<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 10-Q/A

                                 AMENDMENT NO. 1


(Mark One)

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

For the quarterly period ended September 27, 1998.

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                 25,665,800 shares
   ------------------------------------    ------------------------------------
                 (Class)                     (Outstanding at November 2, 1998)

<PAGE>

                    VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES
                      (companies in the development stage)

                                   FORM 10-Q/A

                    FOR THE QUARTER ENDED SEPTEMBER 27, 1998




                                      INDEX

<TABLE>
<CAPTION>
                                                                                           PAGES
                                                                                           -----
<S>           <C>                                                                          <C>
PART I.       FINANCIAL INFORMATION

   Item 1.    Financial Statements (Unaudited):

              Condensed Consolidated Balance Sheets as of
              September 27, 1998 and March 29, 1998..........................................3

              Condensed Consolidated Statements of Operations and Comprehensive
              Loss for the period from March 3, 1989 (date of inception) to
              September 27, 1998 and for each of the three and
              six month periods ended September 27, 1998 and September 28, 1997..............4

              Condensed Consolidated Statements of Cash Flows for the period
              from March 3, 1989 (date of inception) to September 27, 1998 and
              for each of the six month periods
              ended September 27, 1998 and September 28, 1997................................5

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

   Item 2.    Management's Discussion and Analysis of Financial
              Condition and Results of Operations...........................................10

   Item 3.    Quantitative and Qualitative Disclosures About Market Risk....................14


PART II.      OTHER INFORMATION

   Item 1.    Legal Proceedings.............................................................15

   Item 2.    Changes in Securities and Use of Proceeds.....................................15

   Item 6.    Exhibits and Reports on Form 8-K..............................................16
</TABLE>

Signature

                                        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>
                                                                                 September 27,           March 29,
                                                                                    1998                    1998
                                                                               ----------------       -----------------
<S>                                                                            <C>                    <C>
                                   ASSETS
Current assets:
     Cash and cash equivalents                                                 $      6,724           $      8,400
     Accounts receivable                                                              1,078                  1,429
     Prepaids and other current assets                                                   99                    880
                                                                               ----------------       -----------------
                  Total current assets                                                7,901                 10,709

Property, plant and equipment, net                                                   34,025                 31,712
Investment in joint venture                                                           -                        285
Other assets                                                                          -                        188
                                                                               ----------------       -----------------
                      Total assets                                             $     41,926           $     42,894
                                                                               ----------------       -----------------
                                                                               ----------------       -----------------
                                 LIABILITIES
Current liabilities:
     Current portion of long-term debt                                         $        401           $        399
     Accounts payable                                                                 2,004                  2,353
     Accrued liabilities                                                              6,150                  7,213
     Accrued royalties and license fees                                                 500                  1,000
     Advances                                                                           700                    700
     Accrued compensation                                                               548                    817
                                                                               ----------------       -----------------

                  Total current liabilities                                          10,303                 12,482

Deferred revenue                                                                      2,500                  2,500
Long-term debt, less current portion                                                  4,790                  4,950
Long-term debt to stockholder                                                         2,183                      -
                                                                               ----------------       -----------------
                      Total liabilities                                              19,776                 19,932
                                                                               ----------------       -----------------
Contingencies (Note 4).

                            STOCKHOLDERS' EQUITY
Convertible preferred stock, Series A, $0.001 par value:
     Issued and outstanding:  7,500 shares and 0 shares at                      
              September 27, 1998 and March 29, 1998, respectively                     5,900                     -

Common stock, $0.001 par value:
     Authorized:  50,000,000 shares;
     Issued and outstanding:  25,538,000 and 25,068,000 shares at
            September 27, 1998 and March 29, 1998, respectively                     156,245                153,583
     Notes receivable from stockholder                                               (4,862)                (4,862)
Deficit accumulated during the development stage                                   (137,329)              (128,012)
Accumulated other comprehensive income                                                2,196                  2,253
                                                                               ----------------       -----------------
                  Total stockholders' equity                                         22,150                 22,962
                                                                               ----------------       -----------------
                      Total liabilities and stockholders' equity               $     41,926           $     42,894
                                                                               ----------------       -----------------
                                                                               ----------------       -----------------
</TABLE>
              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                        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
                                      inception)                 Three Months Ended                    Six Months Ended
                                       Through        -----------------------------------  -----------------------------------
                                    September 27,      September 27,      September 28,     September 27,      September 28,
                                        1998               1998                1997             1998               1997
                                  ------------------  ----------------   ----------------- ----------------   ----------------
<S>                               <C>                 <C>                <C>               <C>                <C>
Revenue:
   Research and development
       Contracts                    $     21,605         $     -            $    -            $    -                $    -
                                    -------------

Costs and expenses:
   Research and product
    development                           93,219              4,708             4,427             8,738                8,462
   Marketing                               3,579                 18               129                47                  250
   General and administrative             41,686              1,319             1,462             2,257                2,798
   Write-off of in-process
       Technology                          8,212               -                 -                 -                    -
   Investment in Danish
     Subsidiary                            3,489               -                 -                 -                    -
   Special charges                        18,872               -                 -                 -                    -
                                    -------------       ------------        -----------      -----------          -----------

   Total costs and
       Expenses                          169,057              6,045             6,018            11,042               11,510
                                    -------------       ------------        -----------      -----------          -----------

       Operating loss                   (147,452)            (6,045)           (6,018)          (11,042)             (11,510)

Other income                               2,200              2,200              -                2,200                  -
Interest income                           15,036                 48               321               135                  774
Interest expense                          (4,538)              (130)             (148)             (248)                (299)
Equity in losses of
   joint venture                          (2,500)              -                 (150)             (287)                (300)
                                    -------------       ------------        -----------      -----------          -----------
Net Loss                            $   (137,254)            (3,927)           (5,995)           (9,242)             (11,335)
                                    -------------
                                    -------------
Dividends on preferred stock                                    (75)             -                  (75)                 -
                                                        ------------        -----------      -----------          -----------
Net loss available to common                                                                                                 
  stockholders                                           $   (4,002)        $  (5,995)        $  (9,317)            $(11,335)
                                                        ------------        -----------      -----------          -----------
                                                        ------------        -----------      -----------          -----------
Other comprehensive loss:
    Net loss                                             $   (3,927)        $  (5,995)        $  (9,242)            $(11,335)
   Change in foreign currency
      translation adjustments                                   731              (865)              (57)                (472)
                                                        ------------        -----------      -----------          -----------
         Comprehensive loss                              $   (3,196)        $  (6,860)        $  (9,299)            $(11,807)
                                                        ------------        -----------      -----------          -----------
                                                        ------------        -----------      -----------          -----------
Net loss per share, basic and
diluted                                                  $    (0.16)        $   (0.26)        $   (0.37)            $  (0.51)
                                                        ------------        -----------      -----------          -----------
                                                        ------------        -----------      -----------          -----------
Shares used in computing net
loss available to common
stockholders per share,
basic and diluted                                            25,524            22,721            25,436               22,263
                                                        ------------        -----------      -----------          -----------
                                                        ------------        -----------      -----------          -----------
</TABLE>
              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                        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              Six Months              Six Months
                                                              (date of inception)             Ended                    Ended
                                                                    through               September 27,            September 28,
                                                               September 27, 1998               1998                     1997
                                                              ---------------------     -------------------     --------------------
<S>                                                           <C>                       <C>                     <C>
Cash flows from operating activities:
   Net loss                                                     $     (137,254)            $     (9,242)           $    (11,335)
   Adjustments to reconcile net loss to net cash
     used in operating activities:
     Depreciation and amortization                                      22,481                      862                     756
     Write-off of equipment                                             14,792                    -                        -
     Write-off of in-process technology                                  6,211                    -                        -
     Compensation related to stock options                               3,196                    -                         554
     Noncash charge related to acquisition of Danish subsidiary          2,245                    -                        -
     Equity in losses of joint venture                                   2,500                      287                     300
     Amortization of debt discount                                          14                       14                    -
     Changes in assets and liabilities:
       Accounts receivable                                                  13                      353                    (738)
       Interest receivable                                                  58                       58                      18
       Notes receivable                                                  -                        -                          78
       Prepaid expenses and other current assets                          (977)                     909                       5
       Accounts payable                                                  1,901                     (351)                   (989)
       Accrued liabilities                                                (434)                  (1,881)                    (86)
       Deferred revenue                                                  2,500                    -                        -
                                                                ----------------          ---------------          ---------------
         Net cash used in operating activities                         (82,754)                  (8,991)                (11,437)
                                                                ----------------          ---------------          ---------------
Cash flows from investing activities:
   Purchase of long-term investments                                  (665,789)                   -                    (156,869)
   Maturities of long-term investments                                 661,545                    -                     165,001
   Capital expenditures                                                (60,316)                  (4,769)                 (6,836)
   Other                                                                  (222)                   -                        -
                                                                ----------------          ---------------          ---------------
         Net cash used in investing activities                         (64,782)                  (4,769)                  1,296
                                                                ----------------          ---------------          ---------------
Cash flows from financing activities:
   Property and equipment grants                                         6,419                    2,000                    -
   Borrowings of long-term debt                                         17,671                    2,169                    -
   Payments of long-term debt:
     Product development loan                                             (482)                   -                        -
     Stockholder and director                                           (6,173)                   -                        -
     Other long-term debt                                              (11,995)                    (158)                   (958)
    Proceeds from issuance of warrants and common
        stock, net of issuance costs                                   145,597                    2,447                   4,891
   Proceeds from issuance of preferred stock, Series A,                                                                           
       net of issuance costs                                             6,040                    6,040                    -
                                                                ----------------          ---------------          ---------------
                Net cash provided by financing activities              157,077                   12,498                   3,933
                                                                ----------------          ---------------          ---------------
Effect of foreign exchange rates on cash and cash
   equivalents                                                          (2,817)                    (414)                    472
                                                                ----------------          ---------------          ---------------
                                                                ----------------          ---------------          ---------------
Increase (decrease) in cash and cash equivalents                         6,724                   (1,676)                 (5,736)
Cash and cash equivalents, beginning of period                           -                        8,400                  27,832
                                                                ----------------          ---------------          ---------------
Cash and cash equivalents, end of period                        $        6,724             $      6,724            $     22,096
                                                                ----------------          ---------------          ---------------
                                                                ----------------          ---------------          ---------------
</TABLE>
              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                        5
<PAGE>

                    VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES
                      (COMPANIES IN THE DEVELOPMENT STAGE)

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                    (in thousands, except per share amounts)
                                   (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 September 27, 1998, its 
consolidated results of operations and cash flows for the period from March 
3, 1989 (date of inception) to September 27, 1998 and for each of the 
three-month and six-month periods ended September 27, 1998 and September 28, 
1997. 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 29, 1998. The year end condensed consolidated 
balance sheet data as of March 29, 1998 was derived from audited financial 
statements, but does not include all disclosures required by generally 
accepted accounting principles.

The Company's current research prototype batteries do not meet all of the 
specifications demanded by the marketplace, and the Company presently has no 
products available for sale. To achieve profitable operations, the Company 
must successfully develop, manufacture and market its products. There can be 
no assurance that any products can be developed or manufactured at an 
acceptable cost and with appropriate performance characteristics, or that 
such products will be successfully marketed.

The results of operations and cash flows for the three-month and six-month 
periods ended September 27, 1998 are not necessarily indicative of results of 
operations and cash flows for any future period.

2.       BASIS OF PRESENTATION

The accompanying interim condensed consolidated financial statements have 
been prepared assuming the Company will continue as a going concern. The 
Company has negative working capital and has sustained recurring losses 
related primarily to the development and marketing of its products. 
Management is actively pursuing additional equity and debt financing. In July 
1998, the Company completed private financing arrangements raising $7.5 
million in the sale of equity, with a commitment from the investor to 
purchase up to another $7.5 million in equity subject to completion of 
certain milestones, and arranging a $10 million loan agreement (Notes 5 and 
6). There can be no assurance that the Company could successfully consummate 
any new debt or equity issuances. These factors raise substantial doubt about 
the Company's ability to continue as a going concern. The financial 
statements do not include any adjustments that might result from the outcome 
of this uncertainty. The effects of any such adjustments, if necessary, could 
be material.

3.       NET LOSS PER SHARE

Basic Earnings Per Share (EPS) is computed as net loss available to common 
stockholders divided by the weighted average number of common shares 
outstanding for the period. Diluted EPS reflects the potential dilution that 
could occur from common shares issuable through stock options and warrants. 
Common equivalent shares are excluded from the computation of net loss per 
share as their effect is anti-dilutive.

                                        6
<PAGE>

                    VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES
                      (COMPANIES IN THE DEVELOPMENT STAGE)

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                    (in thousands, except per share amounts)
                                   (unaudited)
                                      -----

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

<TABLE>
<CAPTION>
                                          Three Months Ended                                Six Months Ended
                               September 27, 1998     September 28, 1997         September 27, 1998     September 28, 1997
                               ------------------     -------------------       -------------------     ------------------
<S>                            <C>                    <C>                       <C>                     <C>
Loss per share:

Net loss available
  to common stockholders            $(4,002)                 $(5,995)                 $(9,317)               $(11,335)

Weighted average
  shares outstanding                 25,524                   22,721                   25,436                  22,263

Earnings per share,
   basic and diluted                 $(0.16)                  $(0.26)                  $(0.37)                 $(0.51)
</TABLE>

Shares excluded from the calculation of diluted EPS as their effect was 
anti-dilutive were 3,724 and 3,815 for the three and six months ended 
September 27, 1998 and September 28, 1997, respectively.

4.       CONTINGENCIES

LITIGATION:

In May 1994, a series of class action lawsuits was filed in the United States 
District Court for the Northern District of California against the Company 
and certain of its present and former officers and directors. These lawsuits 
were consolidated, and in September 1994 the plaintiffs filed a consolidated 
and amended class action complaint. Following the Court's orders on motions 
to dismiss the complaint, which were granted in part and denied in part, the 
plaintiffs filed an amended complaint in October 1995 ("Complaint"). The 
Complaint alleges violations of the federal securities laws against the 
Company, certain of its present and former officers and directors, and the 
underwriters of the Company's public stock offerings, claiming that the 
defendants issued a series of false and misleading statements, including 
filings with the Securities and Exchange Commission, with regard to the 
Company's business and future prospects. The plaintiffs seek to represent a 
class of persons who purchased the Company's common stock between May 7, 1992 
and August 10, 1994. The Complaint seeks unspecified compensatory and 
punitive damages, attorney's fees and costs.

On January 23, 1996, the Court dismissed, with prejudice, all claims against 
the underwriters of the Company's public stock offerings, and one claim 
against the Company and its present and former officers and directors. In 
April 1996, the Court dismissed with prejudice all remaining claims against a 
present director and limited claims against a former officer and director to 
the period when that person was an officer. In December 1996, the Company and 
the individual defendants filed motions for summary judgment, which the 
plaintiffs opposed. In November 1997, the Court granted the Company's motion 
for summary judgment and entered a judgment in favor of all defendants. 
Plaintiffs have appealed and the case is pending before the United States 
Court of Appeals for the Ninth Circuit.

In September 1998, Klockner Bartelt/Medipak, Inc. d/b/a/ Klockner Medipak 
filed suit against the Company in the United States District Court for the 
Middle District of Florida (File No. 98-1844-Civ-7-24E) alleging breach of 
contract by the Company with respect to an agreement for the supply of 
battery manufacturing equipment, and claimed damages of approximately 
$2,500,000. On January 20, 1999, the Company filed a counterclaim against 
Klockner alleging breach of contract, breach of express warranty, breach of 
the implied warranty of merchantability, breach of the implied warranty of 
fitness for a particular purpose, and rescission and restitution and claimed 
compensatory damages to be determined at trial.

                                        7
<PAGE>

In June 1998, the Company filed a lawsuit in the Superior Court of 
California, Santa Clara County, against L&I Research, Inc., Powell Electrical 
Manufacturing Company and others seeking relief based on rescission and 
damages for breach of a contract. In September 1998, Powell filed a 
cross-complaint against the Company and others (File No. CV7745534) claiming 
damages of approximately $900,000. The cross-complaint alleges breach of 
written contract, oral modification of written contract, promissory estoppel, 
fraud, quantum meruit, and quantum valebant. In October 1998, the Company 
filed a demurrer to the third cause of action for oral modification and fifth 
cause of action for fraud in the cross-complaint and Powell demurred to the 
complaint. On December 10, 1998, the Company filed a first amended complaint. 
On December 18, 1998, the Court sustained the Company's demurrer to the fifth 
cause of action for fraud and overruled the demurrer to the third cause of 
action for oral modification. The Court also denied Powell's demurrer as 
moot. The matter is presently stayed pending settlement discussions.

The ultimate outcome of these actions cannot presently be determined. 
Accordingly, no provision for any liability or loss that may result from 
adjudication or settlement thereof has been made in the accompanying 
consolidated financial statements.

In addition to the litigation noted above, 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.

5.       PREFERRED STOCK

In July 1998, the Company completed private financing arrangements of up to 
$25 million. The Company issued 7,500 shares of Series A convertible 
preferred stock and warrants at $1,000 per share, raising gross proceeds of 
$7.5 million net of transaction costs of $425,000. The Series A convertible 
preferred stock accretes at an annual rate of 6% per year, and is convertible 
into common stock based upon defined conversion formulas. The Company has a 
commitment from an investor to purchase an additional 7,500 shares of 
convertible preferred stock upon completion of certain milestones.

In connection with the equity financing, the Company issued warrants to 
purchase 447,761 shares of common stock to the Series A investor. The 
warrants are exercisable at a purchase price of $6.78 per share and expire in 
July 2003. In addition, the Company issued warrants to purchase 87,500 shares 
of common stock to the placement agent. The warrants are exercisable at a 
price of $4.94 per share and also expire in July 2003. The warrants have been 
valued at a total of $1.35 million using the Black Scholes valuation method 
and recorded as a component of common stock.

Under the terms of the certificate of designations of the preferred stock and 
the warrants, the preferred stock investor may not convert the preferred 
stock or exercise the warrants if after doing so the investor will own more 
than 4.9% of the Company's common stock.

6.       LINE OF CREDIT

The Company also obtained a $10 million line of credit from a principal 
stockholder. Under the terms of the line of credit, the Company borrowed $2.5 
million and could borrow up to an additional $7.5 million, or less if the 
Company secures a new line of credit, through July 1999. The line of credit 
bears interest at one percent over the lender's principal line of credit and 
is payable August 30, 2002.

In conjunction with the debt financing, the Company issued warrants to 
purchase 149,254 shares of common stock. The warrants issued had a fair value 
of approximately $2.22 per warrant at the time of issuance. The fair value of 
these warrants, totaling $331,000, has been reflected as additional 
consideration for the debt financing, recorded as a discount on the debt and 
accreted as interest expense to be amortized over the life of the line of 
credit.

                                        8
<PAGE>

7.       EQUIPMENT GRANT

During September 1998 the Company's subsidiary in Northern Ireland received a 
$2,000,000 equipment grant under its 1994 agreement with the Northern Ireland 
Industrial Development Board. The grant, which is for the purchase of capital 
equipment, is recorded as a contra account to property, plant and equipment 
and will be amortized to income over the life of the related asset. Certain 
amounts received under the grant are repayable only in the event the 
subsidiary defaults under the terms of the agreement. No repayments have been 
requested since the inception of the agreement.

8.       COMPREHENSIVE INCOME

The Company adopted the provisions of Statement of Financial Accounting 
Standards No. 130 (SFAS No. 130), Reporting Comprehensive Income. SFAS No. 
130 establishes standards for the reporting and display of comprehensive 
income and its components in a full set of general purpose financial 
statements. Comprehensive income is defined as the change in equity of a 
business enterprise during a period from transactions and other events and 
circumstances from nonowner resources.

9.       RECENT ACCOUNTING PRONOUNCEMENTS

STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO.131, "DISCLOSURES ABOUT 
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION"

In June 1997, the Financial Accounting Standards Board issued Statement of 
Financial Accounting Standards No. 131, "Disclosures about Segments of an 
Enterprise and Related Information" (SFAS 131). SFAS 131 establishes 
standards for the way that public business enterprises report information 
about operating segments in annual financial statements and requires that 
those enterprises report selected information about operating segments in 
interim financial reports issued to stockholders. SFAS 131 generally 
supersedes Statement of Financial Accounting Standards No. 14, "Financial 
Reporting for Segments of a Business Enterprise." Under SFAS 131, operating 
segments are components of an enterprise about which separate financial 
information is available that is evaluated regularly by the chief operating 
decision maker in deciding how to allocate resources and in assessing 
performance. Generally, financial information is required to be reported on 
the basis that is used internally. SFAS 131 is effective for financial 
statements for periods beginning after December 15, 1997, and restatement of 
comparative information for earlier years is required. However, SFAS 131 is 
not required to be applied to interim financial statements in the initial 
year of application. The Company has not determined the impact, if any, on 
the reporting of segment information.

                                        9
<PAGE>

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

The discussion and analysis below, and throughout this report, contains 
forward-looking statements within the meaning of Section 27A of the 
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 
1934. Those statements include words such as "anticipate," "estimate," 
"project," "intend," "expect" and similar expressions which have been used to 
identify these statements as forward-looking statements, or may otherwise be 
specifically identified as forward looking statements. Such forward looking 
statements involve a number of risks and uncertainties including, but not 
limited to, availability of working capital, market acceptance, changing 
economic conditions, risks in product and technology development, effect of 
the Company's accounting policies and other risk factors detailed in the 
Company's Securities and Exchange Commission filings. Actual results could 
differ materially from those projected or suggested in the forward-looking 
statements as a result of the risk factors set forth herein, and in the 
Company's Annual Report on Form 10-K as of and for the year ended March 29, 
1998 and under the caption "Risk Factors" in the Company's most recent 
registration statement filed under the Securities Act of 1933, as amended.

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 
29, 1998. The results for the three and six month period ending September 27, 
1998 are not necessarily indicative of the results to be expected for the 
entire fiscal year ending March 28, 1999.

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. To date, other than insubstantial revenues from limited sales of 
prototype batteries, the Company has not received any significant revenues 
from the sale of products. Substantially all revenues to date have been 
derived from a research and development contract with the Delphi Automotive 
Systems Group ("Delphi," formerly the Delco Remy Division), an operating 
group of the General Motors Corporation. The Company has incurred cumulative 
losses of $137,254,000 from its inception to September 27, 1998.

RESULTS OF OPERATIONS

THREE AND SIX MONTH PERIODS ENDED SEPTEMBER 27, 1998 (SECOND QUARTER AND 
FIRST HALF OF FISCAL 1999) AND SEPTEMBER 28, 1997 (SECOND QUARTER AND FIRST 
HALF OF FISCAL 1998)

During the six month period ended September 27, 1998 and the three and six 
month periods ended September 28, 1997, the Company continued development 
activities under a research and development agreement with Delphi. Payments 
were generally made in accordance with the achievement of certain milestones. 
No revenues were recognized during the first three and six month periods of 
fiscal 1999 and fiscal 1998.

In September, 1994 the Company and Delphi signed a new five year agreement to 
combine efforts in developing the Company's rechargeable solid state lithium 
polymer battery technology. Under the agreement, Delphi and the Company 
combined their research and development activities in a new facility in 
Henderson, Nevada. The new facility is owned by the Company, with Delphi 
paying a fee of $50,000 per month over the five year term of the new 
agreement for access to the Company's research and development. In addition, 
Delphi paid a majority of the facility's operating costs over the term of the 
new five year agreement and did so through August 1998. The Company is 
treating both of these payments as an offset to research and development 
expense.

In May 1998, the Company and Delphi announced the completion of their 
collaboration on lithium polymer battery development. Delphi will retain a 
license to use Company-developed lithium polymer technology for vehicular and 
stationary load leveling / peak shaving applications. The Company will retain 
a license to use Delphi-developed lithium polymer technology in all other 
applications. After August 1998, the Company anticipates that it will receive 
no further payments as a result of the Joint Research and Development 
agreement with Delphi. As part of the early termination of the collaboration 
agreement, Delphi paid the Company $2.2 million. The Company has no future 
obligations under the termination agreement and has recorded the payment as a 
component of other income.

                                        10
<PAGE>

Research and development expenses were $4,708,000 and $8,738,000 during the 
three and six month periods ended September 27, 1998 as compared to 
$4,427,000 and $8,462,000 during the same period of fiscal 1998. The 
comparable periods performance has remained relatively stable in absolute 
dollars as the Company continued to develop its products in fiscal year 1999.

Marketing expenses were $18,000 and $47,000 for the second quarter and first 
half of fiscal year 1999, respectively, as compared to $129,000 and $250,000 
during similar periods of fiscal year 1998. The comparative decrease in 
marketing expense is primarily due to reduction in the work force.

General and administrative expenses decreased to $1,319,000 and $2,257,000 
during the second quarter and first half of fiscal year 1999, down from 
$1,462,000 and $2,798,000 during the fiscal year 1998 comparable periods. The 
decrease results from reduced legal fees associated with the stockholder 
class action lawsuit and lower headcount.

Other income for the three and six months ended September, 27, 1998 was 
comprised solely of the $2.2 million payment from Delphi.

Interest income decreased to $48,000 and $135,000 during the second quarter 
and first half of fiscal year 1999, as compared to $321,000 and $774,000 
during the prior fiscal year's same periods. The decrease is due to the 
decline in funds available for investment purposes.

Interest expense was $130,000 and $248,000 during the three and six month 
periods ended September 27, 1998 as compared to $148,000 and $299,000 during 
the same period of fiscal 1998. This decrease in interest expense results 
from reduced principal balances of long-term debt.

Joint venture expenses were $0 and $287,000 for the second quarter and first 
half of fiscal year 1999, respectively, as compared to $150,000 and $300,000 
during similar periods of fiscal year 1998. Joint venture expenses represent 
50% of the start up costs associated with the Hanil Valence operations. The 
Company's investment in the joint venture is $0, so the Company is no longer 
recording their pro rata share of the losses.

LIQUIDITY AND CAPITAL RESOURCES

The Company used $8,991,000 net cash for operating activities during fiscal 
year 1999's first six months compared to using $11,437,000 during the first 
six months of fiscal year 1998, a decrease between comparable periods of 
$2,446,000. This decrease resulted primarily from a decrease in net loss, the 
collection of accounts receivable and the proceeds of an insurance advance 
which were offset by the reduction of accrued liabilities.

During the six months ended September 27, 1998, the Company used $4,769,000 
net cash from investing activities compared to providing $1,296,000 during 
the first six months of fiscal year 1998, an increased usage of $6,065,000 
between comparable periods. The usage in fiscal 1999 was comprised solely of 
capital expenditures. There were no purchases or maturities of long term 
investments during the first half of fiscal 1999.

The Company provided $12,498,000 net cash from financing activities during 
fiscal year 1999's first six months compared to $3,933,000 during the first 
six months of fiscal year 1998. This increase resulted from the proceeds of 
the issuance of preferred stock and the initial borrowing on a line of credit 
from a principal stockholder.

As a result of the above, the Company had a net decrease in cash and cash 
equivalents of $1,676,000 during the six months ended September 27, 1998, 
whereas it had a net decrease of $5,736,000 during the same period of fiscal 
year 1998.

During fiscal year 1994, the Company, through its Dutch subsidiary, signed an 
agreement with the Northern Ireland Industrial Development Board (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 L27,555,000, generally 
become available over a five year period through October 31, 2001. As of 
September 27, 1998, the Company had received grants aggregating 
L4,035,000 reducing remaining grants available to L23,520,000 
($40,038,000 as of September 27, 1998).

                                       11
<PAGE>

As a condition to receiving funding from the IDB, the subsidiary must 
maintain a minimum of L12,000,000 in debt or equity financing from the 
Company. Aggregate funding under the grants is limited to L4,035,000 
until the Company has recognized $4,000,000 in aggregate revenue from the 
sale of its batteries produced in Northern Ireland. Given that the Company 
has no agreements to supply batteries using its current technology, there are 
no assurances that the Company will be able to meet the agreement's revenue 
test.

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, which 
includes the permanent cessation of business 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 be able to meet the 
requirements necessary for it to receive and retain grants under the IDB 
agreement and offers.

The major components of construction in progress with their estimated costs 
and start dates are as follows: mixing, coating, etching, laminating and 
slitting equipment, $8,732,000, March 1997; assembly equipment, $15,954,000, 
March 1994; extraction, packaging, and conditioning equipment, $6,667,000, 
August 1993; and factory improvements and miscellaneous equipment, 
$2,447,000, June 1997. The estimated completion date for these major 
categories of CIP is the end of the first quarter of fiscal 2000. 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 unforseen difficulties in completion 
of the projects, reliance on manufacturers to deliver equipment in a timely 
manner and that performs as intended, and other risks and uncertainties.

The Company expects that its existing funds as of September 27, 1998, 
together with the interest earned thereon, will be sufficient to fund the 
Company's operations through March, 1999.

In July 1998, the Company completed private financing arrangements of up to 
$25,000,000, under which it sold $7,500,000 of convertible preferred stock 
and had a commitment from the investor to purchase an additional $7,500,000 
of convertible preferred stock subject to the completion of certain 
milestones. Under the terms of the agreements, the Company sold 7,500 shares 
of a newly designated Series A Convertible Preferred Stock for aggregate 
gross proceeds of $7,500,000. Simultaneously, the Company arranged a 
guaranteed line of credit from an affiliate of Carl E. Berg, a director and 
principal stockholder of the Company, in an amount up to $10,000,000, under 
which it has already drawn down $2,500,000.

The Company anticipates that it may need substantial additional funds in the 
future for capital expenditures, research and product development, marketing 
and general and administrative expenses and to pursue joint venture 
opportunities. The Company's cash requirements, however, may vary materially 
from those now planned because of changes in the Company's operations, 
including changes in OEM relationships or market conditions. There can be no 
assurance that funds for these purposes, whether from equity or debt 
financing agreements with strategic partners or other sources, will be 
available on favorable terms, if at all. These factors raise substantial 
doubts about the Company's ability to continue as a going concern. The 
accompanying financial statements do not include any adjustments that might 
result from the outcome of this uncertainty. The effects of such adjustments, 
if necessary, could be material.

                                       12
<PAGE>

RECENT ACCOUNTING PRONOUNCEMENTS

STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO.131, "DISCLOSURES ABOUT SEGMENTS
OF AN ENTERPRISE AND RELATED INFORMATION"

In June 1997, the Financial Accounting Standards Board issued Statement of 
Financial Accounting Standards No. 131, "Disclosures about Segments of an 
Enterprise and Related Information" (SFAS 131). SFAS 131 establishes 
standards for the way that public business enterprises report information 
about operating segments in annual financial statements and requires that 
those enterprises report selected information about operating segments in 
interim financial reports issued to stockholders. SFAS 131 generally 
supersedes Statement of Financial Accounting Standards No. 14, "Financial 
Reporting for Segments of a Business Enterprise." Under SFAS 131, operating 
segments are components of an enterprise about which separate financial 
information is available that is evaluated regularly by the chief operating 
decision maker in deciding how to allocate resources and in assessing 
performance. Generally, financial information is required to be reported on 
the basis that is used internally. SFAS 131 is effective for financial 
statements for periods beginning after December 15, 1997, and restatement of 
comparative information for earlier years is required. However, SFAS 131 is 
not required to be applied to interim financial statements in the initial 
year of application. The Company has not determined the impact, if any, on 
the reporting of segment information.

YEAR 2000 READINESS

         Many existing software programs, computers and other types of 
equipment were not designed to accommodate the Year 2000 and beyond. If not 
corrected, these computer applications and equipment could fail or create 
erroneous results. For Valence, this could disrupt purchasing, manufacturing, 
sales, finance and other support, thereby causing potential lost sales and 
additional expenses.

         OUR STATE OF READINESS

         Our Year 2000 project encompasses both information and 
non-information systems within Valence as well as the investigation of the 
readiness of our strategic suppliers/vendors. We have created a Year 2000 
Project Team that is responsible for planning and monitoring all Year 2000 
activities and reporting to our executive management. It has been reviewing 
Valence's Year 2000 status for approximately six months now, and has 
identified and evaluated crucial area's of concern regarding Year 2000 
compliance. We define Year 2000 compliance to be, with respect to information 
technology, that the information technology accurately processes date/time 
data (including, but not limited to, calculating, comparing, and sequencing) 
from, into, and between the twentieth and twenty-first centuries, and the 
years 1999 and 2000 and leap year calculations, to the extent that other 
information technology, used in combination with the information technology 
being acquired, properly exchanges date/time data with it. Fixes have begun 
on a majority of these areas. Other areas are still being tested. Our goal is 
to have all Year 2000 issues resolved by December 31, 1999. To that end, we 
have inventoried and assessed the Year 2000 readiness of the following:

         VENDORS/SERVICE PROVIDERS. We are distributing letters and 
questionnaires to vendors and service providers that are critical to the day 
to day operations of Valence. We have received a letter of compliance from 
our fire alarm company that our current fire alarm system is in compliance.

         PERSONAL COMPUTERS. All personal computer BIOSs' (basic input/output 
systems) are being tested for Year 2000 compliance. Currently 100% of all 
Novell servers are Year 2000 compliant with exception to one, for which we 
are ordering a replacement. Currently 95% of all user workstations are known 
to have a Year 2000 BIOS. Currently 20% of the personal computers that 
operate equipment have been tested. Only 2% of these have a Year 2000 
compliant BIOS. We expect to patch the computers that are not Year 2000 
compliant with a TSR, a software program that loads at computer startup, that 
will report the correct date and time to the operating system. This method 
has been tested and provides acceptable results.

         LABORATORIES. The Maccor Lab is in the process of being upgraded. 
Machines are being upgraded and patched for Year 2000. The lab is 25% 
complete for BIOS and operating system testing and fixes. Additional testing 
needs to be performed on this lab. The electrical chemistry lab is also in 
the process of being upgraded. Several computers a week are being upgraded to 
meet Year 2000 compliance. One third of this lab had been upgraded and 
patched to meet Year 2000 compliance. The data acquisition software run by 
these machines has been tested and we have concluded that there is a minor 
Year 2000 bug. This may be fixed by slight program change or upgrading to a 
newer version of the software. This does not affect the ending results of the 
data.

         IN-HOUSE SYSTEMS. One database has been tested and is known not to 
be compliant. A programmer has been hired to rewrite the database in another 
platform making it Year 2000. All other databases at the Henderson, Nevada 
system are Year 2000 compliant, and the Year 2000 Project Team is reviewing 
the databases at the Northern Ireland facility. The accounting software is 
not complaint and an upgrade is being ordered. The badge security system is 
not compliant and will need to be replaced or fixed. At present, the system 
has been backdated to 1993 and there are no apparent problems with this fix. 
There is no critical data or integration that will be affected by this 
change. A task force is being assembled and will look into issues that may 
have been overlooked and to help continue the efforts to make our facilities 
compliant. Valence's phone system is in the process of being upgraded to make 
it Year 2000 compliant. The e-mail system is not Year 2000 compliant and 
replacements are being evaluated.

                                       13
<PAGE>

         COSTS TO ADDRESS THE YEAR 2000

         Spending for modifications and updates is being expensed as incurred 
and is not expected to have a material impact on our results of operations or 
cash flows. The cost of our Year 2000 project is being funded through 
available funds. We estimate that our total Year 2000 expenditures will not 
be material. Through the end of 1998 Valence had incurred $40,000 in 
connection with its Year 2000 compliance program.

         RISK ANALYSIS

         Like most business enterprises, we are dependent upon our own 
internal computer technology and rely upon the timely performance of our 
suppliers/vendors. A large-scale Year 2000 failure could impair our ability 
to timely complete our research and development, or deliver batteries with 
the exacting specifications that will be required by our customers, thereby 
causing potential lost sales and additional expenses, which would have a 
material adverse effect on Valence, its financial condition and its results 
of operations. Our Year 2000 project seeks to identify and minimize this risk 
and includes testing of our in-house applications, purchased software and 
embedded systems to ensure that all such systems will function before and 
after the Year 2000. We are continually refining our understanding of the 
risk the Year 2000 poses to our suppliers/vendors based upon information 
obtained through our surveys. This refinement will continue through the rest 
of 1999.

         CONTINGENCY PLANS

         Our Year 2000 project anticipates the development of contingency 
plans for business critical systems and manufacturing equipment as well as 
for suppliers/vendors to attempt to minimize disruption to our operations in 
the event of a Year 2000 failure. We have not yet developed these plans, but 
will be formulating plans to address a variety of failure scenarios, 
including failures of our in-house applications, as well as failures of 
suppliers/vendors. Valence does not have an estimated completion date for its 
contingency plans.

         CAUTIONARY STATEMENT

         Year 2000 issues are widespread and complex. While we believe we 
will address them on a timely basis, we cannot assure you that we will be 
successful or that these problems will not materially adversely affect our 
business or results of operations. To a large extent, we depend on the 
efforts of our suppliers and other organizations with which we conduct 
transactions to address their Year 2000 issues, over which we have no control. 
The statements regarding the expected outcome and timing of Year 2000 efforts 
are forward-looking statements. Actual results could differ materially from 
our expectations due to unforeseen problems arising in connection with 
completion of our Year 2000 program, the risk that we will fail to identify a 
Year 2000 problem critical to the operations of Valence, or that our 
vendors/suppliers will suffer problems that will inhibit them from delivering 
their products to us on a timely basis.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable

                                       14
<PAGE>

                           PART II - OTHER INFORMATION


ITEM 1.  LEGAL PROCEEDINGS

In May 1994, a series of class action lawsuits was filed in the United States 
District Court for the Northern District of California against the Company 
and certain of its present and former officers and directors. These lawsuits 
were consolidated, and in September 1994 the plaintiffs filed a consolidated 
and amended class action complaint. Following the Court's orders on motions 
to dismiss the complaint, which were granted in part and denied in part, the 
plaintiffs filed an amended complaint in October 1995 ("Complaint"). The 
Complaint alleges violations of the federal securities laws against the 
Company, certain of its present and former officers and directors, and the 
underwriters of the Company's public stock offerings, claiming that the 
defendants issued a series of false and misleading statements, including 
filings with the Securities and Exchange Commission, with regard to the 
Company's business and future prospects. The plaintiffs seek to represent a 
class of persons who purchased the Company's common stock between May 7, 1992 
and August 10, 1994. The Complaint seeks unspecified compensatory and 
punitive damages, attorney's fees and costs.

On January 23, 1996, the Court dismissed, with prejudice, all claims against 
the underwriters of the Company's public stock offerings, and one claim 
against the Company and its present and former officers and directors. In 
April 1996, the Court dismissed with prejudice all remaining claims against a 
present director and limited claims against a former officer and director to 
the period when that person was an officer. In December 1996, the Company and 
the remaining individual defendants filed motions for summary judgment, which 
the plaintiffs opposed. In November 1997, the Court granted the Company's 
motion for summary judgment and entered a judgment in favor of all 
defendants. Plaintiffs have appealed and the case is pending before the 
United States Court of Appeals for the Ninth Circuit. If the appeal is 
resolved unfavorably to the Company, the Company will be forced to incur 
additional litigation expense, and if the outcome of the case is resolved 
unfavorably to the Company it could have a material adverse effect on the 
Company's financial condition.

In September 1998, Klockner Bartelt/Medipak, Inc. d/b/a/ Klockner Medipak 
filed suit against the Company in the United States District Court for the 
Middle District of Florida (File No. 98-1844-Civ-7-24E) alleging breach of 
contract by the Company with respect to an agreement for the supply of 
battery manufacturing equipment, and claimed damages of approximately 
$2,500,000. On January 20, 1999, the Company filed a counterclaim against 
Klockner alleging breach of contract, breach of express warranty, breach of 
the implied warranty of merchantability, breach of the implied warranty of 
fitness for a particular purpose, and rescission and restitution and claimed 
compensatory damages to be determined at trial. Although the Company believes 
it has meritorious defenses to the complaint, if it is resolved unfavorably 
to the Company it could have a material adverse effect on the Company's 
financial condition.

In June 1998, the Company filed a lawsuit in the Superior Court of 
California, Santa Clara County, against L&I Research, Inc., Powell Electrical 
Manufacturing Company and others seeking relief based on rescission and 
damages for breach of a contract. In September 1998, Powell filed a 
cross-complaint against the Company and others (File No. CV7745534) claiming 
damages of approximately $900,000. The cross-complaint alleges breach of 
written contract, oral modification of written contract, promissory estoppel, 
fraud, quantum meruit, and quantum valebant. In October 1998, the Company 
filed a demurrer to the third cause of action for oral modification and fifth 
cause of action for fraud in the cross-complaint and Powell demurred to the 
complaint. On December 10, 1998, the Company filed a first amended complaint. 
On December 18, 1998, the Court sustained the Company's demurrer to the fifth 
cause of action for fraud and overruled the demurrer to the third cause of 
action for oral modification. The Court also denied Powell's demurrer as 
moot. The matter is presently stayed pending settlement discussions. Although 
the Company believes it has meritorious defenses to the cross complaint, if 
it is resolved unfavorably to the Company it could have a material adverse 
effect on the Company's financial condition.

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

On July 27, 1998, the Company completed the private sale of 7,500 shares of 
Series A Convertible Preferred Stock ("Series A Preferred") to a single 
private institutional investor, for an aggregate purchase price of $7.5 
million. The sale was exempt from registration under the Securities Act of 
1933, as amended, pursuant to Rule 506 under such Act.

The shares of Series A Preferred are convertible into shares of Common Stock 
(the "Conversion Shares") at the option of the holder. The initial conversion 
price (the "Fixed Conversion Price") with respect to any conversion which 
occurs prior to July 27, 1999 (or, if the Company has not signed and 
announced a material contract or contracts for the sale of batteries on or 
before January 27, 1999, with respect to any conversion after January 27, 
1999) is $6.03. For conversions following July 27, 1999 (or January 27, 1999, 
if a material contract has not been signed prior to that date), the 
conversion price would be the lower of the Fixed Conversion Price or the 
Variable Conversion Price. The "Variable Conversion Price " means 101% of the 
average of the two lowest closing bid prices of the Common Stock for the 
number of trading days set forth in the schedules below:

                                       15
<PAGE>

If the Company has signed and announced a material contract for the sale of
batteries on or before January 27, 1999:

<TABLE>
<CAPTION>
         Conversion Date:                           Number of Days in Period:
         ----------------                           -------------------------
         <S>                                        <C>
         Before August 27, 1999                              10
         August 27, 1999-September 27, 1999                  11
         September 27, 1999-October 27, 1999                 12
         October 27, 1999-November 27, 1999                  13
         November 27, 1999-December 27, 1999                 14
         After December 27, 1999                             15
</TABLE>

If the Company has not signed and announced a material contract for the sale 
of batteries on or before January 27, 1999:

<TABLE>
<CAPTION>
         Conversion Date:                           Number of Days in Period:
         ----------------                           -------------------------
         <S>                                        <C>
         Before February 27, 1999                            10
         February 27, 1999-March 27, 1999                    11
         March 27, 1999-April 27, 1999                       12
         April 27, 1999-May 27, 1999                         13
         May 27, 1999-June 27, 1999                          14
         After June 27, 1999                                 15
</TABLE>

The number of shares of Common Stock, in the aggregate, which may be issued 
pursuant to the conversion of Series A Preferred is 5,071,913. The Company 
agreed to seek stockholder authorization at its next annual meeting to issue 
shares above this limit, to the extent such additional shares are necessary 
due to the Variable Conversion Price.

The purchaser has agreed to purchase up to $7.5 million of additional shares 
of Series A Preferred, on the same terms and conditions, subject to the 
achievement of certain milestones by the Company.

The terms of the Series A Preferred were amended in December 1999 to cause 
the Series A Preferred to convert at the Fixed Conversion Price regardless of 
the timing of the conversion, the achievement of the milestones, or the 
trading price of the Company's Common Stock.

The purchaser also received warrants to purchase up to 447,761 shares of Common
Stock at an exercise price of $6.7838 per share.

In connection with the sale price of Series A Preferred, the Company paid 
Gemini Capital LLC, the placement agent, a fee of $375,000. The placement 
agent also received warrants to purchase up to 87,500 shares of Common Stock 
at an exercise price of $4.9375 per share. Both the purchaser and the 
placement agent are entitled to receive additional warrants if additional 
shares of Series A Preferred are sold.

Concurrently with the sale of Series A Preferred, Baccarat Electronics. Inc. 
("Baccarat"), an affiliate of Carl Berg, a director of the Company, loaned 
the Company $2.5 million. Baccarat has agreed to loan the Company up to an 
additional $7.5 million on specified terms. In connection with the loan, 
Baccarat received warrants to purchase up to 149,254 shares of Common Stock 
at an exercise price of $6.7838 per share, and will be entitled to additional 
warrants if further amounts are loaned to the Company.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         a.       Exhibits
                  --------
<TABLE>
                  <S>       <C>
                  4.1*      Securities Purchase Agreement, dated July 27, 1998
                  4.2*      Registration Rights Agreement, dated July 27,1998
                  4.3*      Certificate of Designation of Series A Convertible
                            Preferred Stock, as filed with the Delaware
                            Secretary of State on July 27, 1998
                  4.4*      Form of Warrant to CC Investments, LDC
                  4.5*      Form of Warrant to Gemini Capital, LLC
                  4.6*      Form of Warrant to Baccarat Electronics, Inc.
                  27        Financial Data Schedule

                  *         Incorporated by reference to the like-numbered
                            exhibit in the Company's Current Report on Form 8-K,
                            filed August 4, 1998 (Commission No. 0-20028).
</TABLE>

         b.       Reports on Form 8-K
                  -------------------
                  The Company filed a current report on Form 8-K on August 3,
                  1998 announcing the initial closing of the financing.


                                        16

<PAGE>

                                    SIGNATURE



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 24, 1999           By: /s/ Lev M. Dawson
                                      ---------------------------------------
                                      Lev M. Dawson
                                      Chairman of the Board, Chief Executive
                                      Officer, President and Acting Chief
                                      Financial Officer (Principal Financial
                                      and Accounting Officer)


                                       17
<PAGE>


                                EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit Number         Exhibit
--------------         -------
<S>                    <C>
     4.1*              Securities Purchase Agreement, dated July 27, 1998
     4.2*              Registration Rights Agreement, dated July 27,1998
     4.3*              Certificate of Designation of Series A Convertible
                       Preferred Stock, as filed with the Delaware Secretary of
                       State on July 27, 1998
     4.4*              Form of Warrant to CC Investments, LDC
     4.5*              Form of Warrant to Gemini Capital, LLC
     4.6*              Form of Warrant to Baccarat Electronics, Inc.
    27                 Financial Data Schedule
</TABLE>

* Incorporated by reference to the like-numbered exhibit in the Company's 
  Current Report on Form 8-K, filed August 4, 1998 (Commission No. 0-20028).


                                       18