QUANTUM GRAPHITE LIMITED — Capital/Financing Update 2014

Jan 2, 2014

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VALENCE INDUSTRIES LIMITED

60 Hindmarsh Square, Ground Floor Adelaide South Australia 5000 AUSTRALIA

24 December 2013

Mr Nathan Bartrop Senior Adviser Listings Compliance ASX Compliance Pty Ltd 20 Bridge Street SYDNEY NSW 2000

ASX ANNOUNCEMENT (ASX:VXL)

UPDATED STATEMENT OF FINANCIAL POSITION

Set out below is the updated statement of financial position for Valence Industries Ltd (Company), based on the actual amount raised under the Company’s replacement prospectus dated 15 November 2013, being $6,734,735. The pro forma Statement of Financial Position set out below, includes the pro forma transactions set out in Note 2 as if they had occurred on 30 June 2013.

Note	Audited 30 June 2013		Reviewed Pro Forma Minimum Subscription
Current assets Cash and cash equivalents 3 Total current assets Non current assets Property, Plant & Equipment Exploration expenditure 4 Total non current assets Total assets Current liabilities Trade Payables Loan from Strategic Energy Resources Limited 5 Total current liabilities NET ASSETS Shareholders equity Issued capital 6 Reserves 7 Retained earnings 8 TOTAL EQUITY	5,029		6,547,156
	5,029		6,547,156
	3,428 192,129		3,428 240,674
	195,557		244,102
	200,586		6,791,258
	82,524 282,380		46,466 -
	**364,904 **		46,466
	(164,318)		6,744,792
	3,228,050 - (3,392,368)		10,270,670 1,337,113 (4,862,991)
	(164,318)		6,744,792

The historical Statement of Financial Position has been extracted from the audited financial statements of Valence Industries Limited (previously Strategic Graphite Limited) as at 30 June 2013.

www.valenceindustries.com

ASIA PACIFIC I NORTH AMERICA I EUROPE

ABN 41 008 101 979

2

Note 2 – Pro forma adjustments

The pro forma financial information has been prepared to illustrate the effects of the actual funds raised under the Offer and is based on the assumption that the transactions and events contemplated in the Prospectus, summarised below and referred to as the pro forma adjustments, had taken place on or before 30 June 2013.

2.1 Subsequent events

• Subsequent to balance date the following material transactions have taken place:

• The company has borrowed a further $69,770 from Strategic Energy Resources Limited to fund exploration ($48,545) and other operating expenses ($21,225). The total loan received was repaid on 3 October 2013 totalling $352,150.

• The issue of 6,250,000 ordinary shares at an issue price of $0.16 per share to raise $1,000,000 (Prior Placement). The Company has also agreed to issue 3,125,000 attaching share options for no consideration as part of the offer.

• The issue of 352,362 ordinary shares to the former directors of the company with a fair value price of $70,472 and $2,458 cash in settlement of outstanding directors fees.

• At the 2013 Annual General Meeting of the Company held on 19 November 2013, shareholders have approved the following:

  • A consolidation of the share capital of the company through the conversion of every two shares held by a shareholder to one share with fractions rounded up to the nearest whole share. The consolidation resulted in a reduction of shares on issue by 115,194,303.

  • The issue of 2,000,000 unlisted share options to the Managing Director. These options have an exercise price of $0.25, are exercisable at any time until 31 July 2016 subject to certain key performance indicators and have a fair value of $69,197.

  • The issue of 2,750,000 Performance Rights to the Managing Director. The Performance Rights will be subject to certain key performance indicators and will convert to one ordinary share for each right held. The fair value of the Performance Rights to be issued is $550,000.

  • The issue of 500,000 unlisted share options to each of the current non-executive directors and 1,000,000 unlisted share options to each of the past non-executive directors (4,500,000 in total). These options have an exercise price of $0.25, are exercisable at any time until 31 July 2016 and options to current non-executive Directors are subject to certain key performance indicators and have a total fair value of $155,693.

• The issue of 7,500,000 ordinary shares (post consolidation) at an issue price of $0.20 per share via a placement to raise $1,500,000 before costs. Each share issued will receive one free attaching option (7,500,000).

2.2 Actual subscriptions

• The issue of 33,673,677 ordinary shares at an issue price of $0.20 per share via a 3 for 8 rights issue and pursuant to the prospectus to existing shareholders and any issue under the Shortfall to raise $6,734,735.40 with one free attaching option per share; and

• The payment of expenses associated with the Offers (including advisory, legal, accounting, listing and administrative fees) estimated to be $838,000. Additionally, the fair value of underwriter options are recognised as capital raising costs amounting to $562,223. In accordance with Australian Accounting Standards an amount of $369,031 (net of tax) has been offset against share capital and $468,969 has been charged against retained earnings.

Yours sincerely,

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Jaroslaw (Jarek) Kopias Company Secretary Valence Industries Ltd