under the Wm. Smith Agreement before the New Registration Statement became effective were registered under the Expired Registration Statement, and the shares which may be sold under the Wm. Smith Agreement on or after the New Registration Statement became effective are registered under the New Registration Statement. On October 14, 2009, we entered into a Common Stock Purchase Agreement with Seaside 88 LP, which provides that, upon the terms and subject to the conditions set forth therein, we are required to issue and sell, and Seaside to purchase, up to 650,000 shares of our common stock once every two weeks, subject to the satisfaction of customary closing conditions, beginning on October 15, 2009 and ending on or about the date that is 52 weeks subsequent to the initial closing, for an aggregate sale to Seaside of up to 16,900,000 shares of common stock. This agreement terminated on October 15, 2010, and we had sold 7.2 million shares to Seaside pursuant to this arrangement for aggregate gross proceeds of $7.6 million before offering expenses and finders fee. On February 22, 2008, we entered into an At Market Issuance Sales Agreement with Wm. Smith & Co., as sales agent (the Sales Agent). Concurrent with entering into this At Market Issuance Sales Agreement, we provided notice of termination of the Controlled Equity Offering Sales Agreement dated April 13, 2006 that we previously entered into with Cantor Fitzgerald & Co. On December 30, 2010, we entered into an Amendment No. 2 to the At Market Issuance Sales Agreement ( Amendment No. 2), with the Sales Agent, which provides, among other things, that the number of shares of our common stock which may be issued and sold through the Sales Agent increased from 10,000,000 shares to 20,000,000 shares. On January 22, 2011, we entered into an Amendment No. 3 to At Market Issuance Sales Agreement (Amendment No. 3) with the Sales Agent. Amendment No. 3 provided, among other things, that the shares of our common stock that remain available to be sold under the At Market Issuance Sales Agreement as of the amendment date will be registered under the New Registration Statement. Through March 31, 2011, we had sold 13.5 million shares with gross proceeds of $29.1 million under the amended At Market Issuance Sales Agreement. As of the date of this Report, we have made no further decisions as to whether or when we may seek to make additional sales under the At Market Issuance Sales Agreement. At March 31, 2011, the redemption obligation for our Series C-1 Convertible Preferred Stock and Series C-2 Convertible Preferred Stock, all of which is currently held by Berg & Berg, is $8.6 million, plus accrued dividends, which as of March 31, 2011 totaled approximately $0.9 million. The preferred shares are currently subject to redemption or conversion at the holders discretion. We do not have sufficient resources to effect this redemption; however, Berg & Berg has agreed that our failure to redeem the Series C-1 Convertible Preferred Stock and the Series C-2 Convertible Preferred -40-

Stock does not constitute a default under the certificate of designations for either the Series C-1 Convertible Preferred Stock or the Series C-2 Convertible Preferred Stock and has waived the accrual of any default interest applicable. Berg & Berg also has agreed to defer the payment of dividends on the Series C-1 Convertible Preferred Stock and Series C-2 Convertible Preferred Stock. According to our agreement with Berg & Berg, dividends will continue to accrue (without interest) on the Series C-1 Convertible Preferred Stock and the Series C-2 Convertible Preferred Stock according to the terms of the applicable certificates of designation; and such dividends are not payable until such time as the parties mutually agree, or upon redemption or conversion in accordance with the terms of the applicable certificates of designation. We have no present intention to pay dividends on this preferred stock, including the accrued dividends. The Series C-1 Convertible Preferred Stock may be converted, at any time, into shares of our common stock at the lower of $4.00 or the closing price of our common stock on the conversion date, provided the conversion price can be no lower than $1.98, the closing price of the common stock on December 13, 2005. The Series C-2 Convertible Preferred Stock may be converted, at any time, into shares of our common stock at the lower of $4.00 or the closing price of our common stock on the conversion date, provided the conversion price can be no lower than $2.96, the closing bid price of our common stock on July 13, 2005. As a result of our limited cash resources and history of operating losses, our auditors have expressed in their report on our consolidated financial statements, included in our audited March 31, 2011 consolidated financial statements, that there is substantial doubt about our ability to continue as a going concern. Our cash requirements may vary materially from those now planned because of changes in our operations, including the failure to achieve expected revenues, greater than expected expenses, changes in OEM relationships, market conditions, the failure to timely realize our product development goals, and other adverse developments. These events could have a negative effect on our available liquidity sources. We intend to improve our liquidity by continued monitoring and reduction of manufacturing, facility and administrative costs. However, there can be no assurance that these efforts will be successful or that the anticipated benefits would be realized in the near term. Short-Term and Long-Term Principal and Interest Repayment Obligations At March 31, 2011, our cash obligations for short-term and long-term debt principal and interest consisted of (in thousands): 2005 short-term debt Current portion of interest on short-term debt 1998 long-term debt to stockholder 2001 long-term debt to stockholder Long term portion of interest on debt Total March 31, 2011 11,000 33 14,950 20,000 30,350 $ 76,333 $

At March 31, 2011, our repayment obligations of short-term and long-term debt principal are (in thousands): 2012 $ 11,000 2013 $ 34,950 Fiscal Year ended March 31, 2014 2015 2016 Thereafter $ $ $ $ Total $ 45,950

Principal repayments

We have and will continue to have a significant amount of indebtedness and other obligations. As of March 31, 2011, we had approximately $76.3 million of total consolidated indebtedness, including accrued interest. Included in this amount are $35.0 million of loans outstanding, to an affiliate of Carl Berg, $30.4 million of accumulated interest associated with those loans and $11.0 million of principal and interest outstanding with a third party finance company. We began making monthly principal payments on the loan to the third party in fiscal year 2011, and the final payment is payable in February 2012. The terms of the certificates of designation for the Series C-1 Convertible Preferred Stock and the Series C-2 Convertible Preferred Stock initially provided that the deadline for redemption was December 15, 2005. Pursuant to assignment agreements entered into between the Company and Berg & Berg, Berg & Berg waived the requirement that the Series C-1 Convertible Preferred Stock and Series C-2 Convertible Preferred Stock be redeemed on this date. There currently are no redemption deadlines. As set forth above, although dividends are not due, they are continuing to accrue, which was approximately $0.9 million as of March 31, 2011. -41-

If cash flow from operations is not adequate to meet debt obligations, additional debt or equity financing will be required. There can be no assurance that we could obtain the additional financing. Contractual Obligations At March 31, 2011, our contractual obligations and payments due by period are as follows (in thousands): Payments Due by Period Less than 1-3 1 year Years $ 10,686 696 23,177 34,559 $ 34,889 30,350 841 66,080 $ 3-5 Years 3 3 $ More than 5 Years

Contractual obligations: Short-term debt, net of discount Long-term debt to stockholder, net of discount Long-term interest payable to stockholder Operating lease obligations Purchase obligations Total Lease Commitments

Total $ 10,686 34,889 30,350 1,540 23,177 100,642

We have no capital leases. Off-Balance Sheet Arrangements We have no off-balance sheet arrangements. Basis of Presentation, Critical Accounting Policies and Estimates We prepare our consolidated financial statements in conformity with generally accepted accounting principles in the United States (U.S). The preparation of our financial statements requires us to make estimates and assumptions that affect reported amounts. We believe our most critical accounting policies and estimates relate to revenue recognition, impairment of long-lived assets, inventory reserves, inventory overhead absorption, warranty liabilities, and share-based compensation expense. Our accounting policies are described in the Notes to Condensed Consolidated Financial Statements, Note 3, Summary of Significant Accounting Policies. The following further describes the methods and assumptions we use in our critical accounting policies and estimates. Revenue Recognition We generate revenues from sales of products including batteries and battery systems, and from licensing fees and royalties under technology license agreements. Product sales are recognized when all of the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, sellers price to the buyer is fixed and determinable, and collection is reasonably assured. For shipments where the transfer of title and risk of loss does not occur until the customer has accepted the product, we rely upon third party shipper notifications and notices of acceptance from the customer to recognize revenue. For all shipments, we estimate a return rate percentage based upon historical experience. From time to time we provide sales incentives in the form of rebates or other price adjustments; these are generally recorded as reductions to revenue on the latter of the date the related revenue is recognized or at the time the rebate or sales incentive is offered. Licensing fees are recognized as revenue upon completion of an executed agreement and delivery of licensed information, if there are no significant remaining vendor obligations and collection of the related receivable is reasonably assured. Royalty revenues are recognized upon licensee revenue reporting and when collection is reasonably assured.

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Impairment of Long-Lived Assets We perform a review of long-lived tangible and intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of these assets is measured by comparison of their carrying amounts to future undiscounted cash flows that the assets are expected to generate. If long-lived assets are considered to be impaired, the impairment to be recognized equals the amount by which the carrying value of the assets exceeds its fair value and is recorded in the period the determination was made. Inventory Inventory is stated at the lower of cost (determined using the first-in, first-out method) or market. Adjustments to reduce the cost of inventory to its net realizable value are made, if required, for estimated excess, obsolescence or impaired balances. Warranty We record warranty liabilities at the time of sale for the estimated costs that may be incurred under our basic limited warranty. The warranty terms and conditions generally provide for replacement of defective products. Factors that affect the warranty liability calculations include the number of units currently under warranty, historical and anticipated rates of warranty claims on those units, and cost per claim to satisfy the warranty obligation. Each quarter, we re-evaluate the estimate to assess the adequacy of our recorded warranty liabilities and adjusts the amounts as necessary. Share Based Compensation We measure share-based compensation expense for all share-based awards granted based on the estimated fair value of those awards at grant-date. The fair values of stock option awards are estimated using a Black- Scholes valuation model. The compensation costs are recognized net of any estimated forfeitures on a straight-line basis over the employee requisite service period. Forfeiture rates are estimated at grant date based on historical experience and adjusted in subsequent periods for any differences in actual forfeitures from those estimates. Recent Accounting Pronouncements On June 12, 2009, the FASB issued ASC No. 810, Consolidation, Amendments to FASB Interpretation No. 46(R) , which significantly changes the consolidation model for variable interest entities. ASC No. 810 requires companies to qualitatively assess the determination of the primary beneficiary of a variable interest entity (VIE) based on whether the entity (1) has the power to direct matters that most significantly affect the activities of the VIE, and (2) has the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. The standard shall be effective as of the beginning of each reporting entitys first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. Earlier application is prohibited. We adopted ASC No. 810 on April 1, 2010, and its adoption did not have a material effect on our consolidated financial statements. We have implemented all new accounting pronouncements that are in effect and that may impact our consolidated financial statements and do not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on our consolidated financial position or results of operations. Risk Factors See Item 1A of this Report.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Foreign Currency Exchange Risk . As a result of our foreign operations, we have significant expenses, assets and liabilities that are denominated in foreign currencies. A significant number of our employees are located in Asia. Therefore, a substantial portion of our payroll as well as certain other operating expenses are paid in the China RMB. Additionally, we purchase materials and components from suppliers in Asia. While we pay many of these suppliers in U.S. dollars, their costs are typically based upon the local currency of the country in which they operate. The majority of our revenues are received in U.S. dollars. As a consequence, our gross profit, operating results, profitability and cash flows are adversely affected when the dollar depreciates relative to other foreign currencies. We have a particularly significant currency rate exposure to changes in the exchange rate between the RMB and the U.S. dollar. For example, to the extent that we need to convert U.S. dollars for our operations, appreciation of the RMB against the U.S. dollar would have an adverse effect on the amount we receive from the conversion. We have not used any forward contracts, currency borrowings or derivative financial instruments for purposes of reducing our exposure to adverse fluctuations in foreign currency exchange rates. Interest Rate Sensitivity . Our exposure to interest rate risk primarily relates to a $20.0 million loan agreement we entered into on July 13, 2005, with iStar with an adjustable interest rate equal to the greater of 6.75% or the sum of the LIBOR rate plus 4.0% (LIBOR was less than 1% at March 31, 2011). We are exposed to financial market risks, including changes in foreign currency exchange rates and interest rates. The following table presents the principal cash flows by year of maturity for our total debt obligations held at March 31, 2011 (in thousands): 2012 Expected Maturity Date by Fiscal Year 2013 2014 2015 2016 Thereafter Total $ 20,000 $ $ $ $ $ 20,000 11,000 $ 14,950 $ $ $ $ $ 25,950

Fixed rate debt Variable rate debt

$ $

Based on borrowing rates currently available to use for loans with similar terms, the carrying value of our debt obligations approximates fair value.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets as of March 31, 2011 and 2010 Consolidated Statements of Operations and Comprehensive Loss for the years ended March 31, 2011, 2010, and 2009 Consolidated Statements of Stockholders Deficit for the years ended March 31, 2011, 2010, and 2009 Consolidated Statements of Cash Flows for the years ended March 31, 2011, 2010, and 2009 Notes to Consolidated Financial Statements Page F-1 F-2 F-3 F-4 F-5 F-6

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of Valence Technology, Inc.: We have audited the accompanying consolidated balance sheets of Valence Technology, Inc., and subsidiaries (collectively the, Company) as of March 31, 2011 and 2010, and the related consolidated statements of operations and comprehensive loss, stockholders deficit, and cash flows for each of the three fiscal years in the period ended March 31, 2011. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinions. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2011 and 2010, and the results of its operations and comprehensive loss and its cash flows for each of the three fiscal years in the period ended March 31, 2011, in conformity with accounting principles generally accepted in the United States of America. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Companys recurring losses from operations, negative cash flows from operations and net stockholders capital deficiency raise substantial doubt about its ability to continue as a going concern. Managements plans concerning these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Companys internal control over financial reporting as of March 31, 2011, based on criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated May 25, 2011 expressed an unqualified opinion on the effectiveness of the Companys internal control over financial reporting. PMB HELIN DONOVAN, LLP Austin, Texas May 25, 2011

F-1

VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (AMOUNTS IN THOUSANDS EXCEPT FOR SHARE AMOUNTS) 2011 March 31, 2010

Assets Current assets: Cash and cash equivalents Trade receivables, net of allowance of $361 and $43, respectively Inventory, net Prepaid and other current assets Total current assets Property, plant and equipment, net Other long-term assets Total assets Liabilities, Preferred Stock and Stockholders Deficit Current liabilities: Accounts payable Accrued expenses Short-term debt, net of debt discount Total current liabilities Long-term interest payable to stockholder Long-term debt to stockholder, net of debt discount Other long-term liabilities Commitments and contingencies Preferred Stock Redeemable convertible preferred stock, $0.001 par value, 10,000,000 shares authorized, 861 issued and outstanding at March 31, 2011 and 2010, liquidation value $8,610 Stockholders deficit: Common stock, $0.001 par value, 200,000,000 shares authorized, 156,762,353 shares issued and 154,959,209 shares outstanding, respectively, as of March 31, 2011, and 131,972,224 shares issued and 130,169,080 outstanding, respectively, as of March 31, 2010 Additional paid-in capital Treasury shares, 1,803,144 at cost Accumulated deficit Accumulated other comprehensive loss Total stockholders deficit Total liabilities, preferred stock, and stockholders deficit

2,915 13,615 12,491 2,661 31,682 4,192 143 36,017

3,172 2,832 5,597 1,557 13,158 4,931 18,089

9,150 6,063 10,686 25,899 30,350 34,889 103

1,815 4,566 19,853 26,234 27,383 34,848 129

8,610

8,610

157 537,957 (5,164 ) (593,702 ) (3,082 ) (63,834 ) 36,017 $

132 509,909 (5,164 ) (580,845 ) (3,147 ) (79,115 ) 18,089

The accompanying notes are an integral part of these consolidated financial statements.

F-2

VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (AMOUNTS IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS) Year ended March 31, 2011 2010 45,882 $ 16,080 $ 36,446 14,093 9,436 1,987 3,622 2,665 11,648 502 18,437 (9,001 ) 839 15 (4,539 ) (12,685 ) 172 (12,857 ) $ (12,685 ) $ 66 (12,619 ) $ (0.09 ) $ 141,655 4,464 2,614 12,418 301 19,797 (17,810 ) 44 30 (4,980 ) (300 ) (23,016 ) 172 (23,188 ) $ (23,016 ) $ (12 ) (23,028 ) $ (0.18 ) $ 126,211 2009 26,157 25,682 475 4,333 2,922 9,072 137 731 17,195 (16,720 ) 605 82 (5,193 ) (21,226 ) 172 (21,398 ) (21,226 ) 532 (20,694 ) (0.18 ) 119,370

Revenue Cost of sales Gross margin Operating expenses: Research and product development Marketing General and administrative Loss on disposal of assets Asset impairment charge Total operating expenses Operating loss Foreign exchange gain Interest and other income Interest and other expense Casualty loss Net loss Dividends on preferred stock Net loss available to common stockholders, basic and diluted Other comprehensive loss: Net loss Change in foreign currency translation adjustments Comprehensive loss Net loss per share available to common stockholders, basic and diluted Shares used in computing net loss per share available to common stockholders, basic and diluted

$ $ $ $

The accompanying notes are an integral part of these consolidated financial statements.

F-3

VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS DEFICIT (IN THOUSANDS)
Common Stock Number of Shares Amount 117,439 $ 117 3,260 3 Treasury Stock Additional Accumulated Total Number Paid-In Accumulated Comprehensive Stockholders of Shares Amount Capital Deficit Loss Deficit 1,803 $ (5,164 ) $ 477,657 $ (536,260 ) $ (3,667 ) $ (67,317 ) 10,173 10,176

Balance at March 31, 2008 Sale of stock to private investors Cancellation of debt as consideration for common stock warrants exercise Exercise of stock options Exercise of warrants Dividends on preferred stock Share based compensation Net loss Change in translation adjustment Balance at March 31, 2009 Sale of stock to private investors Sale of stock to a related party Exercise of stock options Dividends on preferred stock Share based compensation Issuance of warrants Net loss Change in translation adjustment Balance at March 31, 2010 Sale of stock to private investors Sale of stock to a related party Dividends on preferred stock Share based compensation Issuance of warrants Net loss Change in translation adjustment Balance at March 31, 2011

1,667 444 2,233 125,043 $ 4,511 2,342 76 131,972 $ 11,860 12,930 156,762 $

2 1 2 125 4 2 1 132 12 13 157

1,803 $ 1,803 $ 1,803 $

(5,164 ) $ (5,164 ) $ (5,164 ) $

3,132 905 6,142 637 498,646 $ 5,376 3,498 132 2,184 73 509,909 $ 15,104 12,007 828 110 537,957 $

(171 ) (21,226 ) (557,657 ) $ (172 ) (23,016 ) (580,845 ) $ (172 ) (12,685 ) (593,702 ) $

532 (3,135 ) $ (12 ) (3,147 ) $ 65 (3,082 ) $

3,134 906 6,144 (171 ) 637 (21,226 ) 532 (67,185 ) 5,381 3,500 133 (172 ) 2,184 73 (23,016 ) (12 ) (79,115 ) 15,115 12,020 (172 ) 828 110 (12,685 ) 65 (63,834 )

The accompanying notes are an integral part of these consolidated financial statements.

F-4

VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) 2011 $ Year ended March 31, 2010 (23,016 ) $ 1,155 4 3,530 301 300 (44 ) 2,185 908 404 3,640 596 (8 ) 427 (9,618 ) (231) (231) 132 8,881 9,013 (1 ) (837 ) 4,009 3,172 $ 2009 (21,226 ) 1,625 137 93 3,564 731 (605 ) 637 3,110 (879 ) (1,575 ) (2,350 ) 1,315 (15,423 ) (3,607) 52 (3,555) 4,502 906 14,951 20,359 12 1,393 2,616 4,009

Cash flows from operating activities: Net loss Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization Loss on disposal of assets Bad debt expense Accretion of debt discount and other Asset impairment charge Casualty loss Foreign exchange gain Share based compensation Reserve for obsolete inventory Changes in operating assets and liabilities: Trade receivables Inventory Prepaid and other current assets Long-term assets Accounts payable Accrued expenses Net cash used in operating activities Cash flows from investing activities: Purchases of property, plant, and equipment Proceeds from disposal of property, plant, and equipment Net cash used in investing activities Cash flows from financing activities: Proceeds from short-term debt Proceeds from stock option exercises Proceeds from issuance of common stock, net of issuance costs Payment of short-term debt Net cash provided by financing activities Effect of foreign exchange rates on cash and cash equivalents (Decrease) increase in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Supplemental information: Interest paid Cancellation of debt from stockholder in exchange for common shares

(12,685 ) $ 1,060 324 2,905 502 (839 ) 828 1.876 (11,101 ) (8,560 ) (1,011 ) (143 ) 7,255 1,621 (17,968 ) (473) (473) 5,020 22,114 (9,000 ) 18,134 50 (257 ) 3,172 2,915 $

$ $

1,166 5,020

$ $

1,377

$ $

1,519 4,502

The accompanying notes are an integral part of these consolidated financial statements.

F-5

VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS BUSINESS AND BUSINESS STRATEGY: Valence Technology, Inc. and subsidiaries (the Company), was founded in 1989 and has commercialized the industrys first lithium phosphate technology. The Company develops, manufactures and sells advanced, high-energy power systems utilizing our proprietary phosphate-based lithium-ion technology for diverse applications, with special emphasis on fleet hybrid and electric vehicles, portable appliances and other industry and consumer applications. The Companys mission is to promote the wide adoption of high-performance, safe, long cycle life, environmentally friendly, low-cost energy storage systems. To accomplish this mission and address the significant market opportunity the Company believes is available, the Company plans to utilize the numerous benefits of its latest energy storage technology, deep intellectual property portfolio and extensive experience of its management team. The Company believes that the improved features and functionality of the latest U-Charge lithium phosphate energy storage systems are well suited for electric vehicle (EV), plug-in hybrid electric vehicle (PHEV) and similar applications. U-Charge lithium phosphate energy storage systems address the safety and limited life weaknesses of other lithium technologies while offering a solution that is competitive in cost and performance. The Companys latest U-Charge system builds upon these features and adds improvements in state of charge monitoring, cell and pack balancing, battery monitoring and diagnostics, and certain field reparability. The Companys business plan and strategy focus on the generation of revenue from product sales, while controlling costs through partnerships with contract manufacturers and internal manufacturing efforts through the Companys two wholly owned subsidiaries in China. The Company expects to develop target markets through the sales of our latest U-Charge system lithium phosphate energy storage systems and custom lithium phosphate energy storage systems based on programmable Command and Control Logic. 2. GOING CONCERN AND LIQUIDITY AND CAPITAL RESOURCES: GOING CONCERN: The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has incurred operating losses each year since its inception in 1989 and had an accumulated deficit of $594 million as of March 31, 2011. For the years ended March 31, 2011, 2010, and 2009, the Company sustained net losses available to common stockholders of $12.9 million, $23.2 million, and $21.4 million, respectively. These factors, among others, indicate that the Company may be unable to continue as a going concern for the next twelve months. The Companys ability to continue as a going concern is contingent upon its ability to meet its working capital requirements. If the Company is unable to arrange for debt or equity financing on favorable terms or at all the Companys ability to continue as a going concern is uncertain. These financial statements do not give effect to any adjustments to the amounts and classifications of assets and liabilities which might be necessary should the Company be unable to continue as a going concern. LIQUIDITY AND CAPITAL RESOURCES: At March 31, 2011, the Companys principal sources of liquidity were cash and cash equivalents of $2.9 million. The Company does not expect that its cash and cash equivalents will be sufficient to fund its operating and capital needs for the next twelve months following March 31, 2011, nor does the Company anticipate product sales during fiscal year 2012 will be sufficient to cover its operating expenses. Historically, the Company has relied upon managements ability to periodically arrange for additional equity or debt financing to meet the Companys liquidity requirements. Unless the Companys product sales are greater than management currently forecasts or there are other changes to the Companys business plan, the Company will need to arrange for additional financing within the next three to six months to fund operating and capital needs. This financing could take the form of debt or equity. Given the Companys historical operating results and the amount of existing debt, as well as the other factors, the Company may not be able to arrange for debt or equity financing from third parties on favorable terms or at all.

F-6

VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Companys cash requirements may vary materially from those now planned because of changes in the Companys operations including the failure to achieve expected revenues, greater than expected expenses, changes in OEM relationships, market conditions, the failure to timely realize the Companys product development goals, and other adverse developments. These events could have a negative effect on the Companys available liquidity sources during the next twelve months. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: USE OF ESTIMATES: The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the revenues and expenses for the period. The Company has made significant estimates in determining the amount of inventory reserves and inventory overhead absorption as discussed in Note 6, of Notes to the Consolidated Financial Statements, warranty liabilities as discussed in Note 12 of Notes to the Consolidated Financial Statements, and share based compensation as discussed in Note 14 of Notes to the Consolidated Financial Statements. Actual results could differ from those estimates. PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. The Company has the following subsidiaries: Valence Technology Cayman Islands Inc., Valence Technology (Suzhou) Co., Ltd., and Valence Energy-Tech (Suzhou) Co., Ltd. Intercompany balances and transactions are eliminated upon consolidation. RECLASSIFICATIONS: Where appropriate, the prior years financial statements have been reclassified to conform to current year presentation. For the balance sheets presented as of March 31, 2010, we have reduced the amount of Prepaid and Other Accrued Expenses to reflect the netting of similar payable and receivable VAT tax balances that existed as of March 31, 2010 in those particular balance sheet items. None of the changes impact the Companys previously reported consolidated net revenue, loss from operations, net loss or net loss per share. CASH AND CASH EQUIVALENTS: The Company considers all highly liquid investments that are readily convertible to known amounts of cash and so near their maturity that they present insignificant risk of changes in value because of changes in interest rates to be cash equivalents. CONCENTRATION OF CREDIT RISK: Financial instruments that potentially subject the Company to concentrations of credit risk are primarily accounts receivable and cash and cash equivalents. The Company provides an allowance for doubtful accounts based upon the expected ability to collect accounts receivable. The Company makes estimates about the uncollectability of its accounts receivables. The Company specifically analyzes accounts receivable and historical bad debts, customer concentrations, customer credit-worthiness and current economic trends when evaluating the adequacy of the allowance for doubtful accounts. The need to write off a receivable balance depends on the age, size and a determination of collectability of the receivable. Credit losses to date have been within the Companys estimates. F-7

VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Cash and cash equivalents are invested in deposits with a major financial institution. As of March 31, 2011, the Company had approximately $0.7 million, denominated in the Chinese Yuan, in banks registered in the Peoples Republic of China, which are not insured by the Federal Deposit Insurance Corporation. The Company has not experienced any losses on its deposits of cash and cash equivalents. Management believes that the financial institution is financially sound and, accordingly, minimal credit risk exists. INVENTORY: Inventory is stated at the lower of cost (determined using the first-in, first-out method) or market. Adjustments to reduce the cost of inventory to its net realizable value are made, if required, for estimated excess, obsolescence or impaired balances. FAIR VALUE: Fair value is determined to be the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market and assumptions that market participants would use when pricing the asset or liability. The Company follows a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. The three values of the fair value hierarchy are the following: Level 1 Quoted prices in active markets for identical assets or liabilities. Level 2 Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 Inputs that are not based on observable market data. Financial instruments that potentially subject the Company to an interest and credit risk consist of cash and cash equivalents, trade receivables, accounts payable and accrued expenses, the carrying values of which are a reasonable estimate of their fair values due to their short maturities. Based upon borrowing rates currently available to the Company for loans with similar terms, the carrying value of its debt obligations approximates fair value. PROPERTY, PLANT AND EQUIPMENT: Property and equipment are stated at cost and depreciated using the straight-line method over their estimated useful lives, generally three to five years. Leasehold improvements are amortized over the lesser of their estimated useful life or the remaining lease term. Expenditures for renewals and betterments are capitalized; repairs and maintenance are charged to expense as incurred. The cost and accumulated depreciation of assets sold or otherwise disposed of are removed from the accounts and any gain or loss thereon is reflected in operations. IMPAIRMENT OF LONG-LIVED ASSETS: The Company performs a review of long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of these assets is measured by comparison of their carrying amounts to future undiscounted cash flows that the assets are expected to generate. If long-lived assets are considered to be impaired, the impairment to be recognized equals the amount by which the carrying value of the assets exceeds their fair value and is recorded in the period the determination was made. F-8

VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS COMMON STOCK: Common stock refers to the $0.001 par value capital stock as designated in the companys Certificate of Incorporation. Treasury stock is accounted for using the cost method. When treasury stock is issued, the value is computed and recorded using a weighted-average basis. REVENUE RECOGNITION: The Company generates revenues from sales of products including batteries and battery systems, and from licensing fees and royalties under technology license agreements. Product sales are recognized when all of the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, sellers price to the buyer is fixed and determinable, and collection is reasonably assured. For shipments where the transfer of title and risk of loss does not occur until the customer has accepted the product, the Company relies upon third party shipper notifications and notices of acceptance from the customer to recognize revenue. For all shipments, the Company estimates a return rate percentage based upon historical experience. From time to time the Company provides sales incentives in the form of rebates or other price adjustments; these are generally recorded as reductions to revenue on the latter of the date the related revenue is recognized or at the time the rebate or sales incentive is offered. Licensing fees are recognized as revenue upon completion of an executed agreement and delivery of licensed information, if there are no significant remaining vendor obligations and collection of the related receivable is reasonably assured. Royalty revenues are recognized upon licensee revenue reporting and when collection is reasonably assured. RESEARCH AND DEVELOPMENT: Research and development costs are expensed as incurred. WARRANTY: The Company records warranty liabilities at the time of sale for the estimated costs that may be incurred under its basic limited warranty. The warranty terms and conditions generally provide for replacement of defective products. Factors that affect the Companys warranty liability include the number of units currently under warranty, historical and anticipated rates of warranty claims on those units, and cost per claim to satisfy the Companys warranty obligation. Each quarter, the Company re-evaluates its estimates to assess the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary. SHIPPING AND HANDLING COSTS: The Company recognizes as revenue amounts billed to customers related to shipping and handling with related expenses recorded as a component of cost of sales. ADVERTISING COSTS: Advertising costs are charged to expense as incurred. Advertising expenses for each of fiscal years 2011, 2010 and 2009 were less than $0.1 million. FOREIGN CURRENCY: The assets and liabilities of the Companys foreign subsidiaries have been translated to U.S. dollars using the exchange rate in effect at the balance sheet date. Results of operations and cash flows have been translated using the average exchange rate during the year. Resulting translation adjustments have been recorded as a separate component of stockholders deficit as accumulated other comprehensive loss. Foreign currency transaction gains and losses are included in the consolidated statement of operations as they occur.

F-9

VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SHARE-BASED COMPENSATION: The Company measures share-based compensation expense for all share-based awards granted based on the estimated fair value of those awards at grant-date. The fair values of stock option awards are estimated using a BlackScholes valuation model. The compensation costs are recognized net of any estimated forfeitures on a straight-line basis over the employee requisite service period. Forfeiture rates are estimated at grant date based on historical experience and adjusted in subsequent periods for any differences in actual forfeitures from those estimates. See Note 14 of Notes to the Consolidated Financial Statements for further discussion of share-based compensation. COMPREHENSIVE INCOME/LOSS: Comprehensive income/loss is the change in stockholders deficit from foreign currency translation gains and losses. INCOME TAXES: The Company accounts for income taxes in accordance with the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates that are expected to apply to taxable income in the periods in which the deferred tax asset or liability is expected to be realized or settled. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. The Company has provided a full valuation allowance against its deferred tax assets because the realization of the related tax benefits is not considered more likely than not. The Company accounts for uncertain tax positions in accordance with the authoritative guidance issued by the Financial Accounting Standards Board (FASB) on income taxes, which addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Pursuant to the authoritative guidance, the Company recognizes the tax benefit from an uncertain tax position only if it meets the more likely than not threshold that the position will be sustained upon examination by the taxing authority, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. The Company includes interest and penalties related to uncertain tax positions, if any, as part of income tax expense within its consolidated statement of operations.

F-10

VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NET LOSS PER SHARE: Net loss per share is computed by dividing the net loss by the weighted average shares of common stock outstanding during the periods. The dilutive effect of the options and warrants to purchase common stock are excluded from the computation of diluted net loss per share, since their effect is antidilutive. The antidilutive instruments excluded from the diluted net loss per share computation were as follows at: 2011 3,628,634 7,878,513 215,000 11,722,147 March 31, 2010 3,628,634 8,188,952 115,000 11,932,586 2009 3,628,634 7,087,395 10,716,029

Shares reserved for conversion of Series C-1 Convertible Preferred Stock and Series C-2 Convertible Preferred Stock Common stock options Warrants to purchase common stock Total

The number of shares listed above as reserved for conversion of Series C-1 Convertible Preferred Stock and Series C-2 Convertible Preferred Stock do not include shares related to accrued dividends that are convertible into shares of the Companys stock at the election of the Company, subject to certain limitations. At March 31, 2011, up to approximately $0.9 million in accrued dividends would be convertible into up to 607,267 shares of common stock based on the closing sales price of $1.56 per share on March 31, 2011. RECENT ACCOUNTING PRONOUNCEMENTS: On June 12, 2009, the FASB issued ASC No. 810, Consolidation, Amendments to FASB Interpretation No. 46(R) , which significantly changes the consolidation model for variable interest entities. ASC No. 810 requires companies to qualitatively assess the determination of the primary beneficiary of a variable interest entity (VIE) based on whether the entity (1) has the power to direct matters that most significantly affect the activities of the VIE, and (2) has the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. The standard shall be effective as of the beginning of each reporting entitys first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. Earlier application is prohibited. The Company adopted ASC No. 810 on April 1, 2010, and its adoption did not have a material effect on its consolidated financial statements. The Company has implemented all new accounting pronouncements that are in effect and that may impact its consolidated financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its consolidated financial position or results of operations. 4. IMPAIRMENT CHARGE: Impairment charges of approximately $0.5 million, $0.3 million, and $0.7 million were recorded during fiscal years 2011, 2010 and 2009, respectively. In fiscal years 2011 and 2009, the Company determined that fixed assets that were purchased for the expansion of production facilities in China were impaired, as the additional capacity provided by acquisition of these assets was determined to be unnecessary to meet expected demand until later than initially expected. The fair value measurements used in the Companys impairment analyses fall within Level 3 of the fair value hierarchy (inputs that are not based on observable market data), as they were based on the future expected cash flows that the assets were expected to generate. The fiscal year 2010 impairment charge was the result of our annual fixed asset inventory count and audit for idle or damaged assets in our China production facility.

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VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5. CASUALTY LOSS: In the second quarter of fiscal year 2010, the Company experienced a fire at an offsite warehouse in Suzhou, China, which contained certain fixed assets and inventory. Based upon initial estimates of the casualty loss and expected insurance recoveries from this incident the Company recorded a casualty loss of $0.6 million in the quarter ended September 30, 2009, a receivable for the expected insurance recoveries of $3.5 million, a reduction of inventory and fixed assets of approximately $3.0 million, and related accrued liabilities for VAT taxes and expected clean up costs of approximately $1.0 million. The Company settled a claim with our insurance carrier during the fourth quarter of fiscal year 2010 for $3.2 million related to this fire, and recorded a $0.3 million reduction of the casualty loss previously recorded. 6. INVENTORY: Inventory consisted of the following at (in thousands): 2011 March 31, $ $ 2010

Raw materials Work-in-process Finished goods Total Inventory

$ $

2,962 6,282 3,247 12,491

2,639 1,143 1,815 5,597

In the second quarter of fiscal year 2010, the Company experienced a fire at an offsite warehouse which contained certain fixed assets and inventory. It was determined that $2.7 million of raw materials, work in progress, and finished goods inventory were consumed by the fire and determined to be unrecoverable. These items were added to our inventory reserve to reduce their carrying value in the second quarter of fiscal 2010, and subsequently disposed in the fourth quarter of fiscal year 2010. Included in inventory at March 31, 2011, 2010, respectively, were valuation allowances of $1.3 million and $1.7 million, respectively, to reduce their carrying values to the lower of cost or market. Management has valued overhead absorption related to work in process based on estimates of completion at March 31, 2011 and March 31, 2010. 7. PREPAID AND OTHER CURRENT ASSETS: Prepaid and other current assets consisted of the following at (in thousands): 2011 March 31, 904 733 46 978 2,661 $ 2010

Other receivables Deposits Prepaid insurance Other prepaid expenses Total prepaid and other current assets

372 362 75 748 1,557

F-12

VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment, net of accumulated depreciation, amortization, and impairment charges, consisted of the following at (in thousands): 2011 March 31, 2010

Leasehold improvements Machinery and equipment Office and computer equipment Construction in progress Property, plant, and equipment, gross Less: accumulated depreciation and amortization Less: impairment charges Total property, plant, and equipment, net

992 $ 7,768 2,324 104 11,188 (6,000 ) (996 ) 4,192 $

1,117 7,332 2,220 29 10,698 (4,907 ) (860 ) 4,931

In the second quarter of fiscal year 2010, the Company experienced a fire at an offsite warehouse which contained certain fixed assets and inventory. As a result of this fire, management has reduced the carrying value of certain fixed assets by approximately $0.2 million, which is included in the casualty loss in the consolidated statement of operations. Impairment charges of approximately $0.5 million, $0.3 million, and $0.7 million were recorded during fiscal years 2011, 2010, and 2009, respectively. The fiscal year 2011 and 2009 impairment charges related to fixed assets that were purchased for the expansion of our production facilities in China. These production assets were deemed to be impaired since the additional capacity provided by these acquisition of these assets were determined not to be necessary to meet expected demand until later than initially expected. The fiscal year 2010 impairment charge was the result of our annual fixed asset inventory count and audit for idle or damaged assets in our China production facility. Depreciation expense was approximately $1.1 million, $1.2 million, and $1.6 million for the fiscal years end March 31, 2011, 2010, and 2009, respectively. 9. ACCRUED EXPENSES: Accrued expenses consisted of the following (in thousands) at: 2011 March 31, 1,217 222 1,653 893 947 1,131 6,063 $ 2010

Accrued compensation Professional services Warranty reserve Inventory received, not invoiced Accrued dividends on preferred stock Other accrued expenses Total accrued expenses

587 606 641 460 775 1,497 4,566

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VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 10. DEBT: Short-term debt, net of discount, consisted of the following (in thousands) at: March 31, 2011 2010 11,000 $ 20,000 (314) (147) 10,686 $ 19,853

Short term debt Less: unaccreted debt discount Short-term debt, net of debt discount

$ $

On July 13, 2005, the Company secured a $20.0 million loan (the 2005 Loan) from SFT I, Inc., the full amount of which has been drawn down. The 2005 Loan is guaranteed by Carl E. Berg, Chairman of the Board. Interest is due monthly based on a floating interest rate equal to the greater of 6.75% or the sum of the LIBOR rate plus 4.0%. LIBOR was less than one percent at March 31, 2011, and the interest payable on the loan was at a rate of 6.75% at March 31, 2011. As of March 31, 2011 a total of $9.0 million in principal payments have been made on the 2005 Loan. In connection with the 2005 Loan, SFT I, Inc. and Berg & Berg Enterprises, LLC (Berg & Berg) each received warrants to purchase 600,000 shares of the Companys common stock at a price of $2.74 per share, the closing price of the Companys common stock on July 12, 2005. The fair value assigned to these warrants, totaling approximately $2.0 million, has been recorded as a discount on the debt and will be accreted as interest expense over the life of the loan. April 24, 2008, Berg & Berg exercised its warrants by purchasing 600,000 shares of the Companys common stock for an aggregate purchase price of $1.6 million. In addition, SFT I, Inc. completed cashless exercises of its warrants on June 4, 2008 and June 27, 2008 and received a total of 230,767 common stock shares upon completion of the cashless exercises. Also, in connection with the 2005 Loan, the Company incurred a loan commitment fee and attorneys fees which, in addition to the interest rate cap agreement, have been recorded as a discount on the debt and will be accreted as interest expense over the life of the loan. The rate cap agreement terminated on August 10, 2008. Through March 31, 2011, a total of approximately $2.8 million has been accreted and included as interest expense. Interest payments on the 2005 Loan are currently being paid on a monthly basis. The 2005 Loan has been amended several times since its origination, most recently on January 11, 2011 when the Company entered into an Amendment No. 3 to Loan and Security Agreement and Other Loan Documents (the Amendment No. 3) with iStar Tara LLC, a Delaware limited liability company (iStar), and Carl E. Berg, to amend the Loan and Security Agreement dated as of July 13, 2005 (as amended to date, the Original Loan Agreement) among the Company, iStar and Mr. Berg. Amendment No. 3 extends the maturity date of the Loan from February 13, 2011 to March 10, 2012 (the New Maturity Date). The Company will be obligated to continue to make monthly interest payments to iStar, as set forth in the Original Loan Agreement; provided that the Company shall also be obligated to continue to make monthly principal payments equal to $1,000,000. The remainder of the principal and any other outstanding obligations under the Loan shall be payable in full on the New Maturity Date. In addition, in connection with the amendment, the Company issued to iStar a Warrant to Purchase Common Stock of Valence Technology, Inc. (the 2011 Warrant), pursuant to which iStar may purchase up to 100,000 shares of the Companys common stock at an exercise price of $1.45 per share on or before January 11, 2014. The fair value assigned to these warrants, totaling approximately $0.1 million, has been recorded as a discount on the debt and will be accreted as interest expense over the remaining life of the loan. The 2011 Warrants were valued using the Black-Scholes valuation method using the assumptions of a life of 36 months, 100.5% volatility, and a risk-free rate of 1.0%. Additionally, in connection with the amendment, the Company paid iStar an extension fee of $260,000 upon the execution of the Amendment No. 3.

F-14

VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11. NOTES PAYABLE TO STOCKHOLDER: Long-term debt to stockholder, net of discount, consisted of the following (in thousands) at: March31, 2011 2010 20,000 $ 20,000 14,950 14,950 (61) (102) 34,889 $ 34,848

2001 Loan 1998 Loan Less: unaccreted debt discount Long-term debt to stockholder, net of debt discount

$ $

In October 2001, the Company entered into a loan agreement (2001 Loan) with Berg & Berg. Under the terms of the agreement, Berg & Berg agreed to advance the Company funds of up to $20.0 million between the date of the agreement and September 30, 2003. Interest on the 2001 Loan accrues at 8.0% per annum, payable from time to time. The maturity date of the 2001 Loan has been extended multiple times, most recently on October 13, 2009, at which time Berg & Berg agreed to further extend the maturity date for the loan principal and interest from September 30, 2010 to September 30, 2012. Interest payments are currently being deferred, and are recorded as long term interest payable to stockholder on the balance sheet. In conjunction with the 2001 Loan, Berg & Berg received a warrant to purchase 1,402,743 shares of the Companys common stock at the price of $3.208 per share. These warrants were exercised on September 30, 2008 when Berg & Berg surrendered a short term note payable of $4.5 million to the Company as exercise consideration. The fair value assigned to these warrants, totaling approximately $5.1 million, has been reflected as additional consideration for the debt financing, recorded as a discount on the debt and accreted as interest expense over the life of the loan. Through March 31, 2011, a total of $5.0 million has been accreted and included as interest expense. The amount charged to interest expense on the outstanding balance of the loan for each of the fiscal years 2011 and 2010 was $1.6 million. Interest payments on the loan are currently being deferred, and are recorded as long-term interest. The accrued interest amounts for the 2001 Loan were $14.8 million and $13.2 million as of March 31, 2011, and March 31, 2010, respectively. In July 1998, the Company entered into an amended loan agreement (1998 Loan) with Berg & Berg that allows the Company to borrow, prepay and re-borrow up to $10.0 million principal under a promissory note on a revolving basis. In November 2000, the 1998 Loan agreement was amended to increase the maximum amount to $15.0 million. As of March 31, 2011, and 2010, the Company had an outstanding balance of $15.0 million under the 1998 Loan agreement. The 1998 Loan bears interest at one percent over lenders borrowing rate (approximately 9.0 % at March 31, 2011). The maturity date of the 1998 Loan has been extended multiple times, most recently on October 13, 2009, at which time Berg & Berg agreed to further extend the maturity date for the loan principal and interest from September 30, 2010 to September 30, 2012. The amount charged to interest expense on the outstanding balance of the loan for each of the fiscal years 2011 and 2010 was $1.3 million. Interest payments are currently being deferred, and are recorded as long term interest payable to stockholder on the balance sheet. The accrued interest amounts for the 1998 Loan were $15.5 million and $14.2 million as of March 31, 2011 and March 31, 2010, respectively. All of the Companys assets are pledged as collateral under the 2001 Loan and the 1998 Loan. 12. COMMITMENTS AND CONTINGENCIES: LEASES: The Company leases office space in the United States and Ireland to support its research and development activties, sales and marketing activities, and general and administrative activities. In addition, the Company leases manufacturing facilities in China to support its inventory production activities.

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VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Total rent expense for the fiscal years 2011, 2010, and 2009, was approximately $0.8 million, $0.5 million and $0.7 million, respectively. Future minimum payments on operating leases for fiscal years following March 31, 2011 are (in thousands): 2012 2013 2014 2015 2016 and thereafter Total minimum payments $ 696 561 280 3 1,540

At March 31, 2011, the Company's contractual obligations and payments due by period are as follows (in thousands): Total $ 10,686 34,889 30,350 1,540 23,177 100,642 $ 2012 10,686 696 23,177 34,559 Payments Due by Fiscal Year 2013 2014 $ 34,889 30,350 561 65,800 $ 280 280 $ 2015 3 3 Thereafter $

Contractual obligations: Short-term debt, net of discount Long-term debt to stockholder, net of discount Long-term interest payable to stockholder Operating lease obligations Purchase obligations Total WARRANTIES:

The Company has established a warranty reserve in relation to the sale of U-Charge Power Systems, custom packs, and other large-format power systems. The total warranty liability was $1.7 million and $0.6 million as of March 31, 2011 and March 31, 2010, respectively. Product warranty liabilities are as follows at (in thousands): 2011 March 31, 641 $ (164 ) 1,176 1,653 $ 2010

Beginning balance Less: claims Add: accruals and (adjustments) Ending balance

$ $

968 (128 ) (199 ) 641

F-16

VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS LITIGATION: On January 31, 2007, the Company filed a claim against Phostech Lithium Inc. in the Federal Court in Canada (Valence Technology, Inc. v. Phostech Lithium Inc. Court File No. T-219-07) alleging infringement of Valence Canadian Patent 2,395,115 ( 115 Patent). Subsequently, on April 2, 2007, the Company filed an amended claim alleging additional infringement of its Canadian Patents 2,483,918 ( 918 Patent) and 2,466,366 ( 366 Patent). The trial took place in September 2010 and ended on October 1, 2010. On February 17, 2011, the Canadian Court ruled in favor of the Company, finding that Phostech infringed Valences 115 Patent. The 918 Patent was held invalid. The 366 Patent was not held invalid, but no decision was rendered with respect to the infringement of the 366 Patent. An immediate injunction was imposed by the Trial Court on Phostech. Phostech twice appealed the imposition of the injunction and on the second appeal, and the injunction was stayed by the Appellate Court, provided an expedited appeal would be undertaken and a bond posted by Phostech. The Appeal is to be heard on June 6, 2011. A favorable decision at trial permits the Company to seek monetary damages, reasonable attorney fees, costs and an injunction to stop Phostech from manufacturing, using and selling phosphate cathode material that infringes the valid Valence Canadian Patent 2,395,115. On February 14, 2006, Hydro-Quebec filed an action against the Company in the United States District Court for the Western District of Texas (Hydro-Quebec v. Valence Technology, Civil Action No. A06CA111). An amended complaint was filed April 13, 2006. A stay imposed due to the USPTO reexaminations of the two patents was lifted following completion of the reexaminations. On January 8, 2009, Hydro-Quebec filed a second amended complaint, wherein HydroQuebec alleges that Saphion I Technology, the technology utilized in all of the Companys commercial products, infringes U.S. Reexamined Patent Nos. 5,910,382 and 6,514,640 exclusively licensed to Hydro-Quebec. Hydro-Quebec seeks injunctive relief and monetary damages. The Company has filed a response denying the allegations in the second amended complaint. A Markman hearing to determine the scope of the asserted claims in the two reexamined patents was completed in January 2010. The Special Master submitted recommended findings from the Markman Hearing to the Court in August 2010 and a Court hearing was held on those findings in November 2010. On April 27, 2011, the Court issued its order adopting the report of the Special Master. The Court set a trial date for October 2012. The Company is subject, from time to time, to various claims and litigation in the normal course of business. In the Companys opinion, all pending legal matters will not have a material adverse impact on its consolidated financial statements. However, the outcome of any litigation is inherently uncertain and there can be no assurance as to the ultimate outcome of any such legal matters. 13. REDEEMABLE CONVERTIBLE PREFERRED STOCK: On November 30, 2004, the Company issued 431 shares of Series C-1 Convertible Preferred Stock, with a stated value of $4.3 million, and 430 shares of Series C-2 Convertible Preferred Stock, with a stated value of $4.3 million. When issued, the Series C-1 Convertible Preferred Stock and Series C-2 Convertible Preferred Stock were convertible into common stock at $4.00 per share. Each series carries a 2% annual dividend rate, payable quarterly in cash or shares of common stock, and were redeemable on December 15, 2005. The preferred shares are currently outstanding and subject to redemption or conversion at the holders discretion. Pursuant to assignment agreements entered into between the Company and Berg & Berg Enterprises, LLC. on July 14, 2005 and December 14, 2005, Berg & Berg purchased all of the outstanding Series C-1 Convertible Preferred Stock and Series C-2 Convertible Preferred Stock from its original holder. Pursuant to the terms of the assignment agreement, Berg & Berg agreed that the failure of the Company to redeem the preferred stock on December 15, 2005 did not constitute a default under the certificate of designations and has waived the accrual of any default interest applicable in such circumstance. In exchange, the Company has agreed (i) that the Series C-1 Convertible Preferred Stock may be converted, at any time, into the Companys common stock at the lower of $4.00 per share or the closing bid price of the Companys common stock on December 13, 2005, which was $1.98, and (ii) that the Series C-2 Convertible Preferred Stock may be converted, at any time, into the Companys common stock at the lower of $4.00 per share or the closing bid price of the Companys common stock on July 13, 2005, which was $2.96. Berg & Berg has agreed to allow dividends to accrue on the preferred stock. At March 31, 2011, $0.9 million in preferred stock dividends had accrued.

F-17

VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14. SHARE BASED COMPENSATION: In February 1996, the Board of Directors adopted the 1996 Non-Employee Directors Stock Option Plan for outside directors (the 1996 Plan). The 1996 Plan terminated in February 2006, and as of March 31, 2011, a total of 20,000 shares had been issued and are outstanding under this plan, and no shares are available to be granted under this plan. In October 1997, the Board of Directors adopted the 1997 Non-Officer Stock Option Plan (the 1997 Plan). The 1997 Plan terminated on October 3, 2007, and as of March 31, 2011, a total of 121,700 shares had been issued and are outstanding under this plan, and no shares are available to be granted under this plan. In January 2000, the Board of Directors adopted the 2000 Stock Option Plan (the 2000 Plan). The 2000 Plan terminated in January, 2010, and as of March 31, 2011, a total of 3,236,813 shares had been issued and are outstanding under this plan, and no shares are available to be granted under this plan. On April 30, 2009, the Board of Directors adopted the Valence Technology, Inc. 2009 Equity Incentive Plan (the 2009 Plan). The 2009 Plan is a broad-based incentive plan that provides for granting stock options, stock awards, performance awards, and other stock-based awards and substitute awards to employees, service providers and non-employee directors. The maximum number of shares of the Companys common stock initially reserved for issuance under the 2009 Plan with respect to awards is 3,000,000 shares. Option awards granted under the 2009 Plan typically have required service periods between three and four years, and all options granted under this plan have 10 year contractual lives, unless otherwise specified. When awards are exercised, the Company settles the awards by issuing shares of the Companys common stock. The 2009 Plan also has provisions for the granting of performance based awards, where certain milestones or conditions, as determined by the Companys Compensation Committee or management, are required to be achieved or met in order for the option award to vest. The 2009 Plan contains an evergreen provision whereby the number of shares of common stock available for issuance under the 2009 Plan shall automatically increase on the first trading day of April each fiscal year during the term of the 2009 Plan, beginning with the fiscal year ending March 31, 2011, by an amount (the Annual Increase Amount) equal to the lesser of (i) one percent (1%) of the total number of shares of common stock outstanding on the last trading day in March of the immediately preceding fiscal year, (ii) 1,500,000 shares and (iii) such lesser amount set by the Board. The maximum number of shares of common stock that may be issued under the 2009 Plan pursuant to the exercise of incentive stock options is the lesser of (A) 3,000,000 shares, increased on the first trading day of April each fiscal year during the term of the 2009 Plan, beginning with the fiscal year ending March 31, 2011, by the Annual Increase Amount, and (B) 16,500,000 shares. On April 1, 2011, an Annual Increase Amount of 1,500,000 shares was added to the 2009 Plan. The 2009 Plan also contains an automatic option grant program for the Companys non-employee directors. Under the automatic option grant program, each individual who first becomes a non-employee board member at any time after the effective date of the 2009 Plan will receive an option grant to purchase 100,000 shares of common stock on the date such individual joins the board. In addition, on the date of each annual stockholders meeting held after the effective date of the 2009 Plan, each non-employee director who continues to serve as a non-employee director will automatically be granted an option to purchase 50,000 shares of common stock, provided such individual has served on the board for at least six months. All employees, service providers and directors of the Company and its affiliates are eligible to participate in the 2009 Plan. This plan will terminate on April 29, 2019. The 2009 Plan was approved by the Companys stockholders at the annual meeting of stockholders on September 8, 2009. As of March 31, 2011, a total of 1,404,800 shares have been granted and 1,595,200 shares remain available for grant under the 2009 Plan.

F-18

VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Aggregate option activity is as follows (shares and aggregate intrinsic value in thousands): WeightedAverage Exercise Price $ 2.95 2.54 2.04 5.52 2.42 1.46 1.75 3.86 2.08 0.95 4.33 1.78 1.83 1.96 WeightedAverage Contractual Life (in years) Aggregate Intrinsic Value

Number of Shares Outstanding at March 31, 2008 Granted Exercised Canceled Outstanding at March 31, 2009 Granted Exercised Canceled Outstanding at March 31, 2010 Granted Exercised Canceled Outstanding at March 31, 2011 Vested and expected to vest at March 31, 2011 Exercisable at March 31, 2011 6,688 745 (444) (1,227) 5,762 718 (76) (858) 5,546 1,048 (311) 6,283 5,903 4,860

$ $ $

6.4 6.2 5.6

$ $ $

1,020 805 279

The following table summarizes information about stock options outstanding at March 31, 2011 (shares in thousands): Options Outstanding Average WeightedRemaining Average Number Contractual Exercise Outstanding Life Price (in years) 1,270 9.1 $ 0.88 3,904 6.2 1.62 400 4.4 2.52 590 4.5 3.60 119 0.9 5.11 6,283 6.4 $ 1.78 Options Exercisable WeightedAverage Number Exercise Exercisable Price 188 3,647 382 525 118 4,860 $ 0.84 1.62 2.52 3.61 5.13 1.96

Range of Exercise Prices $ $ $ $ $ $ 0.70 1.01 2.01 3.01 4.01 0.70 $ $ $ $ $ $ 1.00 2.00 3.00 4.00 6.05 6.05

Compensation expense for stock plans has been determined based on the fair value at the grant date for options granted in the current fiscal year. For the years ended March 31, 2011, 2010 and 2009, $0.8 million, $2.2 million, and $0.6 million, respectively, of share based compensation expense has been included in operating expenses in the consolidated statements of operations and comprehensive loss.

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VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Share-based compensation expenses included in total cost of sales and operating expenses for the years ended March 31, 2011, 2010, and 2009 are summarized as follows (in thousands): 2011 Year ended March 31, 2010 16 38 149 633 82 154 576 1,360 823 2,185 2009

Cost of sales Research and development Sales and marketing General and administrative Total share based compensation expense

30 75 248 285 638

The aggregate intrinsic value of options exercisable at March 31, 2011 is $0.3 million and no options were exercised during the fiscal year ended March 31, 2011. The aggregate intrinsic value of the options exercised in each of the fiscal years 2011, 2010, and 2009 was zero, less than $0.1 million, and $0.3 million, respectively. As of March 31, 2011, the Company had a total of $0.7 million in unrecognized compensation costs related to share-based compensation that is expected to be recognized over a weighted average remaining service period of 1.9 years for non-vested options. The weighted-average grant-date fair value per share of the options granted during each of the fiscal years ended March 31, 2011, 2010, and 2009 was $0.68, $1.06, and $1.79, respectively. The fair value of each option grant is estimated at the date of grant using the Black-Scholes pricing model with the following weighted average assumptions for grants in fiscal years 2011, 2010, and 2009: Year ended March 31, 2011 2010 5.4 5.8 years 89.67% 87.08% 1.72% 2.83% None None 2009 5.9 years 81.49% 2.67% None

Average expected life Average expected volatility Weighted average risk-free interest rate Dividend yield 15. SIGNIFICANT CUSTOMERS:

Over the last three fiscal years, a limited number of the Companys customers have accounted for a significant portion of revenues as follows: Year ended March 31, 2010 2009 Smith Electric Vehicles*. 42 % 12 % Segway, Inc. 24 25 Percent of total revenue 66 % 37 * Previous periods listed Tanfield PLC as a separate customer, but it is now included in Smith Electric Vehicles. 2011 Over the last two fiscal years, a limited number of the Companys customers have accounted for a significant portion of accounts receivable as follows: Year ended March 31, 2011 2010 Smith Electric Vehicles* 50 % Segway, Inc. 17 Percent of total trade accounts receivable 67 % * Previous periods listed Tanfield PLC as a separate customer, but it is now included in Smith Electric Vehicles. ** less than 10%

16 % 46 62

19 % ** 19 %

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VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 16. INCOME TAXES: Income taxes included in interest and other expense in the consolidated statement of operations consisted of the following (in thousands): 2011 Year ended March 31, 2010 80 80 2009

Current provision: Federal State Foreign Deferred provision Federal State Foreign Total Provision for income taxes

The provision for income taxes due to continuing operations differs from the amount computed by applying the federal statutory rate of 34% to the loss before income taxes as follows (in thousands): Year ended March 31, 2011 2010 (4,286 ) $ (7,825 ) $ (1,573 ) 1,918 (270 ) 2 105 (18 ) 140 152 (37 ) (53 ) (111,948 ) 45,769 4,575 72,180 1,249 80 $ $ 2009 (7,217 ) 1,643 (45 ) 7 (295 ) (52 ) 7,220 (1,261 )

Federal tax benefit at statutory rate Effect of foreign operations State tax provision Permanent items and other Stock compensation Research and experimentation credit Change in tax treatment of Cayman subsidiary Expired net operating losses Change in valuation allowance Tax provision

F-21

VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The components of the net deferred tax asset were as follows at (in thousands): 2011 $ March 31, 2010 444 (442 ) 2 1,188 2,073 45 64,680 46,433 726 329 4,107 (119,371 ) 210 (212 ) (212 ) 2 (2 )

Deferred tax assets: Current deferred tax assets: Accrued liabilities and other Valuation allowance for current deferred tax assets Net current deferred tax assets Non-current deferred tax assets: Stock compensation Research and experimentation credit carryforwards Deferred rent Net operating loss carryforwards federal and state Net operating loss carryforwards foreign Impairment reserve State tax credits Accrued interest Valuation allowance for non-current deferred tax assets Net non-current deferred tax assets Deferred tax liabilities: Non-current deferred tax liabilities: Depreciation and amortization Total non-current deferred tax liability Net current deferred tax asset (liability) Net non-current deferred tax asset (liability)

1,022 $ (1,019 ) 3 1,324 2,064 35 178,069 3,586 724 329 5,109 (190,975 ) 265 (268 ) (268 ) 3 $ (3 ) $

$ $

At March 31, 2011, the Company had federal net operating loss carryforwards available to reduce future taxable income of approximately $521 million. The valuation allowance increased by approximately $72 million during the year ended March 31, 2011. The net increase resulted primarily due to operating losses not benefitted, including $329 million of losses related to electing to treat the Cayman subsidiary as a disregarded entity for federal tax purposes. A portion of the valuation allowance relates to tax benefits for stock option deductions included in the net operating loss carryforward, which when realized, will be allocated directly to contributed capital. The federal carryforwards expire from 2011 to 2031, if not used before such time to offset future taxable income. For federal tax purposes, the Companys net operating loss carryforwards are subject to certain limitations on annual utilization because of changes in ownership, as defined by federal tax law. The Company also has foreign operating loss carryforwards available to reduce future foreign income of approximately $12.8 million. The major jurisdictions in which the Company files income tax returns include the United States, China, and the United Kingdom. The Companys income tax returns are not currently under examination by the Internal Revenue Service or other tax authorities. As of March 31, 2011, the earliest year that the Company was subject to examination was 2006. At March 31, 2009, 2010 and 2011, the Company had no material unrecognized tax benefits. The tax years 2006 through 2010 remain open to examination by the major taxing jurisdictions to which the Company is subject.

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VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 17. EMPLOYEE BENEFIT PLAN: Valence has a 401(k) plan as allowed under Section 401(k) of the Internal Revenue Code. The 401(k) Plan provides for the tax deferral of compensation by all eligible employees. All U.S. employees meeting certain minimum age and service requirements are eligible to participate under the 401(k) Plan. Under the 401(k) Plan, participants may voluntarily defer up to 25% of their paid compensation, subject to specified annual limitations. The 401(k) Plan does not provide for contributions by the Company. 18. RELATED PARTY TRANSACTIONS: On January 11, 2011, the Company, entered into an Amendment No. 3 to Loan and Security Agreement and Other Loan Documents (the Amendment) with iStar, and Carl E. Berg, to amend the Loan and Security Agreement dated as of July 13, 2005 (as amended to date, the Original Loan Agreement) among the Company, iStar and Mr. Berg. The Amendment extends the maturity date of the Loan from February 13, 2011 to March 10, 2012 (the New Maturity Date). The Company will be obligated continue to make monthly interest payments to iStar, as set forth in the Original Loan Agreement; provided that the Company shall also be obligated to continue to make monthly principal payments equal to $1,000,000, commencing with the monthly principal payment scheduled for February 2011. The remainder of the principal and any other outstanding obligations under the Loan shall be payable in full on the New Maturity Date. Additionally, in connection with the Amendment, the Company issued to iStar a Warrant to Purchase Common Stock of Valence Technology, Inc., pursuant to which iStar may purchase up to 100,000 shares of the Companys common stock at an exercise price of $1.45 per share on or before January 11, 2014. Additionally, in connection with the Amendment, the Company paid iStar an extension fee of $260,000 upon the execution of the Amendment. On December 3, 2010, Berg & Berg purchased 3,759,789 shares of the Companys common stock at a price per share of $1.20, the closing bid price of the Companys common stock on December 2, 2010. The aggregate purchase price for the shares was $4,511,747. Payment of the purchase price consisted of $2,000,000 in cash and surrender of the promissory note issued on October 15, 2010 to Berg and Berg, under which $2,500,000 in principal and $11,747 in accrued interest was outstanding. On October 26, 2010, the Companys Board of Directors authorized the Company to engage in financing transactions (including either loans or the sale of shares of its common stock) with Berg & Berg, Carl E. Berg, or their affiliates from time to time in an aggregate amount of up to $10.0 million when needed by the Company, and as may be mutually agreed. At this time, there is no binding agreement that requires such persons to provide additional funding and the timing and amount of any such funding will depend on future negotiations between the parties. On October 15, 2010, Berg & Berg loaned $2.5 million to the Company. In connection with the loan, the Company executed a promissory note in favor of Berg & Berg. The promissory note was payable on February 15, 2011, and bears interest at a rate of 3.5% per annum. On December 23, 2010, Berg & Berg surrendered the loan and paid an additional $2.0 million in cash in exchange for 3,759,789 shares of the Companys common stock at a price per share of $1.20. On September 28, 2010, Berg & Berg purchased 1,923,077 shares of the Companys common stock at a price per share of $1.04, the closing bid price of the Companys common stock on the purchase date. The aggregate purchase price for the shares was $2.0 million, which was paid in cash. On August 26, 2010, Berg & Berg purchased 7,247,882 shares of the Companys common stock at a price per share of $0.76, the closing bid price of the Companys common stock on the purchase date. The aggregate purchase price for the shares was approximately $5.5 million. Payment of the purchase price consisted of $3.0 million in cash and surrender of the promissory note issued on July 23, 2010 to Berg and Berg, under which approximately $2.5 million in principal and accrued interest was outstanding.

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VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS On June 8, 2010, the Company established a letter of credit with Silicon Valley Bank in the amount of $1.1 million for the purpose of purchasing inventory materials from a certain supplier. A condition of this letter of credit was that the Company maintain an encumbered bank account for the full amount of the letter of credit. This letter of credit was used to pay the Companys supplier as they delivered materials to the Company. The letter of credit was drawn down in full in August 2010. On September 2, 2010, in lieu of the requirement for a second letter of credit by the supplier, the Company's chairman and principal shareholder, Carl Berg, gave a personal guaranty to the supplier in the amount of $2.5 million. On July 27, 2010, the Companys Board of Directors authorized the Company to engage in financing transactions (including either loans or the sale of shares) with Berg & Berg, Carl E. Berg, or their affiliates from time to time in an aggregate amount of up to $10.0 million when needed by the Company, and as may be mutually agreed. On July 23, 2010, Berg & Berg loaned $2.5 million to the Company. In connection with the loan, the Company executed a promissory note (the Promissory Note) in favor of Berg & Berg. The Promissory Note was payable on November 15, 2010, and on August 26, 2010, Berg & Berg surrendered the promissory note and paid an additional $3.0 million in cash in exchange for 7,247,882 shares of the Companys common stock at a price per share of $0.76. On February 22, 2010, Berg & Berg purchased 1,086,957 shares of common stock for cash at a price per share of $0.92 for an aggregate purchase price of $1.0 million. The purchase price per share equaled the closing bid price of the Companys common stock as of February 22, 2010. On October 13, 2009, Berg & Berg agreed to further extend the maturity date for the loan principal and interest for the 1998 Loan and the 2001 Loan from September 30, 2010 to September 30, 2012. 19. SEGMENT AND GEOGRAPHIC INFORMATION: The Companys chief operating decision makers are its Chairman and Chief Executive Officer, who review operating results to make decisions about resource allocation and to assess performance. The Companys chief operating decision makers view results of operations as a single operating segment which is the development and marketing of the Companys battery technology. The Companys Chairman and Chief Executive Officer have organized the Company functionally to develop, market, and manufacture battery systems. The Company conducts its business primarily in three geographic regions. Long-lived asset information by geographic area is as follows (in thousands): 2011 March 31, 301 3,885 6 4,192 $ $ 2010

United States Asia Other Total Revenues by geographic area are as follows (in thousands):

$ $

223 4,695 13 4,931

United States Europe Other Total

$ $

Year Ended March 31, 2011 2010 38,885 $ 10,548 $ 6,317 3,020 680 2,512 45,882 $ 16,080 $

2009 15,614 9,718 825 26,157

F-24

VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 20. QUARTERLY FINANCIAL DATA (UNAUDITED): The following tables present selected unaudited consolidated statement of operation and balance sheet information for each of the quarters in the years ended March 31, 2011 and 2010 (in thousands, except per share data): Fiscal Year Ended March 31, 2011, 1st 2nd 3rd 4th Quarter Quarter Quarter Quarter Fiscal Year $ 5,572 $ 12,651 $ 13,754 $ 13,905 $ 45,882 925 2,783 2,799 2,929 9,436 (3,529 ) (2,731 ) (1,220 ) (1,521 ) (9,001 ) (4,654 ) (3,624 ) (2,044 ) (2,535 ) (12,857 ) $ (0.04 ) $ (0.03 ) $ (0.01 ) $ (0.01 ) $ (0.09 ) Fiscal Year Ended March 31, 2010, 1st 2nd 3rd 4th Quarter Quarter Quarter Quarter Fiscal Year $ 4,717 $ 3,347 $ 4,113 $ 3,903 $ 16,080 807 234 493 453 1,987 (4,962 ) (4,354 ) (4,328 ) (4,166 ) (17,810 ) (6,197 ) (6,236 ) (5,625 ) (5,130 ) (23,188 ) $ (0.05 ) $ (0.05 ) $ (0.04 ) $ (0.04 ) $ (0.18 )

Revenue Gross margin Operating loss Net loss available to common stockholders Basic and diluted EPS(1)

Revenue Gross margin Operating loss Net loss available to common stockholders Basic and diluted EPS(1)

(1) The sum of Basic and Diluted EPS for the four quarters may differ from the annual EPS due to the required method of computing weighted average number of shares in the respective periods. 21. SUBSEQUENT EVENTS: On May 25, Berg & Berg loaned $2,000,000 to the Company. In connection with the loan, the Company executed a promissory note in favor of Berg & Berg. The promissory note is payable on August 15, 2011 and bears interest at a rate of 3.5% per annum.

F-25

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 9A. CONTROLS AND PROCEDURES Evaluation and Conclusion of Disclosure Controls and Procedures We conducted an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e), as amended) as of March 31, 2011. Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures as of the end of the period covered by this Report were effective to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 (i) is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and (ii) is accumulated and communicated to management, including our principal executive officer and our principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Managements assessment of the effectiveness of our disclosure controls and procedures is expressed at the level of reasonable assurance because a control system, no matter how well designed and operated, can provide only reasonable, but not absolute, assurance that the control systems objectives will be met. Managements Report on Internal Controls Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in the Securities Exchange Act of 1934 Rules 13a-15(f) and 15d-15(f), as amended). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. Management conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting was effective as of March 31, 2011 to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principles. Managements assessment of the effectiveness of our internal control over financial reporting is expressed at the level of reasonable assurance because a control system, no matter how well designed and operated, can provide only reasonable, but not absolute, assurance that the control systems objectives will be met. The effectiveness of our internal control over financial reporting as of March 31, 2011 has been audited by PMB Helin Donovan, LLP, an independent registered public accounting firm, as stated in their report, which is included herein. Changes in Internal Control over Financial Reporting During the quarter ended March 31, 2011, there was no change in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or Rule 15d-15 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. -45-

Inherent Limitations over Internal Controls Our system of controls is designed to provide reasonable, not absolute, assurance regarding the reliability and integrity of accounting and financial reporting. Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system will be met. These inherent limitations include the following: Judgments in decision-making can be faulty, and control and process breakdowns can occur because of simple errors or mistakes. Controls can be circumvented by individuals, acting alone or in collusion with each other, or by management override. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with associated policies or procedures. The design of a control system must reflect the fact that resources are constrained, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERAL CONTROL OVER FINANCIAL REPORTING To the Board of Directors and Shareholders of Valence Technology, Inc.: We have audited the internal control over financial reporting of Valence Technology, Inc. and its subsidiaries (collectively, the Company) as of March 31, 2011, based on criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Managements Report on Internal Controls. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 31, 2011, based on the criteria established in Internal Control - Integrated Framework issued by COSO. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements of the Company as of and for the year ended March 31, 2011, and our report dated May 25, 2011 expressed an unqualified opinion on those consolidated financial statements and included an explanatory paragraph concerning substantial doubt about the Company's ability to continue as a going concern. PMB Helin Donovan, LLP Austin, Texas May 25, 2011

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ITEM 9B. OTHER INFORMATION None. PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE The information required by this item is incorporated by reference to our definitive proxy statement for our 2011 Annual Meeting of Stockholders, which will be filed no later than 120 days after the end of the fiscal year ended March 31, 2011. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is incorporated by reference to our definitive proxy statement for our 2011 Annual Meeting of Stockholders, which will be filed no later than 120 days after the end of the fiscal year ended March 31, 2011. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. The information required by this item is incorporated by reference to our definitive proxy statement for our 2011 Annual Meeting of Stockholders, which will be filed no later than 120 days after the end of the fiscal year ended March 31, 2011. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Certain information regarding related party transactions may be found in Managements Discussion and Analysis of Financial Condition and Results of Operations Related Party Transactions pursuant to Financial Reporting Release No. 61, Commission Statement about Managements Discussion and Analysis of Financial Condition and Results of Operations. The information required by this item is incorporated by reference to our definitive proxy statement for our 2011 Annual Meeting of Stockholders, which will be filed no later than 120 days after the end of the fiscal year ended March 31, 2011. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information required by this item is incorporated by reference to our definitive proxy statement for our 2011 Annual Meeting of Stockholders, which will be filed no later than 120 days after the end of the fiscal year ended March 31, 2011.

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PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) The following documents are filed as part of this report: (1) Financial Statements: The following consolidated financial statements of Valence Technology, Inc. and Subsidiaries contained under Item 8 of this Annual Report on Form 10-K are incorporated herein by reference: Consolidated Balance Sheets as of March 31, 2011 and 2010, Consolidated Statements of Operations and Comprehensive Loss for the years ended March 31, 2011, 2010, and 2009, Consolidated Statements of Stockholders Deficit for the years ended March 31, 2011, 2010, and 2009, and Consolidated Statements of Cash Flows for the years ended March 31, 2011, 2010, and 2009. (2) Financial Statement Schedules: All financial statement schedules have been omitted because they are not applicable or are not required, or because the information required to be set forth therein is included in the Consolidated Financial Statements or Notes thereto.

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(3) Exhibits: EXHIBIT INDEX The following exhibits are included as part of this filing and incorporated herein by this reference: Number 3.1 Description of Exhibit Method of Filing

Second Restated Certificate of Incorporation of Incorporated by reference to the exhibit so described in the the Registrant Registrants Form S-1 Registration Statement (Registration No. 33-46765), as amended, filed with the Securities and Exchange Commission on March 27, 1992. Certificate of Amendment to the Second Restated Certificate of Incorporation of the Registrant as filed with the Secretary of State of the State of Delaware on June 14, 2001 Certificate of Amendment to the Second Restated Certificate of Incorporation of the Registrant as filed with the Secretary of State of the State of Delaware on November 5, 2004 Fourth Amended and Restated Bylaws of the Registrant, as currently in effect Incorporated by reference to the exhibit so described in the Registrants Schedule 14A filed with the Securities and Exchange Commission on January 28, 2000. Incorporated by reference to the exhibit so described in the Registrants Form S-3 Registration Statement (File No. 333171663) filed with the Securities and Exchange Commission on January 12, 2011. Incorporated by reference to the exhibit so described in the Registrants Current Report on Form 8-K dated January 18, 2008, filed with the Securities and Exchange Commission on January 22, 2008. Incorporated by reference to the exhibit so described in the Registrants Form S-1 Registration Statement (Registration No. 33-46765), as amended, filed with the Securities and Exchange Commission on March 27, 1992. Incorporated by reference to the exhibit so described in the Registrants Current Report on Form 8-K dated November 30, 2004, filed with the Securities and Exchange Commission on December 1, 2004. Incorporated by reference to the exhibit so described in the Registrants Current Report on Form 8-K dated November 30, 2004, filed with the Securities and Exchange Commission on December 1, 2004. Incorporated by reference to the exhibit so described in the Registrants Current Report on Form 8-K, dated April 5, 2010, filed with the Securities and Exchange Commission on April 5, 2010. Incorporated by reference to the exhibit so described in the Registrants Current Report on Form 8-K, dated January 11, 2011, filed with the Securities and Exchange Commission on January 12, 2011. Incorporated by reference to the exhibit so described in the Registrants Form S-1 Registration Statement (Registration No. 33-46765), as amended, filed with the Securities and Exchange Commission on March 27, 1992.

3.2

3.3

3.4

4.1

Specimen Common Stock Certificate of the Registrant

4.2

Certificate of Designations, Preferences and Rights of Series C-1 Convertible Preferred Stock of the Registrant Certificate of Designations, Preferences and Rights of Series C-2 Convertible Preferred Stock of the Registrant Warrant to Purchase Common Stock, issued March 30, 2010 to iStar Tara LLC

4.3

4.4

4.5

Warrant to Purchase Common Stock, issued January 11, 2011 to iStar Tara LLC

10.1

Loan Agreement between the Registrant and Baccarat Electronics, Inc., dated July 17, 1990

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Number 10.2

Description of Exhibit Amendment No. 1 to Loan Agreement between the Registrant and Baccarat Electronics, Inc., dated March 15, 1991 (subsequently transferred to Berg & Berg Enterprises, LLC) Amendment No. 2 to Loan Agreement between the Registrant and Baccarat Electronics, Inc., dated March 24, 1992 (subsequently transferred to Berg & Berg Enterprises, LLC) Amendment No. 3 to Loan Agreement between the Registrant and Baccarat Electronics, Inc., dated August 17, 1992 (subsequently transferred to Berg & Berg Enterprises, LLC) Amendment No. 4 to Loan Agreement between the Registrant and Baccarat Electronics, Inc., dated September 1, 1997 (subsequently transferred to Berg & Berg Enterprises, LLC) * 1996 Non-Employee Directors Stock Option Plan as amended on October 3, 1997

Method of Filing Incorporated by reference to the exhibit so described in the Registrants Form S-1 Registration Statement (Registration No. 33-46765), as amended, filed with the Securities and Exchange Commission on March 27, 1992. Incorporated by reference to the exhibit so described in the Registrants Form S-1 Registration Statement (Registration No. 33-46765), as amended, filed with the Securities and Exchange Commission on March 27, 1992. Incorporated by reference to the exhibit so described in the Registrants Form S-1 Registration Statement (Registration No. 33-46765), as amended, filed with the Securities and Exchange Commission on March 27, 1992. Incorporated by reference to the exhibit so described in the Registrants Annual Report on Form 10-K for the fiscal year ended March 31, 2003, filed with the Securities and Exchange Commission on June 30, 2003. Incorporated by reference to the exhibit so described in the Registrants Registration Statement on Form S-8 (File No 333-43203) filed with the Securities and Exchange Commission on December 24, 1997. Filed herewith.

10.3

10.4

10.5

10.6

10.7

* Notice of Grant of Stock Option and Stock Option Agreement under 1996 Stock Option Plan * 1997 Non-Officer Stock Option Plan

10.8

Incorporated by reference to the exhibit so described in the Registrants Registration Statement on Form S-8 (File No. 333-67693) filed with the Securities and Exchange Commission on November 20, 1998. Incorporated by reference to the exhibit so described in the Registrants Current Report on Form 8-K dated July 27, 1998, filed with the Securities and Exchange Commission on August 4, 1998. Incorporated by reference to the exhibit so described in the Registrants Registration Statement on Form S-8 (File No. 333-101708) filed with the Securities and Exchange Commission on December 6, 2002. Filed herewith.

10.9

Amendment No. 5 to Loan Agreement between the Registrant and Baccarat Electronics, Inc., dated July 17, 1998 (subsequently transferred to Berg & Berg Enterprises, LLC) * Amended and Restated 2000 Stock Option Plan

10.10

10.11

* Notice of Grant of Stock Option and Stock Option Agreement under 2000 Stock Option Plan Amendment No. 6 to Loan Agreement between the Registrant and Baccarat Electronics, Inc., dated November 27, 2000 (subsequently transferred to Berg & Berg Enterprises LLC)

10.12

Incorporated by reference to the exhibit so described in the Registrants Annual Report on Form 10-K for the fiscal year ended March 31, 2003, filed with the Securities and Exchange Commission on June 30, 2003.

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Number 10.13

Description of Exhibit Second Amended Promissory Note dated November 27, 2000 issued by the Registrant to Baccarat Electronics, Inc. (subsequently transferred to Berg & Berg Enterprises, LLC) Registration Rights Agreement with West Coast Venture Capital, Inc. (the 1981 Kara Ann Berg Trust) dated January 13, 2001 Amendment No. 7 to Original Loan Agreement between the Registrant and Berg & Berg Enterprises, LLC (previously with Baccarat Electronics, Inc.), dated October 10, 2001 Amendment No. 8 to Original Loan Agreement and Amendment to Second Amended Promissory Note between the Registrant and Berg & Berg Enterprises, LLC (previously with Baccarat Electronics, Inc.), dated February 11, 2002 Loan Agreement dated October 5, 2001 between the Registrant and Berg & Berg Enterprises, LLC Security Agreement dated October 5, 2001 between the Registrant and Berg & Berg Enterprises, LLC Promissory Note dated October 5, 2001 issued by the Registrant to Berg & Berg Enterprises, LLC Amendment to Loan Agreements with Berg & Berg Enterprises, LLC dated November 8, 2002 (Amendment No. 1 to October 5, 2001 Loan Agreement and Amendment No. 9 to 1990 Baccarat Loan Agreement) Amendment to Loan Agreements with Berg & Berg Enterprises, LLC dated October 21, 2004 (Amendment No. 2 to October 5, 2001 Loan Agreement and Amendment No. 10 to 1990 Baccarat Loan Agreement) Amendment to Loan Agreements with Berg and Berg Enterprises, LLC dated July 1, 2005 (Amendment No. 3 to October 5, 2001 Loan Agreement and Amendment No. 11 to 1990 Baccarat Loan Agreement)

Method of Filing Incorporated by reference to the exhibit so described in the Registrants Annual Report on Form 10-K for the fiscal year ended March 31, 2002, filed with the Securities and Exchange Commission on July 1, 2002. Incorporated by reference to the exhibit so described in the Registrants Annual Report on Form 10-K for the fiscal year ended March 31, 2001, filed with the Securities and Exchange Commission on July 2, 2001. Incorporated by reference to the exhibit so described in the Registrants Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2001, filed with the Securities and Exchange Commission on February 19, 2002. Incorporated by reference to the exhibit so described in the Registrants Annual Report on Form 10-K for the fiscal year ended March 31, 2002, filed with the Securities and Exchange Commission on July 1, 2002.

10.14

10.15

10.16

10.17

Incorporated by reference to the exhibit so described in the Registrants Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2001, filed with the Securities and Exchange Commission on February 19, 2002. Incorporated by reference to the exhibit so described in the Registrants Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2001, filed with the Securities and Exchange Commission on February 19, 2002. Incorporated by reference to the exhibit so described in the Registrants Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2001, filed with the Securities and Exchange Commission on February 19, 2002. Incorporated by reference to the exhibit so described in the Registrants Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2002, filed with the Securities and Exchange Commission on November 14, 2002. Incorporated by reference to the exhibit so described in the Registrants Current Report on Form 8-K, dated November 3, 2004, filed with the Securities and Exchange Commission on November 5, 2004. Incorporated by reference to the exhibit so described in the Registrants Current Report on Form 8-K, dated July 1, 2005, filed with the Securities and Exchange Commission on July 6, 2005. -52-

10.18

10.19

10.20

10.21

10.23

Number 10.24

Description of Exhibit Loan Agreement dated July 13, 2005, by and between the Registrant and SFT I, Inc.

Method of Filing Incorporated by reference to the exhibit so described in the Registrants Current Report on Form 8-K, dated July 13, 2005, filed with the Securities and Exchange Commission on July 15, 2005.

10.25

Registration Rights Agreement dated July 13, Incorporated by reference to the exhibit so described in the 2005 by and between the Registrant and SFT I, Registrants Current Report on Form 8-K, dated July 13, 2005, filed with the Securities and Exchange Commission on Inc. July 15, 2005. Amendment to Loan Agreements with Berg and Berg Enterprises, LLC dated July 13, 2005 (Amendment No. 4 to October 5, 2001 Loan Agreement and Amendment No. 12 to 1990 Baccarat Loan Agreement) Assignment Agreement, dated July 14, 2005, by and between the Registrant and Berg & Berg Enterprises, LLC Assignment Agreement, dated December 14, 2005, by and between the Registrant and Berg & Berg Enterprises, LLC Letter Agreement, effective March 13, 2007, by and between the Registrant and Robert L. Kanode * FY 2011 Incentive Compensation and Stock Option Incentive Awards (Robert L. Kanode) Supply Agreement dated February 6, 2008 by and between The Tanfield Group PLC and Valence Technology, Inc (portions of this contract have been omitted pursuant to a request for confidential treatment) At Market Issuance Sales Agreement, dated February 22, 2008, by and between the Registrant and Wm Smith & Co. Amendment to Loan Agreements with Berg and Berg Enterprises, LLC dated June 12, 2008 (Amendment No. 5 to October 5, 2001 Loan Agreement and Amendment No. 13 to 1990 Baccarat Loan Agreement) Incorporated by reference to the exhibit so described in the Registrants Current Report on Form 8-K, dated July 13, 2005, filed with the Securities and Exchange Commission on July 15, 2005. Incorporated by reference to the exhibit so described in the Registrants Current Report on Form 8-K, dated July 13, 2005, filed with the Securities and Exchange Commission on July 15, 2005. Incorporated by reference to the exhibit so described in the Registrants Current Report on Form 8-K, dated December 14, 2005, filed with the Securities and Exchange Commission on December 16, 2005. Incorporated by reference to the exhibit so described in the Registrants Current Report on Form 8-K, dated March 13, 2007, filed with the Securities and Exchange Commission on March 14, 2007. Filed herewith. Incorporated by reference to the exhibit so described in the Registrants Current Report on Form 8-K, dated February 6, 2008, filed with the Securities and Exchange Commission on February 12, 2008. Incorporated by reference to the exhibit so described in the Registrants Current Report on Form 8-K, dated February 22, 2008, filed with the Securities and Exchange Commission on February 22, 2008. Incorporated by reference to the exhibit so described in the Registrants Current Report on Form 8-K, dated June 12, 2008, filed with the Securities and Exchange Commission on June 16, 2008.

10.26

10.27

10.28

10.29

10.30 10.31

10.32

10.33

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Number 10.34

Description of Exhibit Employment Letter Agreement, dated October 1, 2008, by and between the Registrant and Ross A. Goolsby

Method of Filing Incorporated by reference to the exhibit so described in the Registrants Current Report on Form 8-K, dated October 1, 2008, filed with the Securities and Exchange Commission on October 1, 2008.

10.35

Employment Letter Agreement dated October Incorporated by reference to the exhibit so described in the 30, 2008, by and between Valence Technology Registrants Current Report on Form 8-K, dated November 4, Inc., and Koon Cheng Lim 2008, filed with the Securities and Exchange Commission on November 4, 2008. * 2009 Equity Incentive Plan Incorporated by reference to the exhibit so described in the Registrants Current Report on Form 8-K, dated May 6, 2009, filed with the Securities and Exchange Commission on May 6, 2009. Filed herewith.

10.36

10.37

* Notice of Grant of Stock Option and Stock Option Agreement under 2009 Equity Incentive Plan * Notice of Automatic Grant of Stock Option (Non-Employee Director) under 2009 Equity Incentive Plan * Notice of Grant of Restricted Stock and Restricted Stock Issuance Agreement under 2009 Equity Incentive Plan

10.38

Filed herewith.

10.39

Filed herewith.

10.40

* Addendum to Stock Option Agreement Filed herewith. regarding Involuntary Termination Following a Change of Control under 2009 Equity Incentive Plan * Addendum to Restricted Stock Issuance Agreement regarding Involuntary Termination Following a Change of Control under 2009 Equity Incentive Plan Form of Indemnification Agreement entered into between the Registrant and its Directors and Officers Filed herewith.

10.41

10.42

Incorporated by reference to the exhibit so described in the Registrants Current Report on Form 8-K, dated May 6, 2009, filed with the Securities and Exchange Commission on May 6, 2009.

10.43

Amendment No. 1 to At Market Issuance Sales Incorporated by reference to the exhibit so described in the Agreement, dated July 2, 2009, by and between Registrants Current Report on Form 8-K, dated July 6, 2009, the Registrant and Wm Smith & Co. filed with the Securities and Exchange Commission on July 6, 2009.

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Number 10.44

Description of Exhibit (Omnibus) Amendment No. 14 to Loan Agreement dated July 17, 1990 between the Registrant and Baccarat Electronics, Inc. (subsequently transferred to Berg & Berg Enterprises, LLC) and Amendment No. 6 to Loan Agreement dated October 5, 2001 between the Registrant and Berg & Berg Enterprises, LLC, each dated as of October 13, 2009

Method of Filing Incorporated by reference to the exhibit so described in the Registrants Current Report on Form 8-K, dated October 13, 2009, filed with the Securities and Exchange Commission on October 14, 2009.

10.45

Employment Letter Agreement by and between Incorporated by reference to the exhibit so described in the the Registrant and Randall J. Adleman Registrants Current Report on Form 8-K, effective March 1, 2010, filed with the Securities and Exchange Commission on February 17, 2010. Letter Agreement, dated February 22, 2010, by Incorporated by reference to the exhibit so described in the and between the Registrant and Berg & Berg Registrants Current Report on Form 8-K, dated February 24, 2010, filed with the Securities and Exchange Commission on Enterprises, LLC February 24, 2010. Amendment No. 2 to Loan and Security Agreement and Other Loan Documents dated March 30, 2010 by and among the Registrant, Carl Berg and iStar Tara LLC, successor in interest to SFT I, Inc. Letter Agreement, dated August 26, 2010, by and between the Registrant and Berg & Berg Enterprises, LLC Letter Agreement, dated September 28, 2010, by and between the Registrant and Berg & Berg Enterprises, LLC Incorporated by reference to the exhibit so described in the Registrants Current Report on Form 8-K, dated April 5, 2010, filed with the Securities and Exchange Commission on April 5, 2010. Incorporated by reference to the exhibit so described in the Registrants Current Report on Form 8-K, dated August 26, 2010, filed with the Securities and Exchange Commission on August 30, 2010. Incorporated by reference to the exhibit so described in the Registrants Current Report on Form 8-K, dated September 28, 2010, filed with the Securities and Exchange Commission on September 30, 2010.

10.46

10.47

10.48

10.49

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Number 10.50

Description of Exhibit

Method of Filing

Letter Agreement, dated December 3, 2010, by Incorporated by reference to the exhibit so described in the and between the Registrant and Berg & Berg Registrants Current Report on Form 8-K, dated December 3, 2010, filed with the Securities and Exchange Commission on Enterprises, LLC December 6, 2010. Amendment No. 2 to At Market Issuance Sales Incorporated by reference to the exhibit so described in the Agreement, dated December 30, 2010, by and Registrants Current Report on Form 8-K, dated December between the Registrant and Wm Smith & Co. 30, 2010, filed with the Securities and Exchange Commission on December 30, 2010. Amendment No. 3 to Loan and Security Agreement and Other Loan Documents dated January 11, 2011 by and among the Registrant, Carl Berg and iStar Tara LLC, successor in interest to SFT I, Inc. Incorporated by reference to the exhibit so described in the Registrants Current Report on Form 8-K, dated January 11, 2011, filed with the Securities and Exchange Commission on January 12, 2011.

10.51

10.52

10.53

Amendment No. 3 to At Market Issuance Sales Incorporated by reference to the exhibit so described in the Agreement, dated January 22, 2011, by and Registrants Current Report on Form 8-K, dated January 22, between the Registrant and Wm Smith & Co. 2011, filed with the Securities and Exchange Commission on January 24, 2011. List of subsidiaries of the Registrant Consent of PMB Helin Donovan, LLP, an Independent Registered Public Accounting Firm Power of Attorney Certification of Robert L. Kanode, Principal Executive Officer, pursuant to Exchange Act Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Certification of Ross A. Goolsby, Principal Financial Officer, pursuant to Exchange Act Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Certification of Robert L. Kanode, Principal Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Certification of Ross A. Goolsby, Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Filed herewith. Filed herewith.

21.1 23.1

24.1 31.1

Contained on the signature page hereto. Filed herewith.

31.2

Filed herewith.

32.1

Filed herewith.

32.2

Filed herewith.

* Compensation plans or arrangements in which directors or executive officers are eligible to participate.

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SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. VALENCE TECHNOLOGY, INC. Dated: May 26, 2011 /s/ Robert L. Kanode Robert L. Kanode President and Chief Executive Officer POWER OF ATTORNEY Each person whose signature appears below constitutes and appoints Robert L. Kanode and Ross A. Goolsby, and each of them, as his true and lawful attorneys-in-fact and agents with full power of substitution and resubstitution, for him and his name, place and stead, in any and all capacities, to sign any or all amendments to this Annual Report on Form 10-K and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the foregoing, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or either of them, or their substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of Registrant and in the capacities and on the dates indicated. Name /s/ Robert L. Kanode Robert L. Kanode /s/ Ross A. Goolsby Ross A. Goolsby /s/ Carl E. Berg Carl E. Berg /s/ Vassilis G. Keramidas Vassilis G. Keramidas /s/ Donn Tognazzini Donn Tognazzini /s/ Bert C. Roberts, Jr. Bert C. Roberts, Jr. Position President and Chief Executive Officer (Principal Executive Officer) and Director Chief Financial Officer (Principal Financial and Accounting Officer) Director and Chairman of the Board Director Director Director Date May 26, 2011 May 26, 2011 May 26, 2011 May 26, 2011 May 26, 2011 May 26, 2011

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