Citron Examines Valence Technology (NASDAQ:VLNC)


“Trust, but verify.” – Ronald Reagan

Here is a short and sweet story that has been infesting Wall Street for over 15 years. Valence Technology (NASDAQ:VLNC) is one of those “developmentally challenged” companies that never seems to get out of development stage. For 15 years, they’ve claimed to have a lithium battery that is promised to have uses from computers to aircraft to scooters to automobiles. Certainly, there has been a battery of press releases over the past 4 years …. But no meaningful business ever comes to fruition. With the recent recharge in the stock, Citron thought we would offer investors our perspective.


Some things are better left non- editorialized. The finanes at Valence Techhology are enough for a report themselves. There is nothing more damaging that Citron can write than what we read in the company’s own filings:

Market Cap — $500 million +
Cash — $2.8 million
Long Term Debt — $74 million
Last Qtr revenue — $3.378 million
Loss for Qtr — $5.7 million
Accumulated Deficit — $531 million
Historical Cost of Goods – 98% to 168%

Needless to say, all of these losses have brought Valence a well-earned “going concern” from their auditor.

The scheme

Running out of cash and fast, Valence decided to solve the problem in a standard Wall Street recipe which we have seen too often:

  1. Put out some murky press releases that sound better than they are.
  2. Invite a brokerage firm to put a buy rec on them
  3. Turn around and give that brokerage firm the business and raise money at a higher price.

Here is the scheme broken into pieces:


On February 7, 2008 the same day that Valence announced extremely disappointing quarterly results, they attempted to soften the blow by putting out the misleading press release of an order by Tanfield of “up to” $70 million. Reading the supply agreement between the two to see that nowhere does it state a minimum, nor does it ever say one word to affirm that the $70 million figure has even a remote chance of being realized as real revenue that investors can rely upon.

It is the opinion of Citron that the Tanfield agreement will turn out like every other agreement held by Valence … all fluff and no substance … and no real revenue.

If one wanted to bet on the future of Tanfield, Valence is surely no way to do so. There is a company on the American Stock called Enova (AMEX:ENA) that develops hybrid drive systems that it is currently selling to Tanfield. It has significantly more revenues than Valence and 4x more cash. It has nearly zero debt, and currently sports a market cap of $66 million (just so you don’t think we’re only hard-line cynics).


On February 19, Valence announced that they were shipping additional units to Oemtek for their Toyota Prius add-on kit.


Note: the deal is not with Toyota but rather with a small startup company who is trying to sell add-on kits for the Prius … kits, which cost almost half the price of the entire vehicle — new. But here is where it gets funky. In the press release we read that previously they have shipped Oemtek 300 modules and this is a follow-on order. According to the information on the below sites, Oemtek was initially funded by none other than Carl Berg, the chairman and largest shareholder of Valence.

What makes this so bad is threefold:

  1. If Oemtek was funded by Berg, then all revenue from this transaction has been improperly recognized and should be categorized as related party transactions.
  2. It was never disclosed in the press release or in any investor presentation that Berg is financially involved in Oemtek.
  3. Even though the value of the transaction isn’t sufficient to benefit Valence materially, the announcement alone is misleading because it induces investors to believe that Valence was chosen for superior technology, not because of the subsidy of an investor who stands to benefit by the transaction.
  4. Whether or not this was an oversight of the company or done intentionally, investors have a right to full disclosure of Mr. Berg’s involvement in the funding of Oemtek.
WM Smith

Needless to say Valence is currently raising money. The investment bank du jour happens to be the only brokerage firm who covers them WM Smith….nothing else needs to be said on this.

History Repeating

Citron finds it amazing that history is so accurately repeating itself in Valence. Below are links to stories in Forbes and Dow Jones from 1993 expressing skepticism about Valence’s promises of “$500 million revenue in 5 years.”

Broken Promises (PDF)

Forbes Part 1

Forbes Part 2

For one thing, at the time Forbes was clucking about how Valence’s unproven products were commanding a market cap of over $300 million. Today that number stands in excess of $500 million. And fifteen years ago, Valence was essentially debt-free.

So what’s different now?

Valence past and present: 1992 to 1995 2005 to 2008
Annual Revenues $3 to $7 million $9 to $17m
Annual Losses $3 to $33 million $20 to $33 million
Debt $2 to 7 million $87 million
Market Cap $100 to $300 million $500 million

Cautious investing to all.