<PAGE>

                          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 June 29, 1997.

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.

               (1) Yes X    No        (2) 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               23,125,993 shares
    -----------------------------        -------------------------------
                (Class)                  (Outstanding at August 1, 1997) 

                                                                  Page 1 of 14
<PAGE>

                    VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES
                      (companies in the development stage)
                                           
                                    FORM 10-Q
                                           
                       FOR THE QUARTER ENDED JUNE 29, 1997
                                           
                                           
                                        INDEX
                                           
                                                                      PAGES
                                                                      -----

PART I.    FINANCIAL INFORMATION

  Item 1.  Financial Statements:

           Condensed Consolidated Balance Sheets as of
           June 29, 1997 and March 30, 1997. . . . . . . . . . . . . .  3
    
           Condensed Consolidated Statements of Operations
           for the period from March 3, 1989 (date of inception)
           to June 29, 1997 and for each of the three months
           ended June 29, 1997 and June 30, 1996 . . . . . . . . . . .  4
    
           Condensed Consolidated Statements of Cash Flows
           for the period from March 3, 1989 (date of inception)
           to June 29, 1997 and for each of the three months
           ended June 29, 1997 and June 30, 1996 . . . . . . . . . . .  5
    
           Notes to Consolidated Financial Statements. . . . . . . . .  6
    
  Item 2.  Management's Discussion and Analysis of Financial
           Condition and Results of Operations . . . . . . . . . . . .  8


PART II.   OTHER INFORMATION
    
  Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . 11
    
  Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . 11

SIGNATURES


                                       2
<PAGE>

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

                    CONDENSED CONSOLIDATED BALANCE SHEETS
                   (in thousands, except per share amounts)
                                 (unaudited)
                                    _____

                                                        June 29,      March 30,
                                                         1997           1997
                                                      ---------      ----------
                   ASSETS              
Current assets:
    Cash and cash equivalents                         $  18,274      $  27,832
    Short-term investments                                5,923          5,556
    Accounts receivable                                     493            431
    Prepaids and other current assets                       156            246
                                                      ---------      ---------
         Total current assets                            24,846         34,065

Investments                                               2,000          4,000
Property, plant and equipment, net                       21,144         17,191
Investment in Joint Venture                               1,916              -
Other assets                                                781            270
                                                      ---------      ---------
              Total assets                            $  50,687      $  55,526
                                                      ---------      ---------
                                                      ---------      ---------

                   LIABILITIES
Current liabilities:
    Current portion of long-term debt                 $   1,019      $   1,433
    Accounts payable                                      1,597          1,949
    Accrued expenses                                      5,380          7,317
    Accrued compensation                                  1,360          1,261
                                                      ---------      ---------
         Total current liabilities                        9,356         11,960

Deferred Revenue                                          2,500              -
Long-term debt, less current portion                      5,195          5,217
                                                      ---------      ---------
         Total liabilities                               17,051         17,177
                                                      ---------      ---------
                                                      ---------      ---------
Contingencies (Note 3).

         STOCKHOLDERS' EQUITY
Preferred stock, $0.001 par value:
    Authorized:   10,000 shares;
    Issued and outstanding:  none

Common stock, $0.001 par value:
    Authorized:  50,000 shares;
    Issued and outstanding:  21,893 and 21,745 
     shares at June 29, 1997 and March 30, 1997,
     respectively                                       140,814        140,580
Deficit accumulated during the development stage       (108,866)      (103,526)
Cumulative translation adjustment                         1,688          1,295
                                                      ---------      ---------
    Total stockholders' equity                           33,636         38,349
                                                      ---------      ---------
         Total liabilities and stockholders' equity   $  50,687      $  55,526
                                                      ---------      ---------
                                                      ---------      ---------


             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
                  (in thousands, except per share amounts)
                                  (unaudited)
                                     _____

<TABLE>
<CAPTION>
                                      Period from
                                     March 3, 1989
                                       (date of 
                                       inception)            Three Months Ended
                                        through            -----------------------
                                        June 29,          June 29,       June 30,
                                         1997               1997           1996
                                     --------------       --------       --------
<S>                                    <C>                 <C>           <C>
Revenue:
  Research and
    development
    contracts                          $  21,605           $     -       $     - 
                                       ---------
Costs and expenses:
  Research and
    development                           73,084           $  4,035         2,558
  Marketing                                2,798                121            67
  General and
    administrative                        33,699              1,336         1,118
  Purchase of
    in-process
    technology                             8,212                  -             -
  Investment in
    Danish
    subsidiary                             3,489                  -             -  
  Special charges                         18,872                  -             -  
                                      ----------           --------      --------

  Total costs and
    expenses                             140,154              5,492         3,743
                                      ----------           --------      --------

         Operating loss                 (118,549)            (5,492)       (3,743)

Interest income                           14,180                453           674
Interest expense                          (3,913)              (151)         (125)
Equity in earnings (losses) of
  Joint Venture                             (584)              (150)            -  
                                      ----------           --------      --------

         Net loss                     $ (108,866)          $ (5,340)     $ (3,194)
                                      ----------           --------      --------
                                      ----------           --------      --------

Net loss per share                    $        -           $  (0.24)     $  (0.15)
                                      ----------           --------      --------
                                      ----------           --------      --------

Shares used in
computing net loss per share                   -             21,805        21,669
                                      ----------           --------      --------
                                      ----------           --------      --------
</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, except per share amounts)
                                 (unaudited)
                                    _____

<TABLE>
<CAPTION>
                                                                Period from
                                                               March 3, 1989       Three Months    Three Months
                                                            (date of inception)       Ended            Ended
                                                                  through            June 29,         June 30,
                                                               June 29, 1997           1997             1996
                                                            -------------------    ------------    ------------
<S>                                                            <C>                   <C>            <C>
Cash flows from operating activities:
  Net loss                                                     $  (108,866)          $  (5,340)     $  (3,194)
  Adjustments to reconcile net loss to net cash
    used in operating activities:
    Depreciation and amortization                                   20,218                 373          1,270
    Write-off of equipment                                          14,792                   -              -
    Write-off of in-process technology                               6,211                   -              -
    Compensation related to stock options                            1,655                 234             26
    Noncash charge related to acquisition
       of Danish subsidiary                                          2,245                   -              -
    Equity in (Earnings) Losses of Joint Venture                       584                 150              -
    Changes in assets and liabilities:
       Accounts receivable                                             596                 (62)            94
       Interest receivable                                             (64)                 53            110
       Notes receivable                                               (105)                 39             25
       Prepaid expenses and other current assets                    (1,151)                (78)            43
       Accounts payable                                              1,594                (254)           870
       Accrued liabilities                                          (1,644)             (1,937)        (1,007)
                                                                 ---------           ---------      ---------

            Net cash used in operating activities                  (63,935)             (6,822)        (1,763)
                                                                 ---------           ---------      ---------

Cash flows from investing activities:
  Purchase of long-term investments                               (481,347)             (3,119)       (32,632)
  Maturities in long-term investments                              469,378               4,950         38,157
  Capital expenditures                                             (42,991)             (3,739)          (317)
  Other                                                               (222)                  -              -
                                                                 ---------           ---------      ---------

            Net cash provided by (used in)
            investing activities                                   (55,182)             (1,908)         5,208
                                                                 ---------           ---------      ---------

Cash flows from financing activities:
  Property and equipment grants                                      4,419                   -           (283)
  Borrowings of long-term debt                                      15,502                   -              -
  Payments of long-term debt:
    Product development loan                                          (482)                  -              -
    Shareholder and director                                        (6,173)                  -              -
    Other long-term debt                                           (10,971)               (435)          (532)
  Proceeds from issuance of common stock,
  net of costs                                                     136,784                   -              -
                                                                 ---------           ---------      ---------

            Net cash provided by (used in)
            financing activities                                   139,079                (435)          (815)
                                                                 ---------           ---------      ---------
Effect of foreign exchange rates on cash and cash
  equivalents                                                       (1,688)               (393)          (102)
Increase (decrease) in cash and cash equivalents                    18,274              (9,558)         2,528
Cash and cash equivalents, beginning of period                           -              27,832         24,569
                                                                 ---------           ---------      ---------

Cash and cash equivalents, end of period                         $  18,274           $  18,274      $  27,097
                                                                 ---------           ---------      ---------
                                                                 ---------           ---------      ---------
</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 June 29, 1997 and March 30, 1997, 
its consolidated results of operations and cash flows for the period from 
March 3, 1989 (date of inception) to June 29, 1997 and for each of the 
three-month periods ended June 29, 1997 and June 30, 1996.  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 30, 1997.  The year end condensed consolidated balance sheet data as of 
March 30, 1997 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 periods ended 
June 29, 1997 are not necessarily indicative of results of operations and 
cash flows for any future period.

2.  NET LOSS PER SHARE

The computation of net loss per share is based on the weighted average number 
of common shares outstanding during the period.  Common stock options and 
warrants have not been included in the computation since their inclusion 
would be antidilutive.

3.  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 June 1996 ("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 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.  In January 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 January 1997, the Court appointed a Special Master to hear the defendants' 
motions for summary judgment and submit recommendations to the Court with 
respect to their disposition.  In March 1997, the Special Master held a 
hearing on the defendants' motions for summary judgment.  While the Court had 
set a September 1997 trial date, the


                                      6
<PAGE>

Court has vacated that trial date pending submission and review of the 
Special Master's recommendations.  The plaintiffs have requested a jury trial 
and are expected to ask for a substantial sum in damages.  If the plaintiffs 
prevail in their demands, damages awarded by the jury may exceed the assets 
of the Company.  Although, the Company believes that it has meritorious 
defenses and intends to defend the lawsuit vigorously, there can be no 
assurance that the Company will prevail or that the plaintiffs will not be 
awarded damages.  

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.

4.  RECENT ACCOUNTING PRONOUNCEMENTS

STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 128, "EARNINGS PER SHARE"

In February 1997, the Financial Accounting Standards Board issued Statement 
of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS 128).  
SFAS 128 specifies the computation, presentation and disclosure requirements 
for earnings per share.  SFAS 128 supersedes Accounting Principles Board 
Opinion No. 15 and is effective for financial statements issued for periods 
ending after December 15, 1997.  Also, SFAS 128 requires restatement of all 
prior-period earnings per share data presented after the effective date.

STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 130, "REPORTING COMPREHENSIVE
INCOME"

In June 1997, the Financial Accounting Standards Board issued Statement of 
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" 
(SFAS 130).  SFAS 130 establishes standards for 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 sources.  It includes all changes in 
equity during a period except those resulting form investments by owners and 
distributions to owners."  SFAS 130 is effective for fiscal years beginning 
after December 15, 1997, and reclassification of financial statements for 
earlier periods provided for comparative purposes is required.  SFAS 130 is 
not expected to have a material impact on the Company's financial position, 
results of operations or cash flows.

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 shareholders.  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.  SFAS 131 will not have a material impact on the 
Company's financial position, results of operations or cash flows. 


                                      7
<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.  Such forward looking statements involve a number of risks and 
uncertainties including, but not limited to, 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 30, 
1997.

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 
30, 1997.  The results for the three month period ending June 29, 1997 are 
not necessarily indicative of the results to be expected for the entire 
fiscal year ending March 29, 1998.

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), and operating 
group of the General Motors Corporation.  The Company has incurred cumulative 
losses of $108,866,000 from its inception to June 29, 1997.

RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 29, 1997 AND JUNE 30, 1996.

During the three months ended June 29, 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 months 
of both fiscal 1998 and fiscal 1997.

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 (of which 
$150,000 was recognized during the first three months of both fiscal 1997 and 
fiscal 1996, as an offset to research and product development expenses).  In 
addition, Delphi is paying a majority of the facility's operating costs over 
the term of the new five year agreement.  The Company is treating both of 
these payments as an offset to research and development expense.

Research and development expenses were $4,035,000 during the three months 
ended June 29, 1997 as compared to $2,558,000 during the same period of 
fiscal 1997. The increase between comparable periods was primarily due to 
costs incurred to proceed with manufacturing product in the first quarter of 
calendar year 1998.

Marketing expenses were $121,000 for the first quarter of fiscal year 1998, 
as compared to $67,000 during the similar period of fiscal year 1997.  The 
comparative increase is the result of an increase in headcount.


                                      8
<PAGE>

General and administrative expenses increased to $1,336,000 during the first 
quarter of fiscal year 1998, up from $1,118,000 during the fiscal year 1997 
comparable period.  The increase results from legal fees associated with the 
shareholder class action lawsuit.

Interest income decreased to $453,000 during the first quarter of fiscal year 
1998, as compared to $674,000 during the prior fiscal year's same period.  
The difference is a result of a decline in funds available for investment 
purposes.

Interest expense was $151,000 during the first quarter of fiscal year 1998, 
as compared to $125,000 during the prior fiscal year's comparable period.  
This increase is a result of recalculation of principal and change in 
amortization by lender.

Joint venture expenses were $150,000 for the first quarter of fiscal year 
1998 as compared to nil for the first quarter of fiscal year 1997.  Joint 
venture expenses represent 50% of the start up costs associated with the 
Hanil Valence operations.

LIQUIDITY AND CAPITAL RESOURCES

The Company used $6,823,000 net cash for operating activities during fiscal 
year 1998's first three months compared $1,763,000 during the first three 
months of fiscal year 1997, an increase between comparable periods of 
$5,060,000.  This increase primarily resulted from a payment to Bellcore of 
$2,000,000; a reduction in accounts payable of $1,124,000; a reduction in 
depreciation of $897,000; and increased costs to commercialize a product.

During the three months ended June 29, 1997, the Company used $1,908,000 net 
cash from investing activities compared to $5,208,000 provided during the 
first three months of fiscal year 1997, an increase of $7,116,000 between 
comparable periods.  The increase primarily was a result of an increase in 
operating funds required, as well as capital equipment purchases.

The Company used $435,000 net cash from financing activities during fiscal 
year 1998's first three months compared to $815,000 during the first three 
months of fiscal year 1997.  This decrease resulted from lower grant levels.

As a result of the above, the Company had a net decrease in cash and cash 
equivalents of $9,559,000 during the fiscal year 1998's first three months, 
whereas it had a net increase of $2,528,000 during the same period of fiscal 
year 1997.

The Company's $2,000,000 working capital line of credit is available through 
March, 1998.  The working capital line collateralizes outstanding letters of 
credit, which reduce borrowings otherwise available under the line.  As of 
June 29, 1997, there was one outstanding letter of credit in the amount of 
$25,000.

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 
June 29, 1997, the Company had received grants aggregating L4,035,000 
reducing remaining grants available to L23,520,000 (US. $39,090,000 as of 
June 29, 1997).

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 


                                      9
<PAGE>

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 Company expects that its existing funds as of June 29, 1997, together 
with the interest earned thereon, will be sufficient to fund the Company's 
operations through the end of calendar year 1997.  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.

RECENT ACCOUNTING PRONOUNCEMENTS

In February 1997, the Financial Accounting Standards Board issued Statement 
of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128), 
which specifies the computation, presentation  and disclosure requirements 
for earnings per share.  SFAS 128 supersedes Accounting Principles Board 
Opinion No. 15 and is effective for financial statements issued for periods 
ending after December 15, 1997.  SFAS 128 requires restatement of all 
prior-period earnings per share  data presented after the effective date.  
SFAS 128 will not have a material impact on  the Company's financial 
position, results of operations and cash flows.

STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 130, "REPORTING COMPREHENSIVE
INCOME"

In June 1997, the Financial Accounting Standards Board issued Statement of 
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" 
(SFAS 130).  SFAS 130 establishes standards for 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 sources.  It includes all changes in 
equity during a period except those resulting form investments by owners and 
distributions to owners."  SFAS 130 is effective for fiscal years beginning 
after December 15, 1997, and reclassification of financial statements for 
earlier periods provided for comparative purposes is required.  SFAS 130 is 
not expected to have a material impact on the Company's financial position, 
results of operations or cash flows.

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 shareholders.  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.  SFAS 131 will not have a material impact on the 
Company's financial position, results of operations or cash flows.


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<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 June 1996 ("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 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.  In January 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 January 1997, the Court appointed a Special Master to hear the defendants' 
motions for summary judgment and submit recommendations to the Court with 
respect to their disposition.  In March 1997, the Special Master held a 
hearing on the defendants' motions for summary judgment.  While the Court had 
set a September 1997 trial date, the Court has vacated that trial date 
pending submission and review of the Special Master's recommendations.  The 
plaintiffs have requested a jury trial and are expected to ask for a 
substantial sum in damages.  If the plaintiffs prevail in their demands, 
damages awarded by the jury may exceed the assets of the Company.  Although, 
the Company believes that it has meritorious defenses and intends to defend 
the lawsuit vigorously, there can be no assurance that the Company will 
prevail or that the plaintiffs will not be awarded damages.  

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

    a.   EXHIBITS

         Exhibit 11.1   Statement of Calculation of Net Loss Per Share
         Exhibit 27.17  Financial Data Schedule

    b.   REPORTS ON FORM 8-K

         The Company filed no reports on Form 8-K during the quarter ended 
         June 29, 1997.


                                      11
<PAGE>

                                  EXHIBIT INDEX
                                           
EXHIBIT                                                         SEQUENTIAL
NUMBER        EXHIBIT                                           PAGE NUMBER
-----------------------------------------------------------------------------
                                                                
11.1          Statement of Calculation of Net Loss Per Share       14
27.17         Financial Data Schedule                              15


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<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: August 11, 1997            By:  /s/ DAVID ARCHIBALD
                                    ------------------------------------------
                                    David Archibald
                                    Vice President and Chief Financial Officer
                                    (Principal Financial and Accounting Officer)


                                     13