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Executives

Robert Kanode - President & Chief Executive Officer

Ross Goolsby - Chief Financial Officer

Pierre Dubois - Director of Investor Relations

Analysts

Bob Ecinder - Garden State

Ed Einboden - Wm Smith & Co.

Jon Hickman - MDB Capital

Phillip Katz - United Equity

Michael Lu - Think Equity

Peter Ottmar - Dover Capital

Mike Halpern - Smith Barney

Valence Technology Inc. (VLNC) F3Q09 Earnings Call February 9, 2009 4:30 PM ET

Operator

Good day everyone and thank you for joining today’s Valence Q3 2009 earnings conference call. Today’s conference is being recorded. For opening remarks and introductions, I would like to turn the conference over to Pierre Dubois, Director of Investor Relations; please go ahead sir.

Pierre Dubois

Well, thanks Paul, and good afternoon to everyone joining us today for the Valence Technology third quarter fiscal 2009 conference call, to discuss reported results. With me today are Robert L. Kanode, President and Chief Executive Officer; and Ross Goolsby, Chief Financial Officer.

This conference call is being recorded and it will be available for replay at the Investor Relations section of our website at www.valence.com. And just a reminder to everyone that during this conference call today, Valence’s management may make comments that will reflect their intentions, beliefs and expectations for the future.

As a result, some of the information disclosed on this call will include forward-looking statements. Such statements are subject to a number of factors which could cause actual results to differ materially from those statements. For a discussion of those factors, please refer to Valence’s Annual Report on Form 10-K and other periodic reports and documents filed with the SEC. After opening remarks, the operator will provide instructions on how to ask questions.

With that, I would now like to turn the call over to Bob.

Robert Kanode

Thank you, Pierre. I would like to welcome everyone to our call. A lot has changed since we last spoke. Worldwide economies are in a deep recession, driving countries to a call to economic arms, not seen since the great depression. Although some of our customers have seen softness in their demand, I am pleased to report advanced lithium batteries are seen as a significant part of the economic cure. As a result, interest in our safe lithium phosphate energy storage systems is growing.

The Obama administration has only just settled in and is already attempting to make its mark, with proposed sweeping reforms to kick start the American economy. However, it is easy to overlook the fact that most other governments around the world are facing a similar stark reality. The world, not just the US, is in recession.

News of the automotive industry in the US is dominated by survival of the big three. US hybrid and EV initiatives and consumer acceptance of these products is still unknown and changes with the price of oil. However, as oil returns to higher prices, the question is, will the U.S. be ready with the product consumers want.

In Europe, the situation and focus is very different. European consumers want more efficient transportation solutions, and they expect progress. Automotive OEMs are determined to foster change and deliver well engineered solutions and European governments are strongly supporting manufacturers, encouraging consumers to buy EVs and installing infrastructure to enable use of EVs.

There are other significant factors driving European adoption of advanced EVs that includes; Europeans are more focused on driving efficiency, than luxury and performance. Even internal combustion cars are a lot more fuel efficient than their counterparts in the US, with smaller engines averaging 1.4 to 2 liters and a much larger population of diesel powered cars.

The city car is prevalent in most European cities. Small cars and scooters that buzz around, provide a perfect platform for commuters who average less than 30 kilometers per day. Cheaper to run and easier to park cars with engines less than 1.6 liters are growing in popularity. These cars are a perfect platform to convert to EVs and the European automotive OEMs know it.

Finally, did you know European automotive OEMs actually produce more than the big three combined or the OEMs of Asia? Many countries are using similar strategies and throwing money at hybrids and EVs, but while billions of dollars, euros and other currencies are put on the table for bailout packages, automotive OEMs are expected to deliver measurable results.

Not only are OEMs being asked to refocus their business propositions and streamline their operations, but governments are pressing them for future plans to measurably reduce their dependency on foreign oil and reduce carbon emissions. So we are now seeing the automotive OEMs scrambling to put in place programs for hybrid electric, plug-in hybrid electric and battery electric vehicles.

Government and automotive companies are seriously considering setting up battery manufacturing facilities. France, Spain, U.K. and Italy, have all had recent government gatherings of representative national auto companies in closed-door talks. These talks have focused on the development and deployment of advanced electric vehicles. As a result, we are considering opportunities to develop plants in the US and Europe.

For almost two years I have been communicating to potential customers the benefits of our patented lithium phosphate energy storage solutions. Compared to lithium oxide solutions offered by many manufacturers, our patented lithium phosphate offers distinct advantages, including safety that oxides cannot achieve; three to four times the life of oxides which delivers significant economic benefits; very stable, cycle to cycle performance oxides cannot match and lowest common cost of materials without supply constraints.

OEMs are now concluding lithium phosphate is the right solution, the properly balanced lithium solution, and oxides are a compromise at best. Our message has been well received, and on a recent trip to Europe it was refreshing to hear our major European automotive OEM say, phosphate represents the lowest cost, most readily available and scalable high-performance battery chemistry that we know of; but it is worth pointing out, while all lithiums are not the same, it is also true that all lithium phosphates are not the same.

Valence manufacturers patented lithium iron magnesium phosphates. There is a difference. Magnesium offers consistent cycle-to-cycle performance and extended life. Our OEMs are starting to get it and our strategy to go to Europe first to sell our commercial systems and volume is working. We firmly believe that the era of EVs is upon us. We’ve been pioneers and that will continue, but we’re nearing the time when we will enter the mainstream and it’s a good feeling.

We have proven technology that fulfills the needs of our target markets; automotive, utility and defense. We have mature manufacturing processes that are easily scalable and transferable, and unlike most of our competitors who are only shipping prototypes, we are shipping complete energy systems up to 700 volts, to power applications like a double-deck hybrid bus.

We have now met face-to-face with all major European OEMs and associated partners. As we have discussed, we have immediate opportunities in commercial EVs and hybrid vehicles, but we are learning, we also have immediate opportunities in demonstration fleets, most European countries are promoting to accelerate, adoption of alternative energy vehicles. Further, we expect this experience will lead to EV car opportunities in the next two to three years as new EV models are released by the OEMs.

I’m hoping to avoid reinventing a lithium solution for the utility sector to replace unreliable asset. Major corporations supplying the sector with backup energy generation and storage have noticed our progress and our phone is ringing. We no longer must explain the performance and economic benefits of our patented lithium phosphate technologies and manufacturing process.

Our patent estate is extensive, allowing us freedom to practice in world market and the opportunity to lead. We are proud we have shipped 70 megawatts of safe lithium phosphate, which is enough power to power 3500 four door EVs, representing the largest population of large format lithium iron batteries in the world.

The bottom line is if you need an energy system now, we can deliver; if extra manufacturing capacity is required, we can deliver; if you need engineering help, to help install and optimize the performance of our systems, we can deliver; if you want a path to future performance and economic improvements, we can deliver; if you don’t believe us, believe 105 corporations that have placed orders, received systems and are testing as we speak.

The health of worldwide economies is a concern for all, but we are determined that Valence lithium phosphate will be recognized as one of the major cures. Valence delivers and intends to continue delivering in the future.

Having said that, I now would like to turn the call over to Ross, who will review our financials, and we will then later take your questions. Ross.

Ross Goolsby

Thank you, Bob and good afternoon. I will provide some brief comments today about our financial results during the third quarter, but please also refer to our press release issued earlier today and our 10-Q also filed today for more detailed information. Links to both are available on our website.

For the third quarter ended December 31, the net loss available to common stockholders narrowed to $5.2 million or $0.04 per share, compared to $5.7 million or $0.05 per share for the third quarter of last year. On a year-to-date basis, we reported a net loss available to common stock holders of $17 million or $0.14 per share, compared to $15 million or $0.14 per share for the nine month period last year.

In terms of where we are as a company, top-line growth is what we seek to achieve, and while we do have a long way to go, in the recent quarter we experienced revenue growth of 39% on a year-over-year basis. For the latest nine-month period, our revenues grew 66% compared to the same period last year. So there’s clearly an increasing demand for alternative energy solutions and we are benefiting from that trend.

For the fiscal third quarter of 2009, total revenues increased to $4.7 million compared to $3.4 million for the same period last year. Increased sales of large format energy storage systems to existing and new customers drove this new increase.

Our gross margin for the third quarter was $250,000, compared to a negative gross margin of $35,000 in last year’s comparable quarter. Higher sales in the recent quarter contributed to the improvement. For the nine-month period we recorded a total of $2.2 million of in-charge related inventory adjustments related to the discontinuance of that product. Excluding these adjustments, our gross margin for the recent nine-month period would have been $2.2 million or 10% of revenues, compared to $1.2 million in gross margin or 9% of revenues for the same period last year.

Our year-to-date operating expenses have increased compared to last year. This is because we ramped up capacity and production in the early part of the year to meet the anticipated higher product demand. Given the revised outlook for our sales however, we have been working hard to control our expenses.

In the recent fiscal third quarter we reduced total operating expenses by 16% compared to our fiscal second quarter. So while our operating expenses, including R&D, marketing and G&A costs are up year-to-date to support the anticipated revenue growth, these expenses have declined as a total percentage of sales from 127% in the third quarter of last year, to 87% in the third quarter of this year and on are on a downward trend as we move into the next quarter.

For the third quarter, higher sales and lower operating expenses resulted in a reduced operating loss of $3.8 million compared to $4.3 million for the same period last year and compared to $5 million in the second quarter of this year. In terms of our liquidity we finished the quarter with $8.5 million in cash and cash equivalents, which along with our forecasted sales should be sufficient to cover our operating expenses for the fourth quarter and having said that, we expect fourth quarter revenues to be in the range of $4 million to $5 million.

As Bob indicated, the weak worldwide economy and the overall pace of adoption for high capacity energy storage solutions will impact the rate at which our top line will grow and our operating losses will narrow. Bob.

Robert Kanode

Thank you, Ross. As we always do, we now would like to maximize the time we can spend with you on the Q-and-A section. Can we begin please?

Question-and-Answer Session

Operator

(Operator Instructions) We’ll take our first question from Bob Ecinder - Garden State.

Bob Ecinder - Garden State

A question, Bob; I know that you’re working with Smith Electric Vehicle, and they have announced that they are going to be building a facility in the US to build hybrid electric delivery vans in coordination with Ford. My understanding is that we are the battery of choice for that van. Is that correct?

Robert Kanode

That is correct. Smith talks of speaking and working with many other battery suppliers, but in reality, we are the only company that’s capable of delivering systems to them as we speak and have done so and in fact, those products that they’re planning on manufacturing in the United States will have our battery systems in them, and they have approached us and have asked us about putting a plant in the US and we are looking at our options to do that.

Bob Ecinder - Garden State

Excellent. Okay, well to that end, I also have read that a company called Magna is working with Ford, and they are anticipating developing in coordination with Ford, hybrid plug-in electric vehicles in the US as well. Can you comment on Magna and if you are involved with them or they are one of the 105 companies you may have shipped batteries to?

Robert Kanode

First of all, as far as Magna is concerned, I was with them two weeks ago and second, a lot of people don’t understand Magna and Magna is a truly impressive corporation. The way you should think of them is, they are probably the largest manufacturer/assembler of cars outside of the majors and their business model is the following:

If one of the major manufacturers has less than usually 50,000 units, they will put that assembly operation in Magna, because it’s simply not enough volume to run on their high speed lines. So as you walk through their facility in Austria which we did last week, you will notice they are making things like Jeep product for Europe, they’re making BMW SUVs for Europe, they make Mercedes SUVs for Europe and they make things like all the brag costs, convertibles, world-wide they make.

So they are a very efficient manufacturer of low to medium volume and as far as I know all of the majors use them, even Chrysler has used them to manufacture the Chrysler 300 when it was sold in Europe and very popular when it was first launched two or three years ago. So, Magna will definitely be a player here. They have very deep technology in EVs and we’re very interested in continuing to work with them.

Bob Ecinder - Garden State

Lastly, and that’s exciting, that really is. I think everybody realizes the electric vehicle market, hybrid electric vehicle market and what’s happening out there in the space right now and this is a very exciting time for battery manufacturers like Valence. So with that, I would just like to ask one last question, and that is, the development of the Vinadium-based product, could you give us a little color as to where you are in that process?

Robert Kanode

Yes, we are continuing to develop LVP and LVPF as commercial products and they are moving along well. As far as products that will move into the motive sector or the back-up energy sector. I wouldn’t expect to see them in high volume for maybe two years, but you are going to see our lithium iron magnesium phosphate come first and do very well, and over time, I think it will always have a life.

When we do see that LVPF, for example is ready to go, you’re going to see the next generation that will offer advances in the proponent energy storage capacity per charge for example, you can drive this chemistry at a much higher voltage, which is an advantage.

So you are going to see the next step up in capabilities and as we take that next step, you are going to basically see a total energy system that is patented worldwide. As you have heard me say before, we have about 233 domestic and international patents and patent pendings on LVP and LVPF. It truly will be the next generation. It certainly would be here in I would guess two years.

Operator

Your next question comes from Ed Einboden - Wm Smith & Co.

Ed Einboden - Wm Smith & Co.

I guess just piggy backing off the comments you made regarding manufacturing facilities in Europe and the United States, can you guys kind of go through your thought process on some of the news that’s out there as a focus to be manufactured in the US and what your thought process is on opening a new facility here?

Robert Kanode

Yes, good question Ed. As we evaluate looking at a facilities anywhere, the first thing I have to mention is, after any loans or grants or any other incentives dissipate, we have to make sure that we have a profitable facility and that’s true whether we do anything in the US or Europe and we’re very careful about that, because at the end of the day we want to make our shareholders happy. So that’s point number one.

As we look at this, there are a number of things as you might imagine, on the table that could be considered. I mean, it may be as simple as performing the last few assembly steps or more. Anyone recognizes that they cannot expect to manufacture cells efficiently; this is not an easy job. So there’s a number of steps that are all on the table of what we would do in the US or what we would in Europe and we are looking at those as we speak, but there’s a couple of distinct advantages.

The fact that our manufacturing processes are mature, the fact that our patent gives us total freedom to operate worldwide, really gives us a position that if we were to put any kind of operation in the US or Europe, that we could put it on the ground faster; it would be more stable and it would yield more results than someone just starting to develop initial technology. We are already beyond that and the truth is we are shipping systems all the way up to 700 volts and all of the logic to control those systems.

To our knowledge no one else is doing that at the moment and that brings stability to the table and the ability to basically replicate our experience and our patent estate from our manufacturing operations that we have on the floor today.

Ed Einboden - Wm Smith & Co.

And if you guys could maybe comment on any of the new developments that you have had with the Tanfield relationship, whether the shipments are more likely or less likely to come up in the next few months, especially in light of the Ford announcement and the SUV venture they are planning in the United States.

Robert Kanode

I know they are reevaluating where they are on their demand at the moment. We have no new orders from them.

Ed Einboden - Wm Smith & Co.

Okay, and lastly I guess I’m trying to just get maybe some further details on the PVI announcement that you guys made earlier and sort of the opportunity that you see there. Obviously you talked some $3 million of incremental revenue in 2010 is a possibility based on our numbers. Maybe you can talk about other distribution channels or other products that they may embrace your technology and put it to play.

Robert Kanode

Well, people here don’t recognize first of all, that PVI is a significant company that makes all of the commercial electric trucks and vans for Renault and Peugeot and others. I’m sorry, in this case for Peugeot. Our PSA, which is Peugeot Citreon, that relationship in and of itself is not unlike relationships that the other OEMs have in Europe. They typically will be aligned with the bus company, a truck company, someone like Magna that does lower to medium volumes; they will have a lot of those types of relationships.

So having said that, PSI is very big in the rest of the world, Peugeot Citreon and they’re well known in the rest of the world, although hey are no longer in our market. So the PVI relationship is a very, very good first step and it’s a step that was a signal to other to consider us.

Ed Einboden - Wm Smith & Co.

Is it something that could provide opportunities in 2010, above and beyond that $3 million that you referred to or is that something that a more longer term you guys are looking into?

Robert Kanode

Well, we at this point, we want to be very conservative in our outlooks, because no one really knows where the world economies are going, however where we are with the first project, our first platform, our model is the Maxity, which you may have heard us talk about in the press release.

The Maxity is actually a truck that has been on the market for a couple of years now, powered by diesel. They want to bring that out now as an all-electric and as a matter of fact, we already have batteries in the first model and it’s been on the road. This is some of the work that we’re doing in many places, but in this case, it’s ready to go and what basically hits the road this year, we don’t yet know.

There are other indications that the Europeans are moving quickly. La post, for example, the French postal system has been trying for about three or four years now to get a demonstration fleet of small mail delivery trucks in the major cities and have not done so well with other manufacturers of batteries. We have an opportunity there and to give you an example of what these demonstration fleets look like, they would like to get 500 on the road as soon as possible, and they want to get a total fleet on the road of 10,000 as soon as possible.

So those are some of the opportunities in front of us, with all the major OEMs, but you’ll see all of the major countries doing demonstration fleets to basically gather data on the performance of EVs and prove EVs and gain further buy-in from the general public, which is very important.

Ed Einboden - Wm Smith & Co.

And lastly on guidance, I guess the $4 million to $5 million is flattish over last year. Can you provide any color as to whether that has to do with kind of delayed decision making in electric vehicles in that market and maybe on the consumer side in Segue and things?

Robert Kanode

I’ll offer a couple of examples. We have seen some softness in Segue as their markets have seen some softness and you ought to basically try to speak with them to understand it further, that’s really not my place to comment further.

As far as looking at our general customer base or opportunity base, I would put it into two sectors. Number one, If you look at someone like FedEx or UPS that’s going to buy a van, from a manufacturer like a Smith, you may see that they have delayed purchases, but if you look at something like a city, a public transit bus, like the right bus in London, we now have 13 hybrid busses in service and they want to move further faster and you could look at the funding for that has more stable.

Certainly European governments are as challenged as everyone else in the world to bring resources to the table, but it’s very, very important to note that to the Europeans this is a absolute top priority. They are not talking about, they are doing everything they can as fast as they can, to improve their security, reduce their dependence on foreign oil and basically clean up the environment. People are serious, the governments are serious in their support; I cannot emphasize that enough. It’s an excellent model.

Operator

Your next question comes from Jon Hickman – MDB Capital.

Jon Hickman – MDB Capital

Yes, could you give us a little update on your move from ground cells to prismatic cells and what that’s going to do for you and maybe how soon you can get there?

Robert Kanode

Well John, I would be welcome to comment on that. I would tell you that it’s not how we can get there; it’s how we can get back there. We have already manufactured 100,000 N-Charge products that actually have eight 5 amp-hour prismatic cells in each one. So, we’ve already shipped 800,000 high capacity prismatic cells.

So, the question becomes can we return and I think we can return with quite a bit of strength. I would add to that, that K.C. Lim has just joined us as our Chief Technology Officer and in 1997, K.C. led a team at Hughes Technology that actually built a 50-amp hour single cell that was launched in satellites. So, he is truly a pioneer of next generation high capacity cells.

So given our IP, give our experience and given the quality of our technical staff, I think we are extremely well positioned to move forward, especially since we already are shipping high volumes of systems and that gives us fundamental technology experience that we can grow on in the phosphate sector.

Jon Hickman – MDB Capital

So, is there a tame frame there?

Robert Kanode

Is there a time frame in all of that? I think you are going to see the market is going to move to prismatics in about two years, but it will always have a need for round cells, but you’ll see applications like motive and utilities go to prismatics and you will see applications like power tools, smaller packs stay with round cells.

Jon Hickman – MDB Capital

Okay. So is it hurting you on the motive side that you don’t do prismatics at the moment?

Robert Kanode

Not at all, because we basically can demonstrate our technology with our products that we now have and as far as being positioned to move into prismatics faster than others with lower risk, our experience positions us very well. You have to separate the reality of delivering real products from the myth of walking in with a slide deck paper. One of the very interesting things that we encounter in Europe is how happy they are with the length and breadth of our technology and our staff, and how well organized we are in a path forward to demonstrate our technology today and move them into prismatics. I believe we will be very, very competitive in this evolution.

Jon Hickman – MDB Capital

Could you talk about financing? Your still burning cash and it looks like you will for the scalable future; how do you plan to finance that?

Ross Goolsby

This is Ross. At this point it looks like we have enough cash to carry us into fiscal 2010 and at that point we will have to generate cash through financing activities; and in the past what we’ve looked to as our major institutional shareholder, or major share holder to help fund operations. At this point, although there’s no formal agreement, that’s an avenue, we’ll probably go down.

Jon Hickman – MDB Capital

Okay and then, you have mentioned in the past that you have 200 or so people looking at yourself; about 100 different entities actually testing surveillance of products. Is those metrics still about the same?

Robert Kanode

As I mentioned in my comments, well this is as last week actually. We have 1054 corporations testing products or have now adopted our products and that number is continuing to go up. The number of opportunities that we are seeing on our website is continuing to go up.

I have to be very frank and say that we are seeing a nice bump in activity because a lot of our competitors have talked about solutions, but have failed to deliver solutions and we simply offer the opportunity to deliver full systems that can along with all other control logic; no one else is doing that and we’re in Europe, because we saw that as a first market where we needed to sell something now, not three years from now and I keep emphasizing that, because that is a very real difference and you can expect us to move forward faster as we put two more years of experience under our belt also.

Jon Hickman – MDB Capital

Okay, that comment that you just made, there’s a little bit of a break betweem those comments and the guidance for next quarter being flat. I mean you have all these people that are testing, but it doesn’t seem like it’s going to break out for you in the near term, I guess.

Robert Kanode

Well, you have to put a couple of things in perspective when you look at this. Number one, we cannot predict how long a qualification cycle will be. For some corporations it’s six months to nine months; for other corporations, it runs up to one to two years. So we cannot predict when they will finish their qualification cycle, but I can tell you, with all of those 107, we are very please moving forward with how we are performing; however we don’t make that kind of judgment, our potential customers do.

So once that occurs, I think you’re going to see a very deliberate movement forward in demonstration fleets. You are still going to see growth in the commercial sector. How much that is in this economy? We are simply taking a very conservative step forward in our outlooks.

Jon Hickman – MDB Capital

Okay, just one last question. Can you be more specific about anything that you are doing to get money out of this Obama stimulus package?

Robert Kanode

Yes. Well, that is certainly part of would we’re looking at in relation to a U.S. plant. There’s a consortium forming, that would hope to play in this sector, but I think it’s going to be more involved in research than actual production for quite a while. We think we’re in a very unique position to put a plant in the US with mature manufacturing operations and technology; we have not finished our work. The stimulus package, the availability of that package to incent something like this, certainly will play in our decision.

Jon Hickman – MDB Capital

So when you say that, you would hope to fund that plant in the US with some of the money from the Obama initiative if it gets, like passed through congress?

Robert Kanode

That would be one of the real options.

Operator

Your next question comes from Phillip Katz - United Equity.

Phillip Katz - United Equity

Most of what I wanted to ask was already asked and answered, but I guess these will be like follow-up questions, concentrating on the Tanfield relationship. Now as we all know, Ford announced that together with Tanfield, they are going to put out an all electric commercial vehicle by 2010 and that was together with Smith electric, and we’re seeing it’s going to be with our battery. Now, you also said that we haven’t received any new orders from them. So the first question is like how long in advance would we have to receive orders for them to be able to put out vehicles by 2010?

Robert Kanode

Typically lead time on orders will run from three months all the way up to five months, that’s a window. In some cases, depending on the volume, we can do this faster. We typically are driving for high volume supply contracts with our major customers, so we can give them more flexibility. The fact that we’re making a family of products also gives us quite a bit of flexibility to respond faster, but that’s a general guideline for you.

Phillip Katz - United Equity

So I’m saying the fact that they made an announcement today and yet have they at least come to you with some kind of forecast?

Robert Kanode

No, they have not yet. That doesn’t mean that they will not tomorrow. They have come to us and asked us would we consider a US plant to supplement their relationship with Ford, and we said yes, we would consider a US plant; we are considering a US plant.

Phillip Katz - United Equity

Is that a prerequisite though, that the batteries do come from the US plant?

Robert Kanode

We do not know that it is or isn’t a prerequisite. You really at a point you’re asking the questions you should ask Smith. We are prepared to supply them, we would welcome their orders and we would respond very quickly, as we did before I might add.

Phillip Katz - United Equity

All right, that said, then of course I assume then, that the guidance for next quarter does not include any revenue from Tanfield.

Robert Kanode

Correct.

Operator

Your next question comes from Michael Lu - Think Equity.

Michael Lu - Think Equity

I just wanted to follow-up on prior questions with regards to manufacturing facilities in the United States. Did Valence apply for a loan from the ATVMIP program?

Robert Kanode

Not yet.

Michael Lu - Think Equity

Also then Bob, you’d also mentioned a hesitancy to participate in the alliance stuff that you feel is in the research stage. When do you believe it would be possible, it would be an optimal time for Valence to participate in such an alliance or join the alliance?

Robert Kanode

The way this alliance is structured, I don’t think it would be a benefit to Valence.

Michael Lu - Think Equity

At this point in time, right.

Robert Kanode

At this point in time and I say this because they really are involving themselves in pure research, moving forward to manufacturing cells, but we are beyond the pure research, if you will, we are beyond manufacturing cells and we’re into cell systems. So their approach will not fit our purpose, the bottom liners.

Michael Lu - Think Equity

I understand. So that would imply you have at least, since they haven’t even broken ground or the plant hasn’t been formed yet, it’s too early to lead I guess where they’re at this point in time. Is that a fair assessment?

Robert Kanode

Yes. I mean if you really think through it, they’re trying to start with fundamental technologies, material development and other things. We’ve already done that. We already have the technology that we plan to employ for this generation and next generation at a very mature stage.

Michael Lu - Think Equity

Okay and also on thing, can you also discuss some of your ongoing efforts in stationary power?

Robert Kanode

Yes, we’re very pleased; we’re working with most of the major corporations that work with the national grid of the UK and the national grid of Spain. We’ve also been recently contacted by South Africa, and this is something that we were planning to target next year after we launched in the motive further or penetrated the motive further and it’s coming to us, and it’s welcome, very welcome. That is our obvious next target.

Michael Lu - Think Equity

And say next year, this is your next fiscal year, is that what you’re targeting or within this calendar year we should expect to hear more.

Robert Kanode

I think you are going to see them move away from lead assets later this year and I just think our large format lithium phosphate is going to be a obvious solution for them, but they have to finish their qualification.

Now, one thing some of these major providers are doing is skipping bench test qualification, and they plan to put our systems in field tests, basically installing our systems in substations and that’s a very good sign that they need to move quickly, but Michael the reality is, they are suffering through huge problems with lead acid they simply cannot fix. 60% of the time their diesel generators don’t start and come on-line, and there’s nothing they can do about it with lead asset.

With our batteries, one little attribute that they love is they can remotely tie into our logic and read the health of our batteries remotely anywhere they choose to. That alone gets them very excited and the fact that you can predict the health of lithium phosphate and it doesn’t have the unexpected catastrophic failure that you have with lead acid. There’s a tremendous advantage for this sector.

Operator

Your next question comes from Peter Ottmar - Dover Capital.

Peter Ottmar - Dover Capital

I’m just confused by one thing Robert. I read in the business week recently about Tesla, I think that’s how you pronounce it. My understanding of our technology is that no one comes close to it and yet if I read this article correctly and they report the information correctly, their Roadster gets 240 miles on a charge before it needs to be plugged in. That sounds unbelievable to me.

Robert Kanode

You know, I just saw something recently that’s a very balanced test if you will, by the British press on that Roadster and I don’t know if it achieves that range, but their comment was it takes 16 hours to charge. Their further comment was, handling isn’t that good in anything other than a straight line, but our concern is they currently are using lithium cobalt oxide batteries and that is a safety hazard. I would not ride in that car. So anyway, I’ll leave to you look at some more research, but I think you can find better answers to your questions somewhere else.

Operator

Your next question comes from Mike Halpern - Smith Barney.

Mike Halpern - Smith Barney

Most of my questions were answered so I had to go to plan B on this. Just an observation; it seems like to me, based on the way that you’re talking, you seem a lot more optimistic as far as on where we stand than the last time we did the conference call, just in the way of the voice, it’s just my own say on that. My question is on with raskie is it burling with strategic communications?

Robert Kanode

Yes.

Mike Halpern - Smith Barney

They seem to have pretty good tie-ups with the Democratic Party, is that right?

Robert Kanode

I’m not sure of that; I would expect they do. A couple of their senior people certainly do.

Mike Halpern - Smith Barney

I guess my question is with the Obama people in office, what are they doing or do you know how they are trying to get Valence’s name out to the right people as in articles or just getting the name out more in the public’s eye?

Robert Kanode

Well Mike, you can rest assured, if we choose to approach or put a US plant on the ground, we will bring all resources to the table that’s required to get in front of the right people in Washington to make sure we’re given our due consideration. We don’t intend to waste our time with this effort if we choose to move forward. We will bring the right resources to the table.

Operator

That does conclude our question-and-answer session for today. I would like to turn the call back over to Bob Kanode for any closing comments.

Robert Kanode

I simply would like to thank everyone for your participation and your interest in our company and bid everyone a good day. Thank you.

Operator

That does conclude our conference for today. We thank you for your participation. Have a great day.

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Source: Valence Technology F3Q09 (Qtr End 12/31/08) Earnings Call Transcript
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