SECURITIES AND EXCHANGE COMMISSION

                              WASHINGTON, DC 20549


                                    FORM 10-Q




(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
    ACT OF 1934

For the quarterly period ended December 31, 2000.

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                                    77-0214673
-------------------------------            ------------------------------------
(State or other jurisdiction of            (I.R.S. Employer Identification No.)
incorporation or organization)


                   301 Conestoga Way, Henderson, Nevada 89015
            ---------------------------------------------------------
              (Address of principal executive offices including zip
                                      code)


                                 (702) 558-1000
            ---------------------------------------------------------
              (Registrant's telephone number, including area code)



            ---------------------------------------------------------
              Former name, former address and former fiscal year,
                          if changed since last report



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 (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.   Yes  X     No


Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

Common Stock $0.001 par value                          40,881,899
-----------------------------                ----------------------------------
        (Class)                              (Outstanding at December 31, 2000)



<PAGE>


                    VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES

                                    FORM 10-Q

                     FOR THE QUARTER ENDED DECEMBER 31, 2000


                                      INDEX

                                                                          PAGES
PART I.    FINANCIAL INFORMATION

   Item 1. Financial Statements (Unaudited):

           Condensed Consolidated Balance Sheets as of
           December 31, 2000 and March 31, 2000...............................3

           Condensed Consolidated Statements of Operations
           and Comprehensive Loss for the period from
           March 3, 1989 (date of inception) to
           December 31, 2000 and for each of the
           three and nine month periods ended
           December 31, 2000 and December 26, 1999............................4

           Condensed Consolidated Statements of Cash Flows
           for the period from March 3, 1989 (date of inception)
           to December 31, 2000 and for each of the nine month
           periods ended December 31, 2000 and December 26, 1999..............5

           Notes to Condensed Consolidated Financial Statements...............6

   Item 2. Management's Discussion and Analysis of Financial
           Condition and Results of Operations...............................11

   Item 3. Quantitative and Qualitative Disclosures About
           Market Risk.......................................................26


PART II.   OTHER INFORMATION

   Item 6. Exhibits and Reports on Form 8-K..................................27


SIGNATURE



                                     Page 2
<PAGE>


                    VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES
                      (companies in the development stage)
                      CONDENSED CONSOLIDATED BALANCE SHEETS
               (in thousands, except share and per share amounts)
                                   (unaudited)

                                      -----

<TABLE>
<CAPTION>
                                                                            December 31,        March 31,
                                                                               2000               2000
                                                                           --------------    ------------
<S>                                                                        <C>               <C>
ASSETS
Current assets:
     Cash and cash equivalents                                             $       2,011     $   24,556
     Receivables                                                                   4,091          1,869
     Grant receivable                                                              2,113              -
     Inventory                                                                     5,694          1,641
     Prepaid and other current assets                                                928          1,597
                                                                           --------------    -----------
         Total current assets                                                     14,837         29,663

Property, plant and equipment, net                                                31,628         28,508
Intellectual property                                                             26,250              -
Investment in joint venture                                                            -            345
                                                                           --------------    -----------
              Total assets                                                 $      72,715     $   58,516
                                                                           ==============    ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Current portion of long-term debt                                     $       1,792     $      402
     Short-term borrowing                                                          2,000              -
     Accounts payable                                                              4,532          6,060
     Accrued expenses                                                              3,406          2,882
     Accrued royalties and license fees                                                -          2,000
     Grant payable                                                                 1,806          1,923
     Accrued compensation                                                            355            389
                                                                           --------------    -----------
         Total current liabilities                                                13,891         13,656

Deferred revenue                                                                   2,500          2,500
Long-term debt, less current portion                                               4,961          3,937
Long-term debt to stockholder                                                     13,920          8,432
                                                                           --------------    -----------
              Total liabilities                                                   35,272         28,525
                                                                           --------------    -----------
Commitments and contingencies (Note 9)

Mandatorily redeemable convertible preferred stock
     Series B, $0.001 par value, Issued and outstanding: 3,500 shares
         at December 31, 2000 and March 31, 2000, respectively
              (Liquidation value: $3,920)                                          2,303          2,146

Stockholders' Equity:
Common stock, $0.001 par value, authorized:  100,000,000 shares,
     issued and outstanding:  40,881,899 and 36,838,631 shares at
     December 31, 2000 and March 31, 2000, respectively                               41             37
Additional paid-in capital                                                       295,734        256,086
Notes receivable from stockholder                                                 (4,862)        (4,862)
Deficit accumulated during the development stage                                (252,653)      (223,582)
Accumulated other comprehensive income (loss)                                     (3,120)           166
                                                                           --------------    -----------
     Total stockholders' equity                                                   35,140         27,845
                                                                           --------------    -----------
              Total liabilities, mandatorily redeemable convertible
                  preferred stock and stockholders' equity                 $      72,715     $   58,516
                                                                           ==============    ===========
</TABLE>



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


                                     Page 3
<PAGE>


                    VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES
                      (companies in the development stage)
     CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
                    (in thousands, except per share amounts)
                                   (unaudited)
                                      -----
<TABLE>
<CAPTION>
                                        Period from
                                        March 3, 1989
                                          (date of            Three Months Ended                 Nine Months Ended
                                         inception)      -----------------------------   ----------------------------
                                          Through
                                        December 31,      December 31,    December 26,   December 31,    December 26,
                                            2000             2000            1999            2000           1999
                                        ------------     -------------   -------------   ------------    ------------
<S>                                     <C>              <C>              <C>            <C>             <C>
Revenue:
   Research and development contracts   $    21,605      $      -         $     -        $     -         $     -
   Battery and laminate sales                 7,473           1,854             408          5,955             797
                                        ------------     -------------    ------------   ----------      ----------
         Total revenue                       29,078           1,854             408          5,955             797

Cost of Sales                                19,231           2,893             -           15,222             -
IDB Revenue Grants                           (2,117)           (190)            -           (2,117)            -
                                        ------------     -------------    ------------   ----------      ----------
         Net cost of sales                   17,114           2,703             -           13,105             -
                                        ------------     -------------    ------------   ----------      ----------
Gross Margin                                 11,964            (849)            408         (7,150)            797
                                        ------------     -------------    ------------   ----------      ----------
Costs and expenses:
   Research and product development         105,750           4,821           5,674          7,657          14,958
   Marketing                                  4,481             187              69            547             179
   General and administrative                56,171           1,469           2,130          4,651           5,170
   Depreciation and Amortization             42,599           2,849           2,292          8,082           6,553
   Write-off of in-process technology         8,212             -               -              -               -
   Investment in Danish subsidiary            3,489             -               -              -               -
   Factory start-up costs                     3,171             -               -              -               -
   Special charges                           18,872             -               -              -               -
                                        ------------     -------------    ------------   ----------      ----------
         Total costs and expenses           242,745           9,326          10,165         20,937          26,860
                                        ------------

   Operating loss                          (230,781)        (10,175)         (9,757)       (28,087)        (26,063)

    Stockholder lawsuit settlement          (30,061)            -               -              -               -

Interest and other income                    19,007             191             165            905             337

Interest expense                             (8,318)           (591)           (480)        (1,544)         (1,314)

Equity in earnings (loss) of joint
  venture                                    (2,500)            -               -             (345)           (555)
                                        ------------     -------------    ------------   ----------      ----------
Net loss                                $  (252,653)        (10,575)        (10,072)       (29,071)        (27,595)
                                        ============
Beneficial conversion feature
  on preferred stock                                            (53)            (76)          (158)           (507)
                                                         -------------    ------------   ----------      ----------
Net loss available to common
stockholders                                            $   (10,628)        (10,148)       (29,229)        (28,102)
                                                         =============    ============   ==========      ==========

Other comprehensive loss:
    Net loss                                             $  (10,575)        (10,072)       (29,071)        (27,595)
   Change in foreign currency
     translation adjustments                                    245            (526)        (3,287)           (116)
                                                         -------------    ------------   ----------      ----------
          Comprehensive loss                             $  (10,330)        (10,598)       (32,358)        (27,711)
                                                         =============    ============   ==========      ==========
Net loss per share available to
common stockholders, basic and
diluted                                                  $   (0.28)          (0.32)         (0.78)          (0.98)
                                                         =============    ============   ==========      ==========
Shares used in computing net loss
per share available to common
stockholders, basic and diluted                              38,041          31,461         37,570          28,687
                                                         =============    ============   ==========      ==========
</TABLE>



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


                                     Page 4
<PAGE>


                    VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES
                      (companies in the development stage)
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
                                   (unaudited)
                                      -----
<TABLE>
<CAPTION>
                                                                  Period from
                                                                  March 3, 1989         Nine Months         Nine Months
                                                               (date of inception)         Ended               Ended
                                                                     through            December 31,       December 26,
                                                                 December 31, 2000           2000               1999
                                                               -------------------     ---------------    -------------
<S>                                                               <C>                  <C>                <C>
Cash flows from operating activities:
   Net loss                                                       $   (252,653)        $    (29,071)      $   (27,595)
   Adjustments to reconcile net loss to net cash
     used in operating activities:
     Depreciation and amortization                                      42,599                8,082             6,553
     Write-off of equipment                                             15,387                   12             1,269
     Write-off of in-process technology                                  6,211                 -                 -
     Compensation related to stock options                               3,891                 -                 -
     Non-cash charge related to acquisition of Danish subsidiary         2,245                 -                 -
     Non-cash charge from stockholder lawsuit settlement                29,450                 -                 -
     Equity in (earnings) losses of joint venture                        2,500                  345               555
     Amortization of debt discount                                       1,129                  488               423
     Changes in assets and liabilities:
       Receivables                                                      (3,049)              (2,282)           (1,379)
       Prepaid expenses and other current assets                        (1,810)                 666                44
       Inventory                                                        (5,694)              (4,053)           (1,484)
       Accounts payable                                                  4,868               (1,213)            2,001
       Accrued liabilities                                              (2,082)              (1,495)             -
       Grants receivable                                                (2,117)              (2,117)           (1,612)
       Deferred revenue                                                  2,500                 -                 -
                                                                 ---------------       --------------     ------------
         Net cash used in operating activities                        (156,625)             (30,638)          (21,225)
                                                                 ---------------       --------------     ------------
Cash flows from investing activities:
   Purchase of long-term investments                                  (665,789)                -                 -
   Maturities of long-term investments                                 661,545                 -                 -
   Capital expenditures                                                (86,237)             (14,629)           (3,477)
   Sale of equipment                                                     1,269                 -                 -
   Other                                                                  (222)                -                 -
                                                                 ---------------       --------------     ------------
         Net cash used in investing activities                         (89,434)             (14,629)           (3,477)
                                                                 ---------------       --------------     ------------
Cash flows from financing activities:
   Property and equipment grants                                         7,647                1,226              -
   Borrowings of long-term debt                                         33,523                8,071             6,950
   Borrowings of short-term debt                                         2,000                2,000              -
   Payments of long-term debt:
     Product development loan                                             (482)                -                 -
     Stockholder and director                                           (6,173)                -                 -
     Other long-term debt                                              (13,144)                (476)             (331)
    Proceeds from issuance of common stock and warrants,
     net of issuance costs                                             214,691               13,559            47,097
    Proceeds from issuance of preferred stock, Series A,
     net of issuance costs                                               7,075                 -                 -
    Proceeds from issuance of preferred stock, Series B,
     net of issuance costs                                               7,125                 -                 -
                                                                 ---------------       --------------     ------------
                Net cash provided by financing activities              252,262               24,380            53,716
                                                                 ---------------       --------------     ------------
Effect of foreign exchange rates on cash and cash
equivalents                                                             (4,192)              (1,658)              (46)
                                                                 ---------------       --------------     ------------
Increase (decrease) in cash and cash equivalents                         2,011              (22,545)           28,968
Cash and cash equivalents, beginning of period                            -                  24,556             2,454
                                                                 ---------------       --------------     ------------
Cash and cash equivalents, end of period                          $      2,011         $      2,011       $    31,422
                                                                 ===============       =============      ============
</TABLE>


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



                                     Page 5
<PAGE>


                    VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES
                      (companies in the development stage)
         NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
                                   (unaudited)


1.       INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:

         These interim condensed consolidated financial statements are
         unaudited but reflect, in the opinion of management, all normal
         recurring adjustments necessary to present fairly the financial
         position of Valence Technology, Inc. and subsidiaries (the Company) as
         of December 31, 2000, its consolidated results of operations for the
         period from March 3, 1989 (date of inception) to December 31, 2000 and
         for each of the three and nine-month periods ended December 31, 2000
         and December 26, 1999, and the consolidated cash flows for each of the
         nine-month periods ended December 31, 2000 and December 26, 1999, and
         for the period from March 3, 1989 (date of inception) to December 31,
         2000. Because all the disclosures required by generally accepted
         accounting principles are not included, these interim condensed
         consolidated financial statements should be read in conjunction with
         the audited financial statements and notes thereto in the Company's
         Annual Report on Form 10-K as of and for the year ended March 31,
         2000. The year end condensed consolidated balance sheet data as of
         March 31, 2000 was derived from audited financial statements, but does
         not include all disclosures required by generally accepted accounting
         principles. The results for the nine-month period ended December 31,
         2000 are not necessarily indicative of the results to be expected for
         the entire fiscal year ended March 31,2001.

         The Company is engaged in research and development to produce advanced
         rechargeable batteries based on lithium and polymer technologies. The
         Company's primary activities to date have been acquiring and
         developing its initial technology, implementing a production line,
         manufacturing limited quantities of prototype batteries, recruiting
         personnel and obtaining capital; such activities have resulted in
         losses since inception.

2.       BASIS OF PRESENTATION:

         PRINCIPLES OF CONSOLIDATION:

         The consolidated financial statements include the accounts of the
         Company and its subsidiaries. All significant intercompany accounts and
         transactions have been eliminated

         USE OF ESTIMATES:

         The preparation of financial statements in conformity with accounting
         principles generally accepted in the United States of America, requires
         management to make estimates and assumptions that affect the reported
         amounts of assets and liabilities and disclosure of contingent assets
         and liabilities at the date of the financial statements and the
         reported amounts of revenue and expenses during the reporting period.
         Actual results could differ from those estimates.

         CASH AND CASH EQUIVALENTS:

         The Company considers all highly liquid investments purchased with an
         original maturity of three months or less to be cash equivalents. Cash
         and cash equivalents are on deposit in multiple banks and with an
         investment counsel, and are primarily comprised of money market funds
         and government securities.

         INVENTORIES:

         Inventories are stated at the lower of cost or market. The Company
         utilizes the first-in, first-out inventory method, commonly known as
         FIFO.

         PROPERTY, PLANT AND EQUIPMENT GRANTS:

         Grants relating to the acquisition of property, plant and equipment are
         recorded upon satisfaction of the capital investment requirements
         underlying the grant and the receipt of grant funds. Such grants are
         deferred and amortized over the estimated useful lives of the related
         assets as a reduction of depreciation expense.


                                     Page 6
<PAGE>


         REVENUE GRANTS:

         During fiscal 1994, the Company signed an agreement with the Northern
         Ireland Industrial Development Board, or IDB, to open an automated
         manufacturing plant in Northern Ireland in exchange for capital and
         revenue grants from the IDB. The Company has also received offers from
         the IDB to receive additional grants. Under the terms of the existing
         agreements, the Company has qualified and applied for revenue grants,
         through December 31, 2000, totaling (pound)1,413,000 ($2,117,000).
         These funds are made available to reduce the cost of labor in Northern
         Ireland and have been accounted for as a reduction to cost of sales.

         DEPRECIATION AND AMORTIZATION:

         Property and equipment are stated at cost and depreciated on the
         straight line method over their estimated useful lives, generally three
         to five years. Building improvements are amortized over the lesser of
         their estimated useful life, generally five years, or the remaining
         lease term. The Company assesses its ability to recover the net book
         value of its long-term assets. The carrying value of assets determined
         to be impaired is written down to net realizable value. In the period
         assets are retired or otherwise disposed of, the costs and accumulated
         depreciation or amortization are removed from the accounts, and any
         gain or loss on disposal is included in results of operations.

         LONG-LIVED ASSETS:

         The Company periodically assesses the recoverability of property, plant
         and equipment and evaluates such assets for impairment whenever events
         or changes in circumstances indicate that the carrying amount of an
         asset may not be recoverable. Asset impairment (including intangible
         assets) is determined to exist if estimated future cash flows,
         undiscounted and without interest charges, are less than the carrying
         amount of the asset. If it is determined that an impairment loss has
         occurred, the impairment loss is measured as the difference between the
         amount of the discounted cash flows and the carrying amount of the
         asset. The Company had no impairment losses for the three-month period
         ended December 31, 2000.

         DEFERRED REVENUE:

         Deferred revenue relates to payments received from the Company's joint
         venture partner in Hanil Valence Co., Ltd. This amount will be
         recognized as income once significant product shipments commence from
         the joint venture. The Company anticipates that production by the joint
         venture will be sufficient to recognize a portion of this deferred
         revenue in fiscal 2001.

         RESEARCH AND DEVELOPMENT:

         Research and development costs are expensed as incurred.

         FOREIGN CURRENCY TRANSLATION:

         Exchange adjustments resulting from foreign currency transactions are
         generally recognized in operations, whereas adjustments resulting from
         the translation of financial statements are reflected as a separate
         component of stockholders' equity.

         INCOME TAXES:

         The Company utilizes the liability method to account for income taxes
         where deferred tax assets or liabilities are determined based on the
         differences between the financial statements and tax bases of assets
         and liabilities using enacted tax rates in effect for the year in
         which the differences are expected to affect taxable income. Valuation
         allowances are established when necessary to reduce deferred tax
         assets to the amounts expected to be realized.


                                     Page 7
<PAGE>


        FAIR VALUE OF FINANCIAL INSTRUMENTS:

        Carrying amounts of certain of the Company's financial instruments,
        including cash and cash equivalents, receivables, accounts payable, and
        other accrued liabilities, approximate fair value due to their short
        maturities. Based on borrowing rates currently available to the Company
        for loans with similar terms, the carrying value of its debt
        obligations approximates fair value.

3.      RECEIVABLES:

        Receivables consist of the following (in thousands):

                                        December 31, 2000    March 31, 2000
                                        ------------------   ----------------
                Trade receivables          $     2,232          $       328
                Interest receivable                780                  577
                Other receivables                1,079                  964
                                        ------------------   ----------------
                Total receivables          $     4,091          $     1,869
                                        ==================   ================

4.      INVENTORIES:

        Inventories consist of the following (in thousands):

                                        December 31, 2000     March 31, 2000
                                        ------------------    ----------------
               Raw materials            $         3,744       $       423
               Work-in-process                    1,950             1,218
                                        ------------------    ----------------
               Total                    $         5,694       $     1,641
                                        ==================    ================

5.      INTELLECTUAL PROPERTY:

        During the third quarter of fiscal year 2001, the Company acquired, from
        Telcordia Technologies, Inc., its rights in lithium-ion polymer battery
        technology including 42 U.S. patents, 14 U.S. patents pending, and more
        than 200 foreign patents, issued and pending. The purchase price was
        3,000,000 shares of newly issued common stock valued at $26,250,000.

6.      EARNINGS PER SHARE:

        Earnings per share, or EPS, is computed by dividing net loss available
        to common stockholders by the weighted average number of common shares
        outstanding for that period. Diluted EPS is computed giving effect to
        all dilutive potential common shares that were outstanding during the
        period. Dilutive potential common shares consist of incremental common
        shares issuable upon conversion of preferred stock and exercise of stock
        options and warrants for all periods.


                                     Page 8
<PAGE>


        The following is a reconciliation of the numerator (net loss) and
        denominator (number of shares) used in the basic and diluted EPS
        calculation (in thousands):

<TABLE>
<CAPTION>
                                                 THREE MONTHS ENDED              NINE MONTHS ENDED
                                                 ------------------              -----------------
                                         DEC. 31, 2000    DEC. 26, 1999    DEC. 31, 2000    DEC. 26, 1999
                                         -------------    -------------    -------------    -------------
         <S>                             <C>              <C>              <C>              <C>
         Net loss available
           to common stockholders          $ (10,628)       $ (10,148)       $ (29,229)       $ (28,102)
         Weighted average
           shares outstanding                 38,041           31,461           37,570           28,687
         Earnings per share,
           basic and diluted               $   (0.28)       $   (0.32)       $   (0.78)       $   (0.98)
</TABLE>

        Shares excluded from the calculation of diluted EPS as their effect was
        anti-dilutive were 5,491,549 and 9,633,237 for the three and nine-month
        periods ended December 31, 2000 and December 26, 1999, respectively.

7.      SHORT-TERM BORROWING:

        During December 2000, the Company obtained $2,000,000 in short-term
        borrowing to be repaid at the close of pending financing.

8.      LONG-TERM DEBT TO STOCKHOLDER:

        In July 1997, the Company entered into an amended loan agreement with a
        stockholder which allows the Company to borrow, prepay and re-borrow up
        to the full $15,000,000 principal under the promissory note on a
        revolving basis and provided that the lender will subordinate its
        security interest to other lenders when new debt is obtained after the
        stockholder's loan is prepaid to zero. The loan bears interest at one
        percent over lender's borrowing rate (approximately 9% at December 31,
        2000) and is available through August 30, 2002. As of December 31, 2000,
        the total that has been charged to interest expense, since inception, is
        $1,653,416.

        In conjunction with the amended loan agreement, the Company issued
        warrants to purchase 594,031 shares of common stock. The warrants were
        valued using the Black Scholes valuation method and had an average
        weighted fair value of approximately $3.63 per warrant at the time of
        issuance. The fair value of these warrants, totaling approximately
        $2,158,679, has been reflected as additional consideration for the debt
        financing, recorded as a discount on the debt which is amortized as
        interest expense over the term of the line of credit. As of December 31,
        2000, the total that has been charged to interest expense, since
        inception, is $1,128,621.

9.      COMMITMENTS AND CONTINGENCIES:

        LITIGATION:

        The Company is from time to time subject to routine litigation
        incidental to its business. The Company believes that the results of
        this routine litigation will not have a material adverse effect on the
        Company's financial condition.

10.     SEGMENT INFORMATION:

        The Company conducts its business in one operating segment and uses only
        one measurement of profitability.

        Long-lived asset information by geographic area at December 31, 2000 and
        March 31, 2000 is as follows (in thousands):


                                     Page 9
<PAGE>


<TABLE>
<CAPTION>
                                                     December 31, 2000    March 31, 2000
                                                     ------------------   ----------------
       <S>                                           <C>                  <C>
       United States                                      $ 4,694             $ 4,851
       International (primarily Northern Ireland           26,934              23,657
                                                     ------------------   ----------------
       Total long-lived assets                           $ 31,628            $ 28,508
                                                     ==================   ================
</TABLE>


        Revenues by geographic area at December 31, 2000 and December 26, 1999
        are as follows (in thousands):

<TABLE>
<CAPTION>
                                  Three Months Ended                         Nine Months Ended
                            December 31,        December 26,          December 31,       December 26,
                               2000                1999                   2000               1999
                         ------------------   ----------------      ----------------   ---------------
       <S>               <C>                  <C>                   <C>                <C>
       United States            1,599                408                   3,885                576
       International              255                 -                    2,070                221
                         ------------------   ----------------      ----------------   ---------------
       Total revenues           1,854                408                   5,955                797
                         ==================   ================      ================   ===============
</TABLE>


11.     RECENT ACCOUNTING PRONOUNCEMENTS:

        STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 133, "ACCOUNTING FOR
        DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES"

        In June 1998, the Financial Accounting Standards Board issued Statement
        of Financial Accounting Standards No. 133, or SFAS 133, "Accounting for
        Derivative Instruments and Hedging Activities." SFAS 133 establishes new
        standards of accounting and reporting for derivative instruments and
        hedging activities. SFAS 133 requires that all derivatives be recognized
        at fair value in the balance sheet, and that the corresponding gains or
        losses be reported either in the statement of operations or as a
        component of comprehensive income, depending on the type of hedging
        relationship that exists. SFAS 133 will be effective for fiscal years
        beginning after June 15, 2000. Currently, the Company does not hold
        derivative instruments or engage in hedging activities.

        SECURITIES AND EXCHANGE COMMISSION STAFF ACCOUNTING BULLETIN NO. 101,
        "REVENUE RECOGNITION IN FINANCIAL STATEMENTS"

        In December 1999, the Securities and Exchange Commission issued Staff
        Accounting Bulletin No. 101, "Revenue Recognition in Financial
        Statements" or SAB 101. SAB 101 clarifies existing accounting principles
        related to revenue recognition in financial statements. The Company
        adopted SAB 101 during the third quarter and the adoption did not affect
        the Company's consolidated financial statements.

12.     SUBSEQUENT EVENTS:

        On February 13, 2001, the Company completed the acquisition of $30.0
        million of assets consisting of cash and investment equivalent
        instruments in exchange for approximately 3.5 million shares of
        Common Stock.


                                    Page 10
<PAGE>


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

This report contains statements that constitute "forward-looking statements"
within the meaning of Section 21E of the Securities Exchange Act of 1934 and
Section 27A of the Securities Act of 1933. The words "expect," "estimate,"
"anticipate," "predict," "believe," and similar expressions and variations of
such words are intended to identify forward-looking statements. Such statements
appear in a number of places in this report and include statements regarding our
intent, belief or current expectations with respect to, among other things, the
status of the development of our products and their anticipated performance and
customer acceptance, trends affecting the commercialization and sale of our
products, the status of the construction of our manufacturing facilities, the
acquisition, integration and exploitation of the Telcordia intellectual
property, trends affecting our liquidity position, including, but not limited
to, our access to additional equity or debt financing and our rate of
expenditures, our joint venture relationships, and our business and liquidity
strategies. We caution you not to put undue reliance on such forward-looking
statements. Such forward-looking statements are not guarantees of our future
performance and involve risks and uncertainties. Our actual results may differ
materially from those projected in this report, for the following reasons, among
others: our limited available working capital, uncertain market acceptance of
our products, changing economic conditions, risks in product and technology
development, risks in the manufacture of our products, the effect of the
Company's accounting policies and the other risks discussed below under the
caption titled "Risk Factors," and in our Annual Report on Form 10-K and our
other reports filed with the Securities and Exchange Commission. We undertake no
obligation to publicly revise these forward-looking statements to reflect events
or circumstances that arise after the date of this report. In addition to the
risks and uncertainties discussed above, our other filings with the Securities
and Exchange Commission contain additional information concerning risks and
uncertainties that may cause actual results to differ materially from those
projected or suggested in our forward-looking statements. You should carefully
review the risk factors discussed in our Annual Report on Form 10-K and the
other documents we have filed with the Securities and Exchange Commission.

This Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the accompanying condensed
consolidated financial statements and notes thereto contained herein and the
Company's consolidated financial statements and notes thereto contained in the
Company's Annual Report on Form 10-K as of and for the year ended March 31,
2000. The results for the nine-month period ended December 31, 2000 are not
necessarily indicative of the results to be expected for the entire fiscal year
ending March 31, 2001.

OVERVIEW

The Company was founded in 1989 to develop and commercialize advanced
rechargeable batteries based on lithium and polymer technologies. Since its
inception, the Company has been a development stage company primarily engaged in
acquiring and developing its initial technology, manufacturing limited
quantities of prototype batteries, recruiting personnel, and acquiring capital.
In the first three-month period of fiscal 2001, the Company recorded its first
significant commercial sales. Previously, other than immaterial revenues from
limited sales of prototype batteries, the Company had not received any
significant revenues from the sale of products. Before the first three-month
period of fiscal 2001, substantially all revenues were derived from a research
and development contract with the Delphi Automotive Systems Group, formerly the
Delco Remy Division, an operating group of the General Motors Corporation. This
research and development contract expired in May 1998. The Company has incurred
cumulative losses of $252,653,000 from its inception to December 31, 2000.

RECENT DEVELOPMENTS

Effective December 26, 2000, the Company acquired all of the rights held by
Telcordia Technologies, Inc. to lithium-ion solid state polymer battery
technology. As a result of the acquisition, the Company is the licensor under
Telcordia's existing license agreements. The assets acquired in the acquisition
include 42 U.S. patents, 14 U.S. patents pending, more than 200 foreign patents,
issued and pending, and 15 Telcordia licenses with battery manufacturers
throughout the world.

RESULTS OF OPERATIONS

THREE AND NINE MONTHS ENDED DECEMBER 31, 2000 COMPARED WITH THREE AND NINE
MONTHS ENDED DECEMBER 26, 1999 (THIRD THREE-MONTH PERIOD AND FIRST NINE MONTHS
OF FISCAL 2001 COMPARED WITH THIRD THREE-MONTH PERIOD AND FIRST NINE MONTHS OF
FISCAL 2000)


                                    Page 11
<PAGE>


REVENUE. Revenue from battery and laminate sales totaled $1,854,000 and
$5,955,000 for the third three-month period and first nine months of fiscal
2001, respectively. The Company recorded sales revenue of $408,000 and $797,000
for the corresponding periods of fiscal 2000. The sales revenue for the three
and nine month periods of fiscal 2000 contained only laminate sales whereas
battery sales began in fiscal 2001 for the same period. This is the third
three-month period of sales revenue this fiscal year and reflects the Company's
transition from research and development to manufacturing.

COST OF SALES. The cost of sales for the third three-month period and first nine
months of fiscal 2001 was $2,893,000 and $15,222,000, respectively. During the
first nine months of fiscal 2001, the Company qualified for revenue grant
funding, through December 31, 2000 of $2,117,000 from the Northern Ireland
Industry Development Band, or IDB, which was offset against the cost of sales as
a reduction of direct labor. The Company did not record cost of sales in the
third three-month period or first nine months of fiscal 2000 as the Company was
primarily a research and development enterprise.

RESEARCH AND PRODUCT DEVELOPMENT. Research and development expenses were
$4,821,000 and $7,657,000 during the three and nine months ended December 31,
2000 as compared to $5,674,000 and $14,958,000 for the corresponding periods of
fiscal 2000. The decreased expenditures primarily are due to completion of the
initial design of the Company's batteries and the beginning of its transition
from research and development to manufacturing of its products. The Company
expects to continue research and development on advanced products and materials.

MARKETING. Marketing expenses were $187,000 and $547,000 for the third
three-month period and first nine months of fiscal 2001, respectively, as
compared to $69,000 and $179,000 for the corresponding periods of fiscal 2000.
The increased expenditures primarily are due to an increase in the sales team
combined with extensive travel for the purpose of product presentation to
potential customers.

GENERAL AND ADMINISTRATIVE. General and administrative expenses were $1,469,000
and $4,651,000 for the third three-month period and first nine months of fiscal
year 2001, respectively, as compared to $2,130,000 and $5,170,000 for the
corresponding periods of fiscal 2000. The decrease between corresponding periods
is due primarily to lower expenditures for legal services.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization was $2,849,000 and
$8,082,000 for the third three-month period and first nine months of fiscal year
2001, respectively. For the corresponding periods of fiscal 2000, depreciation
and amortization was $2,292,000 and $6,553,000. Increased capital expenditures
in previous periods have caused depreciation to rise accordingly.

INTEREST AND OTHER INCOME. Interest and other income was $191,000 and $905,000
for the third three-month period and first nine months of fiscal 2001,
respectively, as compared to $165,000 and $337,000 for the corresponding periods
in fiscal 2000. The increase primarily results from additional funds being
available for investment.

INTEREST EXPENSE. Interest expense was $591,000 and $1,544,000 during the third
three-month period and first nine months of fiscal 2001, respectively, as
compared to $480,000 and $1,314,000 for the corresponding periods in fiscal
2000. This increase is a result of a higher level of long-term debt during
fiscal 2001.

EQUITY IN LOSSES OF JOINT VENTURE. Joint venture loss was $0 and $345,000 for
the third three-month period and first nine months of fiscal 2001, respectively.
Losses for corresponding periods of fiscal 2000 were $0 and $555,000. These
joint venture losses primarily are due to pre-production costs, interest expense
and foreign currency translation adjustments. As the level of accumulated
deficit in the joint venture exceeds the amount of the Company's investment in
the joint venture, no losses are recognized at this time.

LIQUIDITY AND CAPITAL RESOURCES

The Company used $30,638,000 net cash for operating activities during the first
nine months of fiscal year 2001 compared to using $21,225,000 during the first
nine months of fiscal year 2000, an increase between corresponding periods of
$9,413,000. This increase resulted primarily from the expansion and training of
production staff, expansion of marketing staff and efforts, and completion of
engineering efforts on production facilities.

During the nine-month period ended December 31, 2000, the Company used
$14,629,000 for investing activities, as compared to $3,477,000 during the first
nine months of fiscal 2000, an increase of $11,152,000 between corresponding
periods. The usage in both periods was comprised solely of capital expenditures.


                                    Page 12
<PAGE>


The Company provided $24,380,000 net cash from financing activities during the
first nine months of fiscal year 2001 compared to $53,716,000 during the first
nine months of fiscal year 2000. This decrease of $29,336,000 resulted primarily
from a decrease in equity financing.

As a result of the above, the Company had a net decrease in cash and cash
equivalents of $22,545,000 during the nine-month period ended December 31, 2000,
whereas it had a net increase in cash and cash equivalents of $28,968,000 during
the nine-month period ended December 26, 1999.

During June 2000 the Company entered into separate private placement funding
arrangements with Acqua Wellington Value Fund Ltd., an institutional investor,
and Carl E. Berg, a principal stockholder and director of the Company, for an
equity investment commitment totaling $25 million. Acqua Wellington funded $12.5
million on June 29, 2000 by the purchase of 846,665 shares of common stock and a
warrant to purchase 169,333 shares of common stock, exercisable at $18.45 per
share. The remaining $12.5 million is in the form of a binding commitment from
Mr. Berg for funding through the fiscal year end. On February 13, 2001, the
Company replaced the remaining $12.5 million commitment from Mr. Berg with the
acquisition of $30.0 million of assets consisting of cash and investment
equivalent instruments in exchange for approximately 3.5 million shares of
Company common stock.

During fiscal year 1994, the Company signed an agreement with the IDB to open an
automated manufacturing plant in Northern Ireland in exchange for capital and
revenue grants from the IDB. The Company has also received offers from the IDB
to receive additional grants. The grants available under the agreement and
offers, for an aggregate of up to (pound)25.6 million (approximately $38.3
million), generally become available over a five year period through October 31,
2001. As of December 31, 2000, the Company had received grants aggregating
(pound)5 million (approximately $7.5 million), reducing remaining grants
available to (pound)20.6 million (approximately $30.8 million).

As a condition to receiving funding from the IDB, the subsidiary operating the
plant must maintain a minimum of (pound)12.0 million (approximately $17.9
million) in debt or equity financing from the Company. Aggregate funding under
the grants was limited to (pound)5 million (approximately $7.5 million) until
the Company had recognized $4.0 million in aggregate revenue from the sale of
its batteries produced in Northern Ireland. As of December 31, 2000, the Company
has qualified for and received the current maximum under these grants.

The amount of the grants available under the agreement and offers is primarily
dependent on the level of capital expenditures made by the Company.
Substantially all of the funding received under the grants is repayable to the
IDB if the subsidiary is in default under the agreement and offers. Default
includes ceasing to do business permanently in Northern Ireland. Funding
received under the grants to offset capital expenditures is repayable if related
equipment is sold, transferred or otherwise disposed of during a four year
period after the date of grant. In addition, a portion of funding received under
the grants may also be repayable if the subsidiary fails to maintain specified
employment levels for the two year period immediately after the end of the five
year grant period. The Company has guaranteed the subsidiary's obligations to
the IDB under the agreement.

There can be no assurance that the Company will continue to meet the
requirements necessary for it to receive and retain grants under the IDB
agreement and offers.

The following are the major categories of construction in progress with their
costs to date and start dates:

<TABLE>
<CAPTION>
CONSTRUCTION CATEGORY                    COSTS TO DATE      START DATES
<S>                                      <C>                <C>
Assembly equipment..............            $9,629,192      March 1994

Mixing, coating, etching
laminating and slitting
equipment.......................            $2,513,541      March 1997

Factory improvements and
miscellaneous equipment..........             $178,591      June 1997
</TABLE>


The estimated completion date for this category of construction in progress is
March 2001. These statements are forward-looking statements, and actual costs
and completion dates are subject to change due to a variety of risks and
uncertainties, including the availability of funds for completion, the risk that
actual costs will be materially greater due to unforeseen difficulties in
completion of the projects, reliance on manufacturers to deliver equipment in a
timely manner and which performs as intended, and other risks and uncertainties.


                                    Page 13
<PAGE>


We believe that funds generated from operations and investment equivalent
instruments, our current cash and cash equivalents together with receipt of
anticipated funds from IDB grants will be sufficient through calendar 2001 to
complete funding of required capital expansion, research and product
development, marketing, general and administrative expenses and the cost of
integrating the Telcordia licensing activities. From time to time, we consider
the acquisition of businesses, products or technologies complementary to our
current business, although we have no current commitments or agreements with
respect to any such transactions. Should we decide to pursue such a transaction,
we may need to obtain additional funds.


                                  RISK FACTORS

CAUTIONARY STATEMENTS AND RISK FACTORS

Several of the matters discussed in this document contain forward-looking
statements that involve risks and uncertainties. Factors associated with the
forward-looking statements that could cause actual results to differ from those
projected or forecast are included in the statements below. In addition to other
information contained in this report, you should carefully consider the
following cautionary statements and risk factors.

                          RISKS RELATED TO OUR BUSINESS

WE ARE IN THE EARLY STAGES OF MANUFACTURING AND IF WE FAIL TO MANUFACTURE
COMMERCIAL QUANTITIES OF BATTERIES TO CUSTOMER SPECIFICATIONS COST-EFFECTIVELY,
WE COULD LOSE CUSTOMERS AND BUSINESS.

Until recently, we had only manufactured our batteries on our pilot
manufacturing line, which can produce prototype batteries in large enough
quantities to allow customer sampling, testing and product development. In order
to manufacture commercial quantities of our batteries according to customer
specifications and on a commercial scale, we must further develop our
manufacturing facilities and reduce our unit manufacturing costs. If we fail to
substantially increase yields of our batteries and reduce unit-manufacturing
costs, we will not be able to offer our batteries at a competitive price, we
will lose our current customers and fail to attract future customers.

FAILURE TO SCALE UP OUR MANUFACTURING FACILITY WILL HARM OUR CUSTOMER RELATIONS
AND THREATEN FUTURE PROFITS.

We currently are in the early stages of transitioning production to an automated
production line that will work with our newest battery technology in our
manufacturing facility in Mallusk, Northern Ireland. We have begun to
manufacture batteries on a commercial scale to fulfill our first significant
purchase orders. The redesign and modification of the Mallusk manufacturing
facility, including its customized manufacturing equipment, will continue to
require substantial engineering work and capital expenses and is subject to
significant risks, including risks of cost overruns and significant delays. In
addition, in order to scale up the manufacturing capacity, we will need to begin
qualification of additional automated production lines. In automating,
redesigning and modifying the manufacturing processes, we continue to depend on
several developers of automated production lines, all of whom have limited
experience in producing equipment for the manufacture of batteries. If we fail
to develop and implement a large scale manufacturing facility capable of
cost-effectively producing commercial quantities of batteries according to
customer specifications, it will harm our ability to serve the needs of our
customers and threaten our future sales and profits.

THE LIMITED NUMBER OF SKILLED AND UNSKILLED WORKERS IN NORTHERN IRELAND COULD
AFFECT THE SUCCESS OF OUR IMPROVEMENTS IN THE MANUFACTURING FACILITY.

As part of our manufacturing ramp-up, we will need to hire and train a
substantial number of new manufacturing workers. The availability of skilled and
unskilled workers in Northern Ireland is limited because of a relatively low
unemployment rate. As a result, we face the risk that we may not:

     o    successfully hire and train the new manufacturing workers necessary
          for the ramp-up of our Mallusk, Northern Ireland manufacturing
          facility;

     o    successfully develop improved processes;

     o    design required production equipment;


                                    Page 14
<PAGE>


     o    enter into acceptable contracts for the fabrication of required
          production equipment;

     o    obtain timely delivery of required production equipment;

     o    implement multiple production lines; or

     o    successfully operate the Mallusk facility.

Our failure to successfully automate our production on a timely basis, if at
all, could damage our reputation, relationships with future and existing
customers, cause us to lose business and potentially prevent us from
establishing the commercial viability of our products.

CONTINUED DELAYS IN QUALIFYING OUR MANUFACTURING FACILITIES COULD SIGNIFICANTLY
DELAY OUR BRINGING COMMERCIAL QUANTITIES OF PRODUCT TO MARKET AND INTERFERE WITH
OUR ABILITY TO GENERATE THE REVENUE AND CASH THAT WE NEED TO SUSTAIN OUR
BUSINESS.

We may be unable to meet our schedules regarding delivery, installation,
de-bugging and qualification of our Northern Ireland facility production
equipment, and face the prospect of further delays or problems related to
facility qualification because:

     o    we do not control the design and delivery of most of the production
          equipment which is specifically manufactured for us;

     o    we are modifying and bringing many of the manufacturing processes of
          this production equipment up to date for the first time and may need
          to refine these processes;

     o    even if we are able to refine our process, we may not be able to
          produce the amount of qualification samples required by our customers;
          and

     o    our customers generally require an extensive qualification period once
          they receive their first commercial product off a production line.

These delays would impair our ability to bring our batteries to market,
adversely affect revenue growth and our cash position and harm our competitive
position and economic growth.

OUR ABILITY TO MANUFACTURE LARGE VOLUMES OF BATTERIES IS LIMITED AND MAY PREVENT
US FROM FULFILLING EXISTING ORDERS.

Currently, our ability to sell and ship product is limited. We currently have
several outstanding unfilled purchase orders for our batteries and actively are
soliciting additional purchase orders. We presently have limited quantities of
batteries available for sale and do not currently have the necessary equipment
in operation to manufacture a commercially adequate volume of products. We
currently are installing additional automated equipment at our facilities in
Mallusk, Northern Ireland. We expect this production facility to be fully
operational by the end of calendar 2001, which will provide us with sufficient
capacity to manufacture and ship batteries in high volumes.

In 1993, we ultimately were unable to fulfill a purchase order for batteries
which incorporated a previous technology due to our inability to produce our
batteries on a commercial scale. If we cannot rapidly increase our production
capabilities to make sufficient quantities of commercially acceptable batteries,
we may not be able to fulfill existing purchase orders in a timely manner, if at
all. In addition, we may not be able to procure additional purchase orders,
which could cause us to lose existing and future customers, purchase orders,
revenue and profits.

WE MAY HAVE A NEED FOR ADDITIONAL CAPITAL.

At December 31, 2000, we had cash and cash equivalents of $2,011,000. In
addition, effective February 13, 2001, we completed the acquisition of $30.0
million of assets consisting of cash and investment equivalent instruments in
exchange for approximately 3.5 million shares of our common stock. We also
anticipate the availability of a portion of our IDB grant funds during fiscal
2001. After taking into account our cash and cash equivalents, projected
revenues and receipt of funds from IDB grants, we expect that we will have
sufficient financing through calendar 2001 to complete funding of required
capital expansion, research and product development, marketing, general and


                                    Page 15
<PAGE>


administrative expenses and the costs of integrating the Telcordia licensing
activities. Our cash requirements, however, may vary materially from those now
planned because of changes in our operations, including changes in original
equipment manufacturer relationships, market conditions, joint venture and
business opportunities or our failure to receive sufficient IDB grant funds. In
such event, we may need to raise additional funding through debt or equity
financing through calendar 2001. We cannot assure you that additional funds for
these purposes, whether from equity or debt financing agreements, will be
available on favorable terms, if at all. If we need capital and cannot raise
additional funds, it may delay further development and production of our
batteries or otherwise delay our execution of our business plan, all of which
may have a material adverse effect on our operations and financial condition.

WE HAVE A HISTORY OF LOSSES, HAVE AN ACCUMULATED DEFICIT AND MAY NEVER ACHIEVE
OR SUSTAIN SIGNIFICANT REVENUES OR PROFITABILITY.

We have incurred operating losses each year since inception in 1989 and had an
accumulated deficit of $252,653,000 as of December 31, 2000. We have working
capital of $946,000 as of December 31, 2000, and have sustained recurring losses
related primarily to the research and development and marketing of our products.
We expect to continue to incur operating losses and negative cash flows through
fiscal 2001, as we continue our product development, begin to build inventory
and continue our marketing efforts. We may never achieve or sustain significant
revenues or profitability in the future.

IF OUR BATTERIES FAIL TO PERFORM AS EXPECTED, WE COULD LOSE EXISTING AND FUTURE
BUSINESS WHICH WOULD HARM OUR LONG-TERM ABILITY TO MARKET AND SELL OUR
BATTERIES.

If we manufacture our batteries in commercial quantities and they fail to
perform as expected, our reputation could be severely damaged, and we could lose
existing or potential future business. Even if the performance failure was
corrected, this performance failure might have the long-term effect of harming
our ability to market and sell our batteries.

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 THE
BUSINESS OF ANY ONE OF THEM.

To date, our existing purchase orders in commercial quantities are from a
limited number of customers. 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
our customers, and do not expect to enter into any long-term agreements in the
near future. As a result, we face the substantial risk that any of the following
events could occur:

     o    reduction, delay or cancellation of orders from a customer;

     o    development by a customer of other sources of supply;

     o    selection by a customer of devices manufactured by one of our
          competitors for inclusion in future product generations;

     o    loss of a customer or a disruption in our sales and distribution
          channels; and

     o    failure of a customer to make timely payment of our invoices.


                                    Page 16
<PAGE>


If we were to lose one or more customers, or if we were to lose revenues due to
a customer's inability or refusal to continue to purchase our batteries, our
business, results of operations and financial condition could be harmed.

COMPETITION FOR PERSONNEL, IN PARTICULAR FOR PRODUCT DEVELOPMENT AND PRODUCT
IMPLEMENTATION PERSONNEL, IS INTENSE, AND WE MAY HAVE DIFFICULTY ATTRACTING THE
PERSONNEL NECESSARY TO EFFECTIVELY OPERATE OUR BUSINESS.

We believe that our future success will depend in large part on our ability to
attract and retain highly skilled technical, managerial and marketing personnel
who are familiar with and experienced in the battery industry, as well as
skilled personnel to operate our facility in Northern Ireland. 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. We
compete in the market for personnel against numerous companies, including
larger, more established competitors with significantly greater financial
resources than us. We have experienced difficulty in recruiting qualified
personnel in the past, and we cannot be certain that we will be successful in
attracting and retaining the skilled personnel necessary to operate our business
effectively in the future.

BECAUSE OUR BATTERIES PRIMARILY ARE SOLD AND THEN INCORPORATED INTO OTHER
PRODUCTS, WE RELY ON ORIGINAL EQUIPMENT MANUFACTURERS AND BATTERY PACK
ASSEMBLERS TO COMMERCIALIZE OUR PRODUCTS.

We rely heavily on assistance from original equipment manufacturers and battery
pack assemblers to gain market acceptance for our products. We therefore 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. Original equipment manufacturers and battery pack assemblers 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 battery system and the
commencement of volume shipments of the battery system to the customer, but also
requires the cooperation and assistance of the original equipment manufacturers
or battery pack assemblers for purposes of determining the battery requirements
for each specific application. If we are unable to design, develop and introduce
products that meet original equipment manufacturers' and battery pack
assemblers' requirements, we may not be able to fulfill our obligations under
existing purchase orders, 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 original equipment manufacturers or battery
pack assemblers to successfully commercialize our products, which could impair
our profitability.

THE FACT THAT WE DEPEND ON A SOLE SOURCE SUPPLIER FOR OUR ANODE RAW MATERIALS
AND A LIMITED NUMBER OF SUPPLIERS FOR OTHER KEY RAW MATERIALS MAY DELAY OUR
PRODUCTION OF BATTERIES.

We depend on a sole source supplier for our anode, or negative electrode, raw
material and we utilize a limited number of suppliers for other key raw
materials used in manufacturing and developing our batteries. 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. We have in the past experienced delays in product development
due to the delivery of nonconforming raw materials from our suppliers, and if in
the future we are unable to obtain high quality raw materials in sufficient
quantities 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.


                                    Page 17
<PAGE>


OUR BATTERIES MAY NOT BE ABLE TO ACHIEVE OR MAINTAIN MARKET ACCEPTANCE

To achieve market acceptance, our batteries must offer significant performance
or other measurable advantages at a cost-effective rate as compared to other
current and potential alternative battery technologies in a broad range of
applications. Our batteries may not be able to achieve or sustain these
advantages. Even if our batteries provide meaningful price or performance
advantages, there is a risk our batteries may not be able to achieve or maintain
market acceptance in any potential market application. Failure to realize these
performance advantages with our products could hurt our ability to attract
customers in the future.

WE HAVE FOUR KEY EXECUTIVES. THE LOSS OF A SINGLE EXECUTIVE OR THE FAILURE TO
HIRE AND INTEGRATE CAPABLE NEW EXECUTIVES COULD HARM OUR BUSINESS.

Our success is highly dependent upon the active participation of four key
executives. We do not have written employment contracts or key man life
insurance policies with respect to any of these key members of management.
Without qualified executives, we face the risk that we will not be able to
effectively run our business on a day-to-day basis or execute our long-term
business plan.

        WE MUST EFFICIENTLY INTEGRATE THE TELCORDIA ASSETS INTO OUR BUSINESS.

        From our inception in 1989 through the first three-month period of
fiscal 2001, we were a development stage company primarily engaged in acquiring
and developing our initial technology, manufacturing limited quantities of
prototype batteries, recruiting personnel and acquiring capital. Except for
immaterial revenues from limited sales of prototype batteries, we did not record
significant revenues from sales of our products until the first three-month
period of fiscal 2001. In the last three-month period of fiscal 2001, we
acquired the intellectual property assets of Telcordia Technologies. As a result
of the acquisition of these intellectual property assets, we significantly
increased the role of licensing in our business activities. Our future operating
results could be affected by a variety of factors including:

     o    our ability to secure and maintain significant customers of our
          proprietary technology;

     o    the extent to which our future licensees successfully incorporate our
          technology into their products;

     o    the acceptance of new or enhanced versions of our technology;

     o    the rate that our licensees manufacture and distribute their products
          to OEMs;

     o    our ability to secure one-time license fees and ongoing royalties for
          our technology from licensees.

        Our future success will depend in a large part on our ability to
integrate successfully our licensing operations with our other business
activities. The degree to which we can successfully integrate these operations
will depend on a number of factors, including our ability to expand the scope of
our operations beyond the design, development, manufacture and marketing of our
rechargeable lithium polymer batteries to include substantially increased
technology licensing activities. The integration of these licensing operations
following the acquisition of the Telcordia intellectual property assets will
require the dedication of management and other personnel resources which may
temporarily distract them from our day-to-day business. If we fail to integrate
the acquired intellectual property efficiently or otherwise substantially expand
our licensing activities, our results of operations and financial condition will
be adversely affected.

OUR REVENUE FROM LICENSE FEES AND ROYALTIES WILL FLUCTUATE AND DEPENDS
SIGNIFICANTLY ON THE SUCCESS OF OUR LICENSEES AND THE MARKET DEMAND FOR OUR
PRODUCTS.

        We expect to generate income from license fees as well as ongoing
royalties based on sales by licensees that design, manufacture and sell products
incorporating our technology. License fees generally will be nonrefundable and
may be paid in one or more installments. Ongoing royalties will be nonrefundable
and generally


                                    Page 18
<PAGE>


based upon a percentage of the selling price of the products which incorporate
our technology sold by the licensee. Because we expect to derive a significant
portion of our future revenues from royalties on shipments by our licensees, our
future success depends upon the ability of our licensees to develop and
introduce high volume products that achieve and sustain market acceptance. We
cannot assure you that our licensees will be successful or that the demand for
lithium polymer batteries or for devices utilizing these batteries will continue
to increase. In addition, our license fee revenues depend on our ability to gain
additional licensees within existing and new markets. A reduction in the demand
for lithium polymer batteries, our loss of key existing licensees or our failure
to gain additional licensees could have a material adverse effect on our
business.

THERE IS A POTENTIAL CONFLICT BETWEEN US AND OUR FUTURE TECHNOLOGY LICENSEES.

       The acquisition of the Telcordia intellectual property assets has added
significant diversity to our overall business structure and our opportunities.
We recognize that there is potential for a conflict among our sales channels and
those of our future technology licensees. Although our manufacturing and
marketing business generally is complimentary to our licensing business, we
cannot assure you that sales-channel conflicts will not arise. If these
potential conflicts do materialize, we may not be able to mitigate the effect of
a conflict which, if not resolved, may impact our results of 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
non-disclosure agreements with us, and we may not have adequate remedies in the
event of their breaches. In addition, 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. Moreover, we may not be able to effectively
protect our intellectual property rights outside of the United States.

We have established a program for intellectual property documentation and
protection in order to safeguard our technology base. We intend to vigorously
pursue enforcement and defense of our patents and our other proprietary rights.
We could incur significant expenses in preserving our proprietary rights, and
these costs could harm our financial condition. We also are attempting to expand
our intellectual property rights through our applications for new patents.
Patent applications in the United States are maintained in secrecy until the
patents that are applied for are ultimately issued. 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 were the first
creator of inventions covered by pending patent applications or the first to
file patent applications on such inventions. Therefore, our pending patent
applications may not result in issued patents and our issued patents may not
afford protection against a competitor. Our failure to protect our existing
proprietary technologies or to develop new proprietary technologies may
substantially impair our financial condition and results of operations.

INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS BROUGHT AGAINST US COULD BE TIME
CONSUMING AND EXPENSIVE TO DEFEND.

In recent years, there has been significant litigation in the United States
involving patents and other intellectual property rights. While we currently are
not engaged in any intellectual property litigation or proceedings, we may
become involved in these proceedings in the future. In the future we may be
subject to claims or inquiries regarding our alleged unauthorized use of a third
party's intellectual property. These claims could involve our licensees who
could also become targets of litigation. This could trigger obligations on us
that could result in substantial expenses. In addition to the time and expense
required for us to comply with our obligations to our licensees, any such
litigation could severely disrupt the business of our licensees, which in turn
could hurt our relations with our licensees and cause our revenues to decrease.
Whether aimed at us or our licensees, an adverse outcome in litigation could
force us to do one or more of the following:

     o    stop selling, incorporating or using our products that use the
          challenged intellectual property;


                                    Page 19
<PAGE>


     o    pay significant damages to third parties;

     o    stop licensing a portion of our technology, which in turn may prevent
          licensees from manufacturing and selling the products that incorporate
          this technology;

     o    obtain from the owners of the infringed intellectual property right a
          license to sell or use the relevant technology, which license may not
          be available on reasonable terms, or at all; or

     o    redesign those products or manufacturing processes that use the
          infringed technology, which may not be economically or technologically
          feasible.

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.


OUR BATTERIES CONTAIN POTENTIALLY DANGEROUS MATERIALS, WHICH COULD EXPOSE US TO
PRODUCT LIABILITY CLAIMS.

In the event of a short circuit or other physical damage to a battery, a
reaction may result with excess heat or a gas being generated and released. If
the heat or gas is not properly released, the battery may be flammable or
potentially explosive. Our batteries that were based on an earlier technology,
have, in the past, smoked, caught fire and vented gas. If we are unsuccessful in
our efforts to reduce these risks in our current design, we could be exposed to
product liability litigation. In addition, our batteries incorporate potentially
dangerous materials, including lithium. It is possible that these materials may
require special handling or that safety problems may develop in the future. We
are aware that if the amounts of active materials in our batteries are not
properly balanced and if the charge/discharge system is not properly managed, a
dangerous situation may result. Other battery manufacturers using technology
similar to ours include special safety circuitry within the battery to prevent
such a dangerous condition. We expect that our customers will have to use a
similar type of circuitry in connection with their use of our products.

WE ARE ENGAGED IN ONGOING SAFETY TESTING OF OUR BATTERIES TO MEET CUSTOMER
REQUIREMENTS AND MAY NOT BE ABLE TO INCREASE COMMERCIAL SALES OF OUR BATTERIES
IF OUR PRODUCTS ARE NOT SUCCESSFUL IN THESE TESTS.

We have conducted safety testing of our batteries and have submitted batteries
to Underwriters Laboratories for certification, which is required by a number of
original equipment manufacturers prior to placing a purchase order with us.
Underwriters Laboratories has granted a preliminary acceptance of an earlier
generation of our batteries, pending a manufacturing site audit. Those
batteries, while similar to the batteries we are selling today, are not of the
current design and composition. Our current batteries must be submitted for
Underwriters Laboratories' approval, and Underwriters Laboratories has not yet
begun a scheduled audit of our Northern Ireland manufacturing facility.

As part of our safety testing program, prototype batteries of various sizes,
designs and chemical formulations are subject to abuse testing, in which the
battery is subjected to conditions outside expected normal operating conditions.
Each new battery design will continue to require new safety testing. In
addition, safety problems may develop with respect to our current and future
battery technology that could prevent or delay commercial introduction of our
products.

ACCIDENTS AT OUR FACILITIES COULD DELAY PRODUCTION AND ADVERSELY AFFECT OUR
OPERATIONS.

An accident in our facilities could occur and, whether due to the production of
our batteries or otherwise resulting from our facilities' operations, could
result in significant manufacturing delays or claims for damages resulting from
personal or property injuries, all of which would adversely affect our
operations and financial condition.


                                    Page 20
<PAGE>


OPERATIONAL PROBLEMS AT OUR SINGLE MANUFACTURING FACILITY COULD HARM OUR
BUSINESS.

Our revenues are dependent upon the continued operation of our single
manufacturing facility in Northern Ireland. The operation of a manufacturing
plant involves many risks, including potential damage from fire or natural
disasters. In addition, we have obtained permits to conduct our business as
currently operated at the facility. We cannot assure you that these permits
would continue to be effective at the current location if the facility were
destroyed and rebuilt, or that we would be able to obtain similar permits to
operate at another location. The occurrence of these or any other operational
problems at our Northern Ireland facility could harm our business.

WE DO NOT FULLY CONTROL THE OPERATION OF OUR JOINT VENTURES' OPERATIONS,
STRATEGIES AND FINANCIAL DECISIONS, AND WE CANNOT ASSURE YOU THAT OUR PRODUCTS
WILL BE MARKETED SUCCESSFULLY THROUGH THESE VENTURES.

At the present time, we have investment interests in two operating joint
ventures. We established a joint venture company in Korea, Hanil Valence Co.,
Ltd., to manufacture, package and distribute advanced rechargeable solid
polymer batteries. We supply Hanil Valence Co. with its proprietary laminates
(film and laminate materials), from which Hanil Valence Co. will manufacture
batteries for the Korean market. In addition, we will supply technology, initial
equipment and product designs and technical support for the Hanil Valence Co.
joint venture out of our Northern Ireland facility. We cannot be certain that
the Hanil Valence Co. joint venture will be profitable, and if this joint
venture does not remain in business, we would need to find other business
partners and/or contract with third parties for purposes of manufacturing,
selling and distributing rechargeable batteries in the Korean market.

We also established a joint venture company, Alliant/Valence, L.L.C., to market
our battery technology and technology obtained under our non-exclusive license
with Telcordia Technologies and to develop and to manufacture batteries for our
U.S. military customers, as well as for foreign military sales activities. In
connection with this joint venture, Alliant Power Sources Company, an Alliant
operating company, has ordered both battery component material and finished
battery cells from Valence to be used in the construction of several different
specialized batteries for military and aerospace applications.

We do not control or manage either of these joint ventures. Consequently, we
must rely on the management skills of our venture partners to successfully
operate these ventures. Our joint venture partners may have economic, businesses
or legal interests or goals that conflict with ours. In addition, we may have
significant disagreements with our venture partners regarding strategic or
operational issues that could have material adverse effect on the ventures'
business or financial conditions. We may be required to fulfill the obligations
of our joint venture partners if they are unable to meet their obligations.

We also depend to a significant degree on local partners in our joint ventures
to provide us with regulatory and marketing expertise and familiarity with the
local business environment. Any disruption in our relationship with these
parties could make it more difficult to market our products in the geographic
regions or to the customers to which the joint venture relates. Unsuccessful
ventures could also significantly damage our reputation, making it more
difficult to obtain purchase orders for our batteries.

WE DO NOT HAVE A COLLABORATIVE PARTNER TO ASSIST US IN DEVELOPMENT OF OUR
BATTERIES, WHICH MAY LIMIT OUR ABILITY TO DEVELOP AND COMMERCIALIZE OUR
PRODUCTS.

The use of alliances for our development, product design, volume purchase and
manufacturing and marketing expertise could reduce the need for development and
use of internal resources. We have received substantially all our revenues to
date from a research and development agreement for joint development in the
automotive market with Delphi Automotive Systems Group, which we completed in
May 1998. Although we have held discussions with original equipment
manufacturers in the portable consumer electronics and telecommunications
markets about possible strategic relationships as a means to accelerate
introduction of our batteries into these markets, we may choose not to, or may
not be able to, enter into any such alliances. Further, even if we could
collaborate with a desirable partner, the partnership may not be successful. The
success of any strategic alliance that we may enter into depends on, among other
things, the general business condition of the partner, its commitment to the
strategic


                                    Page 21
<PAGE>


alliance and the skills and experience of its employees. Without a collaborative
partner to assist us in development of our batteries, our ability to develop and
commercialize our products may be limited.

WE EXPECT TO SELL A SIGNIFICANT PORTION OF OUR PRODUCTS TO CUSTOMERS LOCATED
OUTSIDE THE UNITED STATES. FOREIGN GOVERNMENT REGULATIONS, CURRENCY FLUCTUATIONS
AND INCREASED COSTS ASSOCIATED WITH INTERNATIONAL SALES COULD MAKE OUR PRODUCTS
UNAFFORDABLE IN FOREIGN MARKETS, WHICH WOULD REDUCE OUR FUTURE PROFITABILITY.

We expect that international sales will represent an increasingly significant
portion of our product sales. International sales can be subject to many
inherent risks that are difficult or impossible for us to predict or control,
including:

     o    changes in foreign government regulations and technical standards,
          including additional regulation of rechargeable batteries or the
          transport of lithium, which may reduce or eliminate our ability to
          sell in certain markets;

     o    foreign governments may impose tariffs, quotas and taxes on our
          batteries;

     o    requirements or preferences of foreign nations for domestic products
          could reduce demand for our batteries;

     o    fluctuations in currency exchange rates relative to the U.S. dollar
          could make our batteries unaffordable to foreign purchasers or more
          expensive compared to those of foreign manufacturers;

     o    longer payment cycles typically associated with international sales
          and potential difficulties in collecting accounts receivable may
          reduce the future profitability of foreign sales;

     o    import and export licensing requirements in Northern Ireland or Korea
          may reduce or eliminate our ability to sell in certain markets; and

     o    political and economic instability in Northern Ireland or Korea may
          reduce the demand for our batteries or our ability to market our
          batteries in foreign countries.

These risks may increase our costs of doing business internationally and reduce
our sales or future profitability.

POLITICAL INSTABILITY IN NORTHERN IRELAND COULD INTERRUPT MANUFACTURING OF OUR
BATTERIES AT OUR NORTHERN IRELAND FACILITY AND CAUSE US TO LOSE SALES AND
MARKETING OPPORTUNITIES.

Northern Ireland has experienced significant social and political unrest in the
past and we cannot assure you that these instabilities will not continue in the
future. Any political instability in Northern Ireland could temporarily or
permanently interrupt our manufacturing of batteries at our facility in Mallusk,
Northern Ireland. Any delays could also cause us to lose sales and marketing
opportunities, as potential customers would find other vendors to meet their
needs.

                       RISKS ASSOCIATED WITH OUR INDUSTRY

IF COMPETING TECHNOLOGIES THAT OUTPERFORM OUR BATTERIES WERE DEVELOPED AND
SUCCESSFULLY INTRODUCED, THEN OUR PRODUCTS MIGHT NOT BE ABLE TO COMPETE
EFFECTIVELY IN OUR TARGETED MARKET SEGMENTS.

The battery industry has experienced rapid technological change which we expect
to continue. Rapid and ongoing changes in technology and product standards could
quickly render our products less competitive, or even obsolete. Various
companies are seeking to enhance traditional battery technologies, such as lead
acid and nickel cadmium. Other companies have recently 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


                                    Page 22
<PAGE>


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 be
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.

OUR PRINCIPAL COMPETITORS 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 major 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 name recognition, established positions in the market, and long
standing relationships with original equipment manufacturers and other
customers. We believe that our primary competitors are existing suppliers of
liquid lithium ion, competing polymer and, in some cases, nickel metal hydride
batteries. These suppliers include Sanyo, Matsushita Industrial Co., Ltd.
(Panasonic), Sony, Toshiba and SAFT America, Inc. All 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, which include laptops, cellular telephones and personal
digital assistant products, on the basis of performance, size and shape, cost
and ease of recycling. 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 OR TRANSPORT OF BATTERIES MAY BE ENACTED WHICH
COULD RESULT IN A DELAY IN THE PRODUCTION OF OUR BATTERIES OR THE IMPOSITION OF
ADDITIONAL COSTS THAT WOULD HARM OUR ABILITY TO BE PROFITABLE.

At the present time, international, federal, state or local law does not
directly regulate the storage, use and disposal of the component parts of our
batteries or the transport 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 as well as regulations governing
the transport of our batteries. Satisfying any future laws or regulations could
require significant time and resources from our technical staff and possible
redesign 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.

                  GENERAL RISKS ASSOCIATED WITH STOCK OWNERSHIP

CORPORATE INSIDERS OR 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 December 31, 2000, our officers, directors, and their affiliates as a
group beneficially owned approximately 19.7% of our outstanding common stock.
Carl Berg, one of our directors, owns a substantial portion of that amount. 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:

     o    vote for the election of directors who agree with the incumbent
          officers' or directors' preferred corporate policy; or

     o    oppose or support significant corporate transactions when these
          transactions further their interests as incumbent officers or
          directors, even if these interests diverge from their interests as
          shareholders per se and thus from the interests of other shareholders.


                                    Page 23
<PAGE>


SOME PROVISIONS OF OUR CHARTER DOCUMENTS MAY MAKE TAKEOVER ATTEMPTS DIFFICULT,
WHICH COULD DEPRESS THE PRICE OF OUR STOCK AND LIMIT THE PRICE POTENTIAL
ACQUIRERS MAY BE WILLING TO PAY FOR YOUR SHARES.

Our board of directors has the authority, without any action by the
stockholders, to issue additional shares of our preferred stock, which shares
may be given superior voting, liquidation, distribution and other rights as
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 and may decrease the market price, and infringe upon the voting
and other rights of the holders, of our common stock.

CONVERSION OF PREFERRED STOCK AND SALES OF COMMON STOCK BY CC INVESTMENTS LDC
MAY DEPRESS THE PRICE OF OUR COMMON STOCK AND SUBSTANTIALLY DILUTE YOUR STOCK.

If CC Investments were to exercise all of the warrants it holds and convert all
of the shares of preferred stock it owns, as of December 31, 2000, it would then
own approximately 1,099,180 shares of our common stock. This amount includes
651,419 shares of our common stock that CC Investments would acquire upon their
conversion of the shares of Series B Preferred Stock it currently holds. Our
Series B Preferred Stock has a variable conversion rate and is convertible into
a larger amount of shares when our common stock trades at a price below $6.03 in
six out of ten consecutive trading days. In addition, the number of shares into
which the preferred stock converts increases at 6% per year. If CC Investments
exercises additional warrants or converts its preferred stock into shares of our
common stock and sells the shares into the market, these sales could depress the
market price of our common stock and would dilute your holdings in our common
stock. Additionally, dilution or the potential for dilution could harm our
ability to raise capital through the future sale of equity securities.

OUR STOCK PRICE IS VOLATILE.

The market price of the shares of our common stock has been and is likely to
continue to be highly volatile. Factors that may have a significant effect on
the market price of our common stock include the following:

     o    fluctuation in our operating results;

     o    announcements of technological innovations or new commercial products
          by us or our competitors;

     o    failure to achieve operating results projected by securities analysts;

     o    governmental regulation;

     o    developments in our patent or other proprietary rights or our
          competitors' developments;

     o    our relationships with current or future collaborative partners; and

     o    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
resell their shares of our common stock at or above the cost of their purchase
prices. In addition, companies that have experienced volatility in the market
price of their stock have been the object of securities class action litigation.
If we were the subject of securities class


                                    Page 24
<PAGE>


action litigation, this could result in substantial costs, a diversion of our
management's 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. We had outstanding 41,533,318 shares of common stock, based
upon shares outstanding as of December 31, 2000 and the conversion of all of our
Series B Preferred Stock. Of these shares, most will be registered and freely
tradable. In addition, we have filed registration statements on Form S-8 under
the Securities Act that cover 1,781,858 shares of common stock pursuant to
outstanding but unexercised vested options to acquire our common stock.

WE DO NOT INTEND TO PAY DIVIDENDS AND THEREFORE YOU WILL ONLY BE ABLE TO RECOVER
YOUR INVESTMENT IN OUR COMMON STOCK, IF AT ALL, BY SELLING THE SHARES OF OUR
STOCK THAT YOU HOLD.

Some investors favor companies that pay dividends. 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, your return on an investment in our shares likely depends on your
ability to sell our stock at a profit.


                                    Page 25
<PAGE>


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company has long term debt, principally in the form of two building
mortgages, one of which has a balloon payoff in fiscal 2002. One note bears
interest at a fixed rate of 10.4% and the other note bears interest at an
annually adjustable published interest rate index (7.375% at December 31, 2000).

Based on borrowing rates currently available to the Company for loans with
similar terms, the carrying value of its debt obligations approximates fair
value. At December 31, 2000, the weighted average interest rate on the Company's
long-term debt is 7.964%.

The table below presents principal amounts by fiscal year for the Company's
long-term debt.

<TABLE>
<CAPTION>
                        2001      2002      2003      2004      2005    Thereafter   Total
                      -------   -------   -------   -------   -------   ----------  ---------
                                       (in thousands)
<S>                   <C>       <C>       <C>       <C>       <C>       <C>         <C>
Liabilities:
Fixed rate debt.....  $    42   $ 1,272   $    --   $    --   $    --   $      --   $  1,314
Variable rate debt..       97       484       520       559       602       3,177      5,439
</TABLE>


                                    Page 26
<PAGE>


                           PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company is from time to time subject to routine litigation incidental to its
business. The Company believes that the results of this routine litigation will
not have a material adverse effect on the Company's financial condition.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

On December 26, 2000, the Company issued 3,000,000 shares of its common stock,
par value $.001 per share to Telcordia Technologies, Inc. in exchange for all of
Telcordia's rights in lithium-ion solid state polymer battery technology.
Telcordia is an accredited investor, as defined under the Securities Act of
1933, as amended (the "Act") and the shares of common stock issued to Telcordia
were issued in a private placement transaction under Rule 506 of Regulation D
promulgated under the Act.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

        a.     EXHIBITS:

               (i)    None

        b.     REPORTS ON FORM 8-K:

               (i)    Current Report on Form 8-K, Item 5, filed on
                      November 13, 2000

               (ii)   Current Report on Form 8-K, Item 5, filed on
                      December 4, 2000

               (iii)  Current Report on Form 8-K, Item 5, filed on
                      December 29, 2000


                                    Page 27
<PAGE>


                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.


                                            VALENCE TECHNOLOGY, INC.
                                            (Registrant)


Date:  February 14, 2001                    By:    /s/ Jay L. King
                                               --------------------------------
                                                  Jay L. King
                                                  Vice President and
                                                  Chief Financial Officer


                                    Page 28