Valence Technology Needs a Recharge

(MoneyWatch) 

• The Company: Valence Technology, a manufacturer of lithium-phosphate batteries
• The Filing: Form DEF 14A filed with the SEC on July 29, 2008
• The Finding: Valence Technology claims that more than 100 companies are testing or have implemented its energy storage technology. The only way the lithium-battery maker can cover its working capital needs, however, is by borrowing monies from founder and chairman Carl Berg, according to its proxy statement.

The Upshot: On June 26, the company's auditors, PMB Helin Donovan, issued "a going concern" qualification for fiscal 2008 ended March 31. Valence received a similar designation in fiscal 2007 and 2006.

As of March 31, Valence had cash on hand of $2.9 million. Indebtedness totaled $75.1 million, of which $34.6 million, net of discount, was owed to either Berg or an affiliate related to him. In addition, Berg was owed $21.5 million in accumulated interest. In the last three months, Berg also lent the company an additional $5.5 million to cover working capital requirements.

Management continues to be optimistic, having said in April that it had begun shipping battery packs to Smith Electric Vehicles, part of a potential $70 million contract with British-based Tanfield Group, the world's largest manufacturer of electric vans and trucks.

The capacity-to-size ratio of a lithium-phosphate battery is somewhat lower than that of a lithium-cobalt-oxide battery, limiting commercial acceptance of Valence's technology. The company has not turned a meaningful profit in 19 years.

The Question: Will the company ever reach the high volume mass production necessary to turn a profit?