----

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| x      |   | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|--------|--------|---------------------------------------------------------------------------------------------------|
|   |   |                                                                                              |
|   |   | For the quarterly period ended June 30, 2010                                                      |

| o      |   | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934                                                                                       |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                     |
|   |   | For the transition period from             to             . |

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| Delaware                                                      |   | 77-0214673                                |
|---------------------------------------------------------------|--------|-------------------------------------------|
| (State or other jurisdiction ofincorporation or organization) |   | (I.R.S. Employer Identification No.) |
|                                                          |   |                                      |
| 12303 Technology Blvd., Suite 950, Austin, Texas         |   | 78727                                     |
| (Address of principal executive offices)                      |   | (Zip Code)                                |

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|   | Large Accelerated Filer             | o |   | Accelerated Filer                   | x |
|--------|-----------------------------------------------|---|--------|-------------------------------------|---|
|   | Non-Accelerated Filer                    | o |   | Smaller Reporting Company | o |
|   | (Do not check if a smaller reporting company) |

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VALENCE TECHNOLOGY, INC.

| PART I – FINANCIAL INFORMATION                                                                                                     |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                          |   |
| Item 1. Financial Statements (Unaudited)                                                                                                 |   |
|                                                                                                                                          |   |
| Condensed Consolidated Balance Sheets as of June 30, 2010 and March 31, 2010                                                             | 1      |
| Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three Month Periods Ended June 30, 2010 and June 30, 2009 | 2      |
| Condensed Consolidated Statements of Cash Flows for the Three Month Periods Ended June 30, 2010 and June 30, 2009                             | 3      |
| Notes to Condensed Consolidated Financial Statements                                                                                          | 4      |
|                                                                                                                                          |   |
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations                                      | 13     |
|                                                                                                                                          |   |
| Item 3. Quantitative and Qualitative Disclosures about Market Risk                                                                       | 20     |
|                                                                                                                                          |   |
| Item 4. Controls and Procedures                                                                                                          | 21     |
|                                                                                                                                          |   |
| PART II – OTHER INFORMATION                                                                                                        |   |
|                                                                                                                                          |   |
| Item 1. Legal Proceedings                                                                                                                | 22     |
|                                                                                                                                          |   |
| Item 1A. Risk Factors                                                                                                                    | 22     |
|                                                                                                                                          |   |
| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds                                                                      | 22     |
|                                                                                                                                          |   |
| Item 3. Defaults Upon Senior Securities                                                                                                  | 22     |
|                                                                                                                                          |   |
| Item 4. [Removed and Reserved]                                                                                                           | 22     |
|                                                                                                                                          |   |
| Item 5. Other Information                                                                                                                | 22     |
|                                                                                                                                          |   |
| Item 6. Exhibits                                                                                                                         | 23     |
|                                                                                                                                          |   |
| Signatures and Certifications                                                                                                                 | 24     |

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Table of Contents

|                                                                                                                                                                                                                                                                                                   |   | June 30, |     |   | March 31, |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------|----------|--------|----------------|--------|
|                                                                                                                                                                                                                                                                                                   |   | 2010          |     |   | 2010           |   |
|                                                                                                                                                                                                                                                                                                   |   | (unaudited)   |     |   |           |   |
| ASSETS                                                                                                                                                                                                                                                                                                 |   |          |     |   |           |   |
| Current assets:                                                                                                                                                                                                                                                                                        |   |          |     |   |           |   |
| Cash and cash equivalents                                                                                                                                                                                                                                                                              |   | $             | 2,528    |   |           | $      | 3,172 |   |
| Restricted cash                                                                                                                                                                                                                                                                                        |   |          | 1,070    |   |           |   | — |   |
| Trade receivables, net of allowance of $62 and $43, respectively                                                                                                                                                                                                                                       |   |          | 4,651    |   |           |   | 2,919 |   |
| Inventory, net                                                                                                                                                                                                                                                                                         |   |          | 7,885    |   |           |   | 5,597 |   |
| Prepaid and other current assets                                                                                                                                                                                                                                                                       |   |          | 1,889    |   |           |   | 1,557 |   |
|  Total current assets                                                                                                                                                                                                                                                                             |   |          | 18,023   |   |           |   | 13,245 |   |
|                                                                                                                                                                                                                                                                                                   |   |          |     |   |           |   |   |   |
| Property, plant and equipment, net                                                                                                                                                                                                                                                                     |   |          | 4,727    |   |           |   | 4,931 |   |
| Total assets                                                                                                                                                                                                                                                                                           |   | $             | 22,750   |   |           | $      | 18,176 |   |
|                                                                                                                                                                                                                                                                                                   |   |          |     |   |           |   |   |   |
| LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT                                                                                                                                                                                                                                           |   |          |     |   |           |   |   |   |
| Current liabilities:                                                                                                                                                                                                                                                                                   |   |          |     |   |           |   |   |   |
| Accounts payable                                                                                                                                                                                                                                                                                       |   | $             | 5,055    |   |           | $      | 1,815 |   |
| Accrued expenses                                                                                                                                                                                                                                                                                       |   |          | 6,249    |   |           |   | 4,566 |   |
| Short-term debt, net of debt discount                                                                                                                                                                                                                                                                  |   |          | 19,895   |   |           |   | 19,853 |   |
| Deferred revenue                                                                                                                                                                                                                                                                                       |   |          | 213      |   |           |   | 87 |   |
| Total current liabilities                                                                                                                                                                                                                                                                              |   |          | 31,412   |   |           |   | 26,321 |   |
|                                                                                                                                                                                                                                                                                                   |   |          |     |   |           |   |   |   |
| Long-term interest payable to stockholder                                                                                                                                                                                                                                                              |   |          | 28,123   |   |           |   | 27,383 |   |
| Long-term debt to stockholder, net of debt discount                                                                                                                                                                                                                                                    |   |          | 34,858   |   |           |   | 34,848 |   |
| Other long-term liabilities                                                                                                                                                                                                                                                                            |   |          | 124      |   |           |   | 129 |   |
|                                                                                                                                                                                                                                                                                                   |   |          |     |   |           |   |   |   |
| Commitments and contingencies                                                                                                                                                                                                                                                                          |   |          |     |   |           |   |   |   |
|                                                                                                                                                                                                                                                                                                   |   |          |     |   |           |   |   |   |
| Preferred Stock:                                                                                                                                                                                                                                                                                       |   |          |     |   |           |   |   |   |
| Redeemable convertible preferred stock, $0.001 par value, 10,000,000 shares authorized, 861      issued and outstanding as of June 30, 2010 and March 31, 2010, liquidation value $8,610                                                                            |   |          | 8,610    |   |           |   | 8,610 |   |
|                                                                                                                                                                                                                                                                                                   |   |          |     |   |           |   |   |   |
| Stockholders’ deficit:                                                                                                                                                                                                                                                                           |   |          |     |   |           |   |   |   |
| Common stock, $0.001 par value, 200,000,000 shares authorized, 134,945,669 shares issued and      133,142,525 shares outstanding as of June 30, 2010 and 131,972,224 shares issued and      130,169,080 shares outstanding as of March 31, 2010 |   |          | 135      |   |           |   | 132 |   |
| Additional paid-in-capital                                                                                                                                                                                                                                                                             |   |          | 513,323  |   |           |   | 509,909 |   |
| Treasury shares, 1,803,144 at cost                                                                                                                                                                                                                                                                     |   |          | (5,164   | )      |           |   | (5,164 | ) |
| Accumulated deficit                                                                                                                                                                                                                                                                                    |   |          | (585,499 | )      |           |   | (580,845 | ) |
| Accumulated other comprehensive loss                                                                                                                                                                                                                                                                   |   |          | (3,173   | )      |           |   | (3,147 | ) |
| Total stockholders’ deficit                                                                                                                                                                                                                                                                      |   |          | (80,377  | )      |           |   | (79,115 | ) |
| Total liabilities, preferred stock, and stockholders’ deficit                                                                                                                                                                                                                                    |   | $             | 22,750   |   |           | $      | 18,176 |   |

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Table of Contents

|                                                                                                 |   | Three Months EndedJune 30, |    |
|------------------------------------------------------------------------------------------------------|--------|-------------------------------------------|---------|
|                                                                                                 |   | 2010                                      |    |   | 2009 |   |
| Revenue:                                                                                             |   |                                      |    |   |   |   |
| Battery and system sales                                                                             |   | $                                         | 5,537   |   |   | $ | 4,630 |   |
| Licensing and royalty revenue                                                                        |   |                                      | 35      |   |   |   | 87 |   |
|                                                                                                 |   |                                      |    |   |   |   |   |   |
| Total revenues                                                                                       |   |                                      | 5,572   |   |   |   | 4,717 |   |
|                                                                                                 |   |                                      |    |   |   |   |   |   |
| Cost of sales                                                                                        |   |                                      | 4,647   |   |   |   | 3,910 |   |
|                                                                                                 |   |                                      |    |   |   |   |   |   |
| Gross margin                                                                                         |   |                                      | 925     |   |   |   | 807 |   |
|                                                                                                 |   |                                      |    |   |   |   |   |   |
| Operating expenses:                                                                                  |   |                                      |    |   |   |   |   |   |
| Research and product development                                                                     |   |                                      | 915     |   |   |   | 1,220 |   |
| Marketing                                                                                            |   |                                      | 575     |   |   |   | 722 |   |
| General and administrative                                                                           |   |                                      | 2,964   |   |   |   | 3,827 |   |
|                                                                                                 |   |                                      |    |   |   |   |   |   |
| Total operating expenses                                                                             |   |                                      | 4,454   |   |   |   | 5,769 |   |
|                                                                                                 |   |                                      |    |   |   |   |   |   |
| Operating loss                                                                                       |   |                                      | (3,529  | ) |   |   | (4,962 | ) |
|                                                                                                 |   |                                      |    |   |   |   |   |   |
| Foreign exchange gain                                                                                |   |                                      | 67      |   |   |   | 57 |   |
| Interest and other income                                                                            |   |                                      | 2       |   |   |   | 16 |   |
| Interest and other expense                                                                           |   |                                      | (1,151  | ) |   |   | (1,265 | ) |
|                                                                                                 |   |                                      |    |   |   |   |   |   |
| Net loss                                                                                             |   | $                                         | (4,611  | ) |   | $ | (6,154 | ) |
|                                                                                                 |   |                                      |    |   |   |   |   |   |
| Dividends on preferred stock                                                                         |   |                                      | (43     | ) |   |   | (43 | ) |
|                                                                                                 |   |                                      |    |   |   |   |   |   |
| Net loss available to common stockholders, basic and diluted                                         |   | $                                         | (4,654  | ) |   | $ | (6,197 | ) |
|                                                                                                 |   |                                      |    |   |   |   |   |   |
| Other comprehensive loss:                                                                            |   |                                      |    |   |   |   |   |   |
| Net loss                                                                                             |   | $                                         | (4,611  | ) |   | $ | (6,154 | ) |
| Change in foreign currency translation adjustments                                                   |   |                                      | (25     | )  |   |   | 48 |   |
|                                                                                                 |   |                                      |    |   |   |   |   |   |
| Comprehensive loss                                                                                   |   | $                                         | (4,636  | ) |   | $ | (6,106 | ) |
|                                                                                                 |   |                                      |    |   |   |   |   |   |
| Net loss per share available to common stockholders, basic and diluted                          |   | $                                         | (0.04   | ) |   | $ | (0.05 | ) |
| Shares used in computing net loss per share available to common stockholders, basic and diluted |   |                                      | 132,409 |   |   |   | 123,660 |   |

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Table of Contents

|                                                                       |   | Three Months EndedJune 30, |    |
|----------------------------------------------------------------------------|--------|-------------------------------------------|---------|
|                                                                       |   | 2010                                      |    |   | 2009 |   |
| Cash flows from operating activities:                                      |   |                                      |    |   |   |   |
| Net loss                                                                   |   | $                                         | (4,611  | ) |   | $ | (6,154 | ) |
| Adjustments to reconcile net loss to cash used in operating activities:    |   |                                      |    |   |   |   |   |   |
| Depreciation and amortization                                              |   |                                      | 287     |   |   |   | 365 |   |
| Bad debt expense, net of recoveries                                        |   |                                      | 27      |   |   |   | (18 | ) |
| Accretion of debt discount and other                                       |   |                                      | 788     |   |   |   | 887 |   |
| Share-based compensation                                                   |   |                                      | 219     |   |   |   | 812 |   |
| Increase in restricted cash                                                |   |                                      | (1,070  | ) |   |   | — |   |
| Reserve for obsolete inventory                                             |   |                                      | 100     |   |   |   | 120 |   |
| Changes in operating assets and liabilities:                               |   |                                      |    |   |   |   |   |   |
| Trade receivables                                                          |   |                                      | (1,913  | ) |   |   | (257 | ) |
| Inventory                                                                  |   |                                      | (2,355  | ) |   |   | (749 | ) |
| Prepaid and other current assets                                           |   |                                      | (214    | ) |   |   | 844 |   |
| Accounts payable                                                           |   |                                      | 3,232   |   |   |   | (680 | ) |
| Accrued expenses and long-term interest                                    |   |                                      | 1,603   |   |   |   | (814 | ) |
| Deferred revenue                                                           |   |                                      | 126     |   |   |   | 42 |   |
|                                                                       |   |                                      |    |   |   |   |   |   |
| Net cash used in operating activities                                      |   |                                      | (3,781  | ) |   |   | (5,602 | ) |
|                                                                       |   |                                      |    |   |   |   |   |   |
| Cash flows from investing activities:                                      |   |                                      |    |   |   |   |   |   |
| Purchases of property, plant and equipment                                 |   |                                      | (58     | ) |   |   | (34 | ) |
|                                                                       |   |                                      |    |   |   |   |   |   |
| Net cash used in investing activities                                      |   |                                      | (58     | ) |   |   | (34 | ) |
|                                                                       |   |                                      |    |   |   |   |   |   |
| Cash flows from financing activities:                                      |   |                                      |    |   |   |   |   |   |
| Proceeds from issuance of common stock and warrants, net of issuance costs |   |                                      | 3,198   |   |   |   | 3,278 |   |
|                                                                       |   |                                      |    |   |   |   |   |   |
| Net cash provided by financing activities                                  |   |                                      | 3,198   |   |   |   | 3,278 |   |
|                                                                       |   |                                      |    |   |   |   |   |   |
| Effect of foreign exchange rates on cash and cash equivalents              |   |                                      | (3      | ) |   |   | 6 |   |
|                                                                       |   |                                      |    |   |   |   |   |   |
| Decrease in cash and cash equivalents                                      |   |                                      | (644    | ) |   |   | (2,352 | ) |
| Cash and cash equivalents, beginning of period                             |   |                                      | 3,172   |   |   |   | 4,009 |   |
| Cash and cash equivalents, end of period                                   |   | $                                         | 2,528   |   |   | $ | 1,657 |   |
|                                                                       |   |                                      |    |   |   |   |   |   |
| Supplemental information:                                                  |   |                                      |    |   |   |   |   |   |
|  Taxes paid                                                           |   |                                      |  - |   |   |   |  - |   |
| Interest paid                                                              |   | $                                         | 345     |   |   | $ | 345 |   |

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|                                                                                                          |   | Three Months Ended June 30, |       |
|---------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------|------------|
|                                                                                                          |   | 2010                                            |       |   | 2009 |   |
| Shares reserved for conversion of Series C-1 and Series C-2     preferred stock |   |                                            | 3,628,634  |   |   |   | 3,628,634 |   |
| Common stock options reserved                                                                                 |   |                                            | 8,186,856  |   |   |   | 6,983,009 |   |
| Warrants to purchase common stock                                                                             |   |                                            | 115,000    |   |   |   | — |   |
| Total                                                                                                         |   |                                            | 11,930,490 |   |   |   | 10,611,643 |   |

|                  |   | June 30, 2010 |   |   | March 31, 2010 |   |
|-----------------------|--------|---------------|--------|--------|----------------|--------|
| Restricted cash       |   |          | 1,070  |   |           |   | — |   |
| Total restricted cash |   | $             | 1,070  |   |           | $      | — |   |

|            |   | June 30, 2010 |   |   | March 31, 2010 |   |
|-----------------|--------|---------------|--------|--------|----------------|--------|
| Raw materials   |   | $             | 4,136  |   |           | $      | 2,639 |   |
| Work in process |   |          | 3,045  |   |           |   | 1,143 |   |
| Finished goods  |   |          | 704    |   |           |   | 1,815 |   |
| Total inventory |   | $             | 7,885  |   |           | $      | 5,597 |   |

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Table of Contents

|                                    |   | June 30, 2010 |   |   | March 31, 2010 |   |
|-----------------------------------------|--------|---------------|--------|--------|----------------|--------|
| Other receivables                       |   | $             | 456    |   |           | $      | 372 |   |
| Deposits                                |   |          | 363    |   |           |   | 362 |   |
| Prepaid insurance                       |   |          | 32     |   |           |   | 75 |   |
| Other prepaids                          |   |          | 1,038  |   |           |   | 748 |   |
| Total prepaids and other current assets |   | $             | 1,889  |   |           | $      | 1,557 |   |

|                                 |   | June 30, 2010 |    |    | March 31, 2010 |   |
|--------------------------------------|--------|---------------|---------|---------|----------------|--------|
| Leasehold improvements               |   | $             | 1,122   |    |           | $      | 1,117 |   |
| Machinery and equipment              |   |          | 7,365   |    |           |   | 7,332 |   |
| Office and computer equipment        |   |          | 2,292   |    |           |   | 2,220 |   |
| Construction in progress             |   |          | — |    |           |   | 29 |   |
| Property, plant and equipment, gross |   |          | 10,779  |    |           |   | 10,698 |   |
| Less: accumulated depreciation       |   |          | (5,188  | )  |           |   | (4,907 | ) |
| Less: accumulated impairment charges |   |          | (864    | )       |           |   | (860 | ) |
| Total cost, net of depreciation      |   | $             | 4,727   |    |           | $      | 4,931 |   |

|                      |   | June 30, |   |
|---------------------------|--------|----------|--------|
|                      |   | 2010     |   |   | 2010 |   |
| Accrued compensation      |   | $        | 793    |   |   | $ | 587 |   |
| Value added taxes payable |   |     | 79     |   |   |   | — |   |
| Professional services     |   |     | 626    |   |   |   | 606 |   |
| Warranty reserve          |   |     | 766    |   |   |   | 641 |   |
| Other accrued expenses    |   |     | 3,985  |   |   |   | 2,732 |   |
| Total accrued expenses    |   | $        | 6,249  |   |   | $ | 4,566 |   |

|                                  |   | June 30, 2010 |   |   | March 31, 2010 |   |
|---------------------------------------|--------|--------------------|--------|--------|----------------|--------|
| Short term debt                       |   | $                  | 20,000 |   |           | $      | 20,000 |   |
| Less: unaccreted debt discount        |   |               | (105   | )      |           |   | (147 | ) |
| Short-term debt, net of debt discount |   | $                  | 19,895 |   |           | $      | 19,853 |   |

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|                                                |   | June 30, 2010 |   |   | March 31, 2010 |   |
|-----------------------------------------------------|--------|---------------|--------|--------|----------------|--------|
| 2001 Loan                                           |   | $             | 20,000 |   |           | $      | 20,000 |   |
| 1998 Loan                                           |   |          | 14,950 |   |           |   | 14,950 |   |
| Less: unaccreted debt discount                      |   |          | (92    | )      |           |   | (102 | ) |
| Long-term debt to stockholder, net of debt discount |   | $             | 34,858 |   |           | $      | 34,848 |   |

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Table of Contents

|                      |   | Outstanding Options |    |
|---------------------------|--------|--------------------------|---------|
|                      |   | Number of           |    |   | WeightedAverage |   |
|                      |   | Shares                   |    |   | Exercise Price |   |
| Balance at March 31, 2010 |   |                     | 5,546   |   |   | $ | 2.08 |   |
| Granted                   |   |                     | 500     |   |   |   | 0.96 |   |
| Exercised                 |   |                     | — |   |   |   | — |   |
| Canceled                  |   |                     | (2      | ) |   |   | 1.49 |   |
| Balance at June 30, 2010  |   |                     | 6,044   |   |   | $ | 1.99 |   |

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Table of Contents

|                                    |   |   |              |   |   |                            |   |   | Options Outstanding      |   |   | Options Exercisable |   |
|-----------------------------------------|--------|--------|-------------------|--------|--------|---------------------------------|--------|--------|-------------------------------|--------|--------|--------------------------|--------|
| Range of Exercise Prices |   |   | NumberOutstanding |   |   | AverageRemainingContractualLife |   |   | Weighted-AverageExercisePrice |   |   | NumberExercisable        |   |   | Weighted-AverageExercisePrice |   |
|                                    |   |   |              |   |   |                            |   |   |                          |   |   | (in years)          |   |   |   |   |   |   |   |   |   |   |
| $                                       | 0.70   |   |              | -      |   |                            | $      | 1.00   |                          |   |   | 824                      |   |   |   | 9.7 |   |   | $ | 0.92 |   |   |   | 21 |   |   | $ | 0.71 |   |
| $                                       | 1.01   |   |              | -      |   |                            | $      | 1.99   |                          |   |   | 3,980                    |   |   |   | 6.9 |   |   |   | 1.62 |   |   |   | 3,486 |   |   |   | 1.61 |   |
| $                                       | 2.00   |   |              | -      |   |                            | $      | 3.00   |                          |   |   | 415                      |   |   |   | 5.1 |   |   |   | 2.53 |   |   |   | 382 |   |   |   | 2.52 |   |
| $                                       | 3.01   |   |              | -      |   |                            | $      | 4.00   |                          |   |   | 609                      |   |   |   | 5.2 |   |   |   | 3.61 |   |   |   | 478 |   |   |   | 3.61 |   |
| $                                       | 4.01   |   |              | -      |   |                            | $      | 15.75  |                          |   |   | 216                      |   |   |   | 1.4 |   |   |   | 7.21 |   |   |   | 210 |   |   |   | 7.29 |   |
| $                                       | 0.70   |   |              | -      |   |                            | $      | 15.75  |                          |   |   | 6,044                    |   |   |   | 6.7 |   |   | $ | 1.99 |   |   |   | 4,577 |   |   | $ | 2.15 |   |

|                                     |   | Quarter ended |   |   | Fiscal year ended |   |
|------------------------------------------|--------|---------------|--------|--------|-------------------|--------|
|                                     |   | June 30, 2010 |   |   | March 31, 2010    |   |
| Weighted average risk-free interest rate |   |          | 2.0    | %      |              |   | 2.8 | % |
| Average expected life in years           |   | 5.8 years     |   |   | 5.8 years         |   |
| Average expected volatility              |   |          | 87.5   | %      |              |   | 87.1 | % |
| Dividend yield                           |   | None          |   |   | None              |   |

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|          |   | June 30, 2010 |   |   | March 31, 2010 |   |
|---------------|--------|---------------|--------|--------|----------------|--------|
| United States |   | $             | 194    |   |           | $      | 223 |   |
| International |   |          | 4,534  |   |           |   | 4,708 |   |
| Total         |   | $             | 4,727  |   |           | $      | 4,931 |   |

|          |   | Three Months Ended June 30, |   |
|---------------|--------|-------------------------------------------------|--------|
|          |   | 2010                                            |   |   | 2009 |   |
| United States |   | $                                               | 4,581  |   |   | $ | 3,202 |   |
| International |   |                                            | 991    |   |   |   | 1,515 |   |
| Total         |   | $                                               | 5,572  |   |   | $ | 4,717 |   |

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| ·   | trends affecting our financial condition or results of operations; |
|--------------------|--------------------------------------------------------------------|

| ·   | our product development strategies; |
|--------------------|-------------------------------------|

| ·   | trends affecting our manufacturing capabilities; |
|--------------------|--------------------------------------------------|

| ·   | trends affecting the commercial acceptability of our products; and |
|--------------------|--------------------------------------------------------------------|

| ·   | our business and growth strategies. |
|--------------------|-------------------------------------|

| ·   | our ability to develop and market products that compete effectively in targeted market segments; |
|--------------------|--------------------------------------------------------------------------------------------------|

| ·   | market acceptance of our current and future products; |
|--------------------|-------------------------------------------------------|

| ·   | our ability to meet customer demand; |
|--------------------|--------------------------------------|

| ·   | our ability to perform our obligations under our loan agreements; |
|--------------------|-------------------------------------------------------------------|

| ·   | a loss of one of our key customers; |
|--------------------|-------------------------------------|

| ·   | our ability to implement our long-term business strategy that will be profitable and/or generate sufficient cash flow; |
|--------------------|------------------------------------------------------------------------------------------------------------------------|

| ·   | the ability of our vendors to provide conforming materials for our products on a timely basis; |
|--------------------|------------------------------------------------------------------------------------------------|

| ·   | the loss of any of our key executive officers; |
|--------------------|------------------------------------------------|

| ·   | our ability to manage our foreign manufacturing and development operations; |
|--------------------|-----------------------------------------------------------------------------|

| ·   | international business risks; |
|--------------------|-------------------------------|

| ·   | our ability to attract skilled personnel; |
|--------------------|-------------------------------------------|

| ·   | our ability to protect and enforce our current and future intellectual property; |
|--------------------|----------------------------------------------------------------------------------|

| ·   | our need for additional, dilutive financing or future acquisitions; |
|--------------------|---------------------------------------------------------------------|

| ·   | our ability to meet the continued listing requirements of the NASDAQ Capital Market; and |
|--------------------|------------------------------------------------------------------------------------------|

| ·   | future economic, business and regulatory conditions. |
|--------------------|------------------------------------------------------|

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| ·   | Develop and market differentiated battery solutions for a wide array of applications that leverage the advantages of our technologies. We are committed to the improvement of our technologies, our energy storage systems, integration of our energy storage systems into our customer applications and further development of worldwide suppliers to serve the rapidly expanding lithium phosphate sector. Our product development and marketing efforts are focused on large-format battery solutions, such as our U-Charge® Lithium Iron Magnesium Phosphate Energy Storage Systems and other custom battery solutions that feature advanced performance and technological advantages. These products are targeted for a broad range of applications in the motive, power and consumer appliance, telecommunication and utility industries, and as a substitute for certain applications using lead-acid batteries. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Manufacture high-quality, cost-competitive products using a combination of Company owned and contract manufacturing facilities. Our products are manufactured in China, using both internal and contract manufacturing resources. Our company-owned China facility includes two plants: one manufactures our advanced lithium iron magnesium phosphate materials with our patented carbon-thermal reduction process, and the second manufactures our advanced standard large-format packs such as U-Charge® and custom packs for customers such as Segway Inc. (“Segway”). We have arrangements with contract manufacturers for cylindrical cell production. We believe this manufacturing strategy will allow us to directly control our intellectual property and operations management as well as deliver high-quality products that meet the needs of a broad range of customers and applications. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Current Phase: Our current business strategy is focused on developing applications that deliver superior energy storage solution to address the desired performance goals of the end user. Throughout this phase we have utilized our mature technology, the intellectual property developed during the 20 year life of Valence, and critical “on-the-road”, “on-line” experience to expand our commercial opportunities. Our current Revision 2 of our U-Charge® Dynamic Energy Systems is designed for a broad base of motive, marine, industrial, and stationary applications offering superior performance, safety, long life, lower lifetime cost and no maintenance. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Next Phase: We are now entering the next phase of our business strategy. During this growth phase we are utilizing the word-of-mouth recommendations of our early customers, the engineering benefits we enjoy with emerging development partners and reliable in-use experience to expand our presence in target global markets. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| ·   | Transition Phase: Looking toward the immediate future our business strategy will entail the commercialization of our patented Lithium Vanadium Phosphate (LVP) and Lithium Vanadium Phosphate Fluoride (LVPF) cathode materials into large-format, high capacity cells. These materials offer superior performance and the protection for our customers afforded by our worldwide intellectual patent portfolio. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Leading Technology. We believe that our phosphate-based lithium-ion technologies and manufacturing processes offers many performance advantages over competing battery technologies. The safety, long life and other advantages inherent in our technology enable the design of large-format, lower cost lithium-ion energy systems. As the first company in the battery industry to commercialize phosphates, we believe that we have a significant advantage in terms of time to market as well as chemistry, advanced energy storage system development and manufacturing expertise. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | New Market Opportunities. Our technology enables the production of high energy density, large-format batteries while reducing the safety concerns presented by oxide-based lithium-ion batteries. Consequently, our lithium phosphate technology energy and power systems can be designed into a wide variety of products in markets not served by current oxide-based lithium-ion technology. We intend to expand the market opportunities for lithium-ion by designing our technology into a wide variety of products for the motive, power and consumer appliance, telecommunication and utility industries. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | New Valence Market Focus. Over 20 years we have transitioned from a technology developer to a commercial provider of advanced energy storage systems.  Our patent estate continues to expand. Our technology is maturing and has been tested in commercial applications. Our manufacturing capacity has been expanded and is ISO 9001 certified. Our application engineers are recognized experts in the integration of our systems into customer applications. We have strengthened our marketing and sales resources. Our full service fulfillment services in Europe, North America and China are on-line.  We have developed what we believe to be a world-class supplier base of raw materials and components to support our manufacturing, and our senior management team has extensive international technology experience. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Lithium Phosphate-Based Technology. We developed and commercialized the first lithium phosphate energy power systems with our lithium iron magnesium phosphate technology. We have two following generations of cathode materials in our proprietary Lithium Vanadium Phosphate and Lithium Vanadium Fluorophosphates cathode applications, both positioned to advance lithium phosphate cathode applications to the next level of applications and use. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|                          |   | Three Months Ended June 30, |   |
|-------------------------------|--------|-------------------------------------------------|--------|
|                          |   | 2010                                            |   |   | 2009 |   |
|                          |   | Total                                           |   |   | % ofRevenue |   |   | Total |   |   | % ofRevenue |   |
| Battery and systems sales     |   | $                                               | 5,537  |   |   |   | 99 | % |   | $ | 4,630 |   |   |   | 98 | % |
| Licensing and royalty revenue |   |                                            | 35     |   |   |   | 1 | % |   |   | 87 |   |   |   | 2 | % |
| Total revenues                |   |                                            | 5,572  |   |   |   | 100 | % |   |   | 4,717 |   |   |   | 100 | % |
|                          |   |                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Gross margin profit (loss)    |   |                                            | 925    |   |   |   | 17 | % |   |   | 807 |   |   |   | 17 | % |
| Operating expenses            |   |                                            | 4,454  |   |   |   | 80 | % |   |   | 5,769 |   |   |   | 122 | % |
| Operating loss                |   |                                            | (3,529 | ) |   |   | (63 | )% |   |   | (4,962 | ) |   |   | (105 | )% |
| Net loss                      |   |                                            | (4,611 | ) |   |   | (83 | )% |   |   | (6,154 | ) |   |   | (131 | )% |

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|                             |   | Three Months Ended June 30, |   |   |      |   |   |       |   |
|----------------------------------|--------|-------------------------------------------------|--------|--------|-----------|--------|--------|------------|--------|
|                             |   |                                            |   |   | Increase/ |   |   |       |   |
|                             |   | 2010                                            |   |   | 2009      |   |   | (Decrease) |   |   | % Change |   |
| Research and product development |   | $                                               | 915    |   |      | $      | 1,220  |       |   | $ | (305 | ) |   |   | (25 | )% |
| Marketing                        |   |                                            | 575    |   |      |   | 722    |       |   |   | (147 | ) |   |   | (20 | )% |
| General and administrative       |   |                                            | 2,964  |   |      |   | 3,827  |       |   |   | (864 | ) |   |   | (23 | )% |
| Total operating expenses         |   | $                                               | 4,454  |   |      | $      | 5,769  |       |   | $ | (1,316 | ) |   |   | (23 | )% |
| Percentage of revenues           |   |                                            | 80     | %      |      |   | 122    | %          |   |   |   |   |   |   |   |   |

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|                                                 |   | Three Months Ended June 30, |   |
|------------------------------------------------------|--------|-------------------------------------------------|--------|
|                                                 |   | 2010                                            |   |   | 2009 |   |
| Net cash flows provided by (used in):                |   |                                            |   |   |   |   |
| Operating activities                                 |   | $                                               | (3,781 | ) |   | $ | (5,602 | ) |
| Investing activities                                 |   |                                            | (58    | ) |   |   | (34 | ) |
| Financing activities                                 |   |                                            | 3,198  |   |   |   | 3,278 |   |
| Effect of foreign exchange rates                     |   |                                            | (3     | )  |   |   | 6 |   |
| Net (decrease) increase in cash and cash equivalents |   | $                                               | (644   | ) |   | $ | (2,352 | ) |

|                                          |   | June 30,2010 |   |
|-----------------------------------------------|--------|-------------------|--------|
| 1998 long-term debt to Berg & Berg   |   | $                 | 14,950 |   |
| 2001 long-term debt to Berg & Berg   |   |              | 20,000 |   |
| 2005 long-term debt to third-party            |   |              | 20,000 |   |
| Long term portion of interest payable on debt |   |              | 28,122 |   |
| Current portion of interest payable on debt   |   |              | 76     |   |
| Total                                         |   | $                 | 83,148 |   |

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|                |   | Fiscal year ending March 31, |
|---------------------|--------|-----------------------------------|
|                |   | 2011                              |   |   | 2012 |   |   | 2013 |   |   | 2014 |   |   | 2015 andthereafter |   |   | Total |
| Principal repayment |   | $                                 | 20,000 |   |   | $ | — |   |   | $ | 34,950 |   |   | $ | — |   |   | $ | — |   |   | $ | 54,950 |   |

|                                              |   | Payment Due by Period |    |
|---------------------------------------------------|--------|--------------------------------------|---------|
|                                              |   |                                 |    |   | Less than |   |   |   |   |   |   |   |   | More than |   |
|                                              |   | Total                                |    |   | One Year |   |   | 1-2 Years |   |   | 3-5 Years |   |   | 5 Years |   |
| Contractual obligations:                     |   |                                 |    |   |   |   |   |   |   |   |   |   |   |   |   |
| Short-term debt obligations, net of debt discount |   |                                 | 19,895  |   |   |   | 19,895 |   |   |   | — |   |   |   | — |   |   |   | — |   |
| Long-term debt obligations, net of debt discount  |   |                                 | 34,858  |   |   |   | — |   |   |   | 34,858 |   |   |   | — |   |   |   | — |   |
| Current and long-term interest payable            |   |                                 | 28,198  |   |   |   | 76 |   |   |   | 28,122 |   |   |   | — |   |   |   | — |   |
| Operating lease obligations                       |   |                                 | 1,333   |   |   |   | 502 |   |   |   | 701 |   |   |   | 130 |   |   |   | — |   |
| Purchase obligations                              |   |                                 | 22,382  |   |   |   | 22,382 |   |   |   | — |   |   |   | — |   |   |   | — |   |
| Redemption of convertible preferred stock         |   |                                 | 9,428   |   |   |   | 9,428 |   |   |   | — |   |   |   | — |   |   |   | — |   |
| Total                                             |   | $                                    | 116,094 |   |   | $ | 52,283 |   |   | $ | 63,681 |   |   | $ | 130 |   |   | $ | — |   |

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|               | Expected Maturity Date |    |
|--------------------|----------------------------------|---------|
|               | 2011                             |    |   | 2012 |   |   | 2013 |   |   | 2014 |   |   | 2015 |   |   | Thereafter |   |   | Total |   |
| Fixed rate debt    | $                                | — |   |   | $ | — |   |   | $ | 20,000 |   |   | $ | — |   |   | $ | — |   |   | $ | — |   |   | $ | 20,000 |   |
| Variable rate debt | $                                | 20,000  |   |   | $ | — |   |   | $ | 14,950 |   |   | $ | — |   |   | $ | — |   |   | $ | — |   |   | $ | 34,950 |   |

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| Number |   | Description of Exhibit                                                                                                                                                   |   | Method of Filing                                                                                                                                                                                                                     |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1    |   | Second Restated Certificate of Incorporation of the Company                                                                                                              |   | Incorporated by reference to the exhibit so described in the Company’s Registration Statement on Form S-1 (File No. 33-46765), as amended, filed with the Securities and Exchange Commission on March 27, 1992. |
|   |   |                                                                                                                                                                     |   |                                                                                                                                                                                                                                 |
| 3.2    |   | Amendment to the Second Restated Certificate of Incorporation of the Company                                                                                             |   | Incorporated by reference to Exhibit A to the Company’s Schedule 14A filed with the Securities and Exchange Commission on January 28, 2000.                                                                               |
|   |   |                                                                                                                                                                     |   |                                                                                                                                                                                                                                 |
| 3.3    |   | Certificate of Designations, Preferences and Rights of Series C-1 Convertible Preferred Stock                                                                       |   | Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K dated November 30, 2004, filed with the Securities and Exchange Commission on December 1, 2004.                       |
|   |   |                                                                                                                                                                     |   |                                                                                                                                                                                                                                 |
| 3.4    |   | Certificate of Designations, Preferences and Rights of Series C-2 Convertible Preferred Stock                                                                       |   | Incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K dated November 30, 2004, filed with the Securities and Exchange Commission on December 1, 2004.                       |
|   |   |                                                                                                                                                                     |   |                                                                                                                                                                                                                                 |
| 3.5    |   | Fourth Amended and Restated Bylaws of the Company                                                                                                                        |   | Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, dated January 18, 2008, filed with the Securities and Exchange Commission on January 22, 2008.                            |
|   |   |                                                                                                                                                                     |   |                                                                                                                                                                                                                                 |
| 10.1   |   | Promissory Note dated July 23, 2010 issued by the Company to Berg & Berg Enterprises, LLC                                                                            |   | Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, dated July 23, 2010, filed with the Securities and Exchange Commission on July 29, 2010.                                                |
|   |   |                                                                                                                                                                     |   |                                                                                                                                                                                                                                 |
| 31.1   |   | Certification of Robert L. Kanode, Principal Executive Officer, pursuant to Rule 13a-14 and 15d-14 of the Securities Exchange Act of 1934                                |   | Filed herewith.                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                     |   |                                                                                                                                                                                                                                 |
| 31.2   |   | Certification of Ross A. Goolsby, Principal Financial Officer, pursuant to Rule 13a-14 and 15d-14 of the Securities Exchange Act of 1934                                 |   | Filed herewith.                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                     |   |                                                                                                                                                                                                                                 |
| 32.1   |   | Certification of Robert L. Kanode, Principal Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |   | Filed herewith.                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                     |   |                                                                                                                                                                                                                                 |
| 32.2   |   | Certification of Ross A. Goolsby, Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002  |   | Filed herewith.                                                                                                                                                                                                                      |

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|                      | VALENCE TECHNOLOGY, INC. |                                              |
|---------------------------|--------------------------|---------------------------------------------------|
|                      |                     |                                              |   |
| Date: August 4, 2010 | By:                      | /s/ Robert L. Kanode               |   |
|                      |                     | Robert L. KanodeChief Executive Officer |   |

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| Number |   | Description of Exhibit                                                                                                                                                   |   | Method of Filing                                                                                                                                                                                                                     |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1    |   | Second Restated Certificate of Incorporation of the Company                                                                                                              |   | Incorporated by reference to the exhibit so described in the Company’s Registration Statement on Form S-1 (File No. 33-46765), as amended, filed with the Securities and Exchange Commission on March 27, 1992. |
|   |   |                                                                                                                                                                     |   |                                                                                                                                                                                                                                 |
| 3.2    |   | Amendment to the Second Restated Certificate of Incorporation of the Company                                                                                             |   | Incorporated by reference to Exhibit A to the Company’s Schedule 14A filed with the Securities and Exchange Commission on January 28, 2000.                                                                               |
|   |   |                                                                                                                                                                     |   |                                                                                                                                                                                                                                 |
| 3.3    |   | Certificate of Designations, Preferences and Rights of Series C-1 Convertible Preferred Stock                                                                       |   | Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K dated November 30, 2004, filed with the Securities and Exchange Commission on December 1, 2004.                       |
|   |   |                                                                                                                                                                     |   |                                                                                                                                                                                                                                 |
| 3.4    |   | Certificate of Designations, Preferences and Rights of Series C-2 Convertible Preferred Stock                                                                       |   | Incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K dated November 30, 2004, filed with the Securities and Exchange Commission on December 1, 2004.                       |
|   |   |                                                                                                                                                                     |   |                                                                                                                                                                                                                                 |
| 3.5    |   | Fourth Amended and Restated Bylaws of the Company                                                                                                                        |   | Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, dated January 18, 2008, filed with the Securities and Exchange Commission on January 22, 2008.                            |
|   |   |                                                                                                                                                                     |   |                                                                                                                                                                                                                                 |
| 10.1   |   | Promissory Note dated July 23, 2010 issued by the Company to Berg & Berg Enterprises, LLC                                                                            |   | Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, dated July 23, 2010, filed with the Securities and Exchange Commission on July 29, 2010.                                                |
|   |   |                                                                                                                                                                     |   |                                                                                                                                                                                                                                 |
| 31.1   |   | Certification of Robert L. Kanode, Principal Executive Officer, pursuant to Rule 13a-14 and 15d-14 of the Securities Exchange Act of 1934                                |   | Filed herewith.                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                     |   |                                                                                                                                                                                                                                 |
| 31.2   |   | Certification of Ross A. Goolsby, Principal Financial Officer, pursuant to Rule 13a-14 and 15d-14 of the Securities Exchange Act of 1934                                 |   | Filed herewith.                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                     |   |                                                                                                                                                                                                                                 |
| 32.1   |   | Certification of Robert L. Kanode, Principal Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |   | Filed herewith.                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                     |   |                                                                                                                                                                                                                                 |
| 32.2   |   | Certification of Ross A. Goolsby, Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002  |   | Filed herewith.                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                     |   |                                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                     |   |                                                                                                                                                                                                                                 |