Valence Technology Needs a Recharge

• 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.

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?