Slowly but surely, the advanced battery business is starting to pick up steam, at least in the fleet market Valence Technology (Nasdaq: VLNC) serves.

For its second fiscal quarter, Valence reported revenue of $12.7 million, up 278% from the first quarter last year. What's more impressive is the 127% sequential growth from the previous quarter. As the battery business picks up, sequential growth will be more meaningful than year-over-year results going forward.

Valence still reported a loss of $3.6 million, or $0.03 per share, but that is down from a $6.2 million loss last year. Litigation costs of $1.5 million associated with pending patent disputes also hurt the company.

What impressed me most in the quarter were gross margins improving to 22%, up another 5 percentage points from last quarter. Margins have been an issue at battery makers like Ener1 (Nasdaq: HEV) and A123 Systems (Nasdaq: AONE), which have low capacity utilization, so it's nice to see them improving to a comfortable level at Valence.

Throwing cash in the fire
Cash burn at Valence and other battery manufacturers is a major concern as revenue starts to pick up. Valence is walking a tightrope right now with cash on hand only at $4.2 million and accounts receivable and inventory increasing a combined $14.6 million since the March quarter.

I doubt Valence can generate enough cash to maintain operations, so more equity offerings may be made, diluting shareholders further. Over the last year, share count has increased 8.6%, but that's a risk battery investors are used to dealing with.

Overall, Valence had a great quarter and we're getting closer to breakeven, which management anticipates at around $80 million in annual sales. Valence has a ways to go to catch up with Advance Battery Technologies (Nasdaq: ABAT), which already has a history of profits, but now we can see the light at the end of the tunnel.

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Fool contributor Travis Hoium does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings, or follow his Motley Fool CAPS picks at TMFFlushDraw.

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