10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2012

or

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to________

Commission File Number 001-33540

(Exact name of registrant as specified in its charter)

Wisconsin	39-1987014
(State or other jurisdiction of	(I.R.S. Employer Identification No.)
incorporation or organization)

N93 W14475 Whittaker Way, Menomonee Falls, WI  53051

(Address of principal executive offices)

(262) 253-9800

(Registrant’s telephone number)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.      þ Yes   o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).    þ Yes   o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

Large accelerated filer   o	Accelerated filer   o	Non-accelerated filer o	Smaller reporting company þ
	(Do not check if a smaller reporting company)

Indicate by check whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes o      No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Shares Outstanding as of February 14, 2013
Common Stock, $.01 par value per share	77,608,535

ZBB Energy Corporation

Form 10-Q

TABLE OF CONTENTS

	PART I. FINANCIAL INFORMATION (*)	Page
Item 1.	Condensed Consolidated Financial Statements	1
	Condensed Consolidated Balance Sheets (unaudited), December 31, 2012 and June 30, 2012	1
	Condensed Consolidated Statements of Operations (unaudited), Three and Six Months Ended December 31, 2012 and December 31, 2011	2
	Condensed Consolidated Statements of Comprehensive Loss (unaudited), Three and Six Months Ended December 31, 2012 and December 31, 2011	3
	Condensed Consolidated Statements of Changes in Equity (unaudited), Year ended June 30, 2012 and Six Months Ended December 31, 2012	4
	Condensed Consolidated Statements of Cash Flows (unaudited), Six Months Ended December 31, 2012 and December 31, 2011	5
	Notes to Condensed Consolidated Financial Statements (unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30
Item 4.	Controls and Procedures	30
	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	31
Item 1A.	Risk Factors	31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31
Item 3.	Defaults upon Senior Securities	31
Item 4.	Mine Safety Disclosures	31
Item 5.	Other Information	31
Item 6.	Exhibits	31
	Signatures	32

(*) All of the financial statements contained in this Quarterly Report are unaudited with the exception of the financial information at June 30, 2012, which has been derived from our audited financial statements at that date and should be read in conjunction therewith. Our audited financial statements as of June 30, 2012 and for the year then ended, and the notes thereto, can be found in our Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on September 19, 2012.

ZBB ENERGY CORPORATION
Condensed Consolidated Balance Sheets
	December 31, 2012 (Unaudited)			June 30, 2012
Assets
Current assets:
Cash and cash equivalents	$	2,118,800		$	7,823,217
Restricted cash on deposit		310,000			-
Accounts receivable, net		1,171,485			480,563
Inventories		2,844,484			2,912,207
Prepaid and other current assets		899,807			187,448
Refundable income tax credit		265,392			185,545
Total current assets		7,609,968			11,588,980
Long-term assets:
Property, plant and equipment, net		5,261,794			5,484,545
Investment in investee company		2,550,776			3,083,889
Intangible assets, net		774,101			1,143,122
Goodwill		803,079			803,079
Total assets	$	16,999,718		$	22,103,615
Liabilities and Equity
Current liabilities:
Bank loans and notes payable	$	935,207		$	1,022,826
Accounts payable		1,336,324			1,899,029
Accrued expenses		1,221,286			1,289,138
Customer deposits		1,602,266			1,315,309
Accrued compensation and benefits		131,840			335,369
Total current liabilities		5,226,923			5,861,671
Long-term liabilities:
Bank loans and notes payable		2,719,258			2,915,134
Total liabilities		7,946,181			8,776,805
Equity
Series A preferred stock ($0.01 par value, $10,000 face value)		-			-
10,000,000 authorized and no shares issued
Common stock ($0.01 par value); 150,000,000 authorized,
77,568,535 and 72,977,248 shares issued and outstanding as of December 31, 2012 and June 30, 2012, respectively		775,686			729,773
Additional paid-in capital		82,332,895			80,363,519
Accumulated deficit		(75,020,156	)		(69,053,909	)
Accumulated other comprehensive loss		(1,585,664	)		(1,584,921	)
Total ZBB Energy Corporation Equity		6,502,761			10,454,462
Noncontrolling interest		2,550,776			2,872,348
Total equity		9,053,537			13,326,810
Total liabilities and equity	$	16,999,718		$	22,103,615
See accompanying notes to condensed consolidated financial statements.

1

ZBB ENERGY CORPORATION
Condensed Consolidated Statements of Operations (Unaudited)
	Three months ended December 31,						Six months ended December 31,
	2012			2011			2012			2011
Revenues
Product sales	$	2,748,007		$	240,921		$	4,353,145		$	467,028
Engineering and development		-			200,000			218,183			1,611,750
Total Revenues		2,748,007			440,921			4,571,328			2,078,778
Costs and Expenses
Cost of product sales		2,265,206			187,620			3,757,598			344,291
Cost of engineering and development		-			-			45,065			481,107
Advanced engineering and development		1,375,800			1,186,352			2,535,539			1,885,735
Selling, general, and administrative		1,610,422			1,421,690			3,291,974			3,099,687
Depreciation and amortization		342,830			410,595			683,462			729,776
Total Costs and Expenses		5,594,078			3,206,257			10,313,458			6,540,596
Loss from Operations		(2,846,071	)		(2,765,336	)		(5,742,130	)		(4,461,818	)
Other Income (Expense)
Equity in loss of investee company		(456,632	)		(58,710	)		(533,113	)		(58,710	)
Interest income		594			3,279			983			9,968
Interest expense		(45,647	)		(58,823	)		(93,210	)		(118,491	)
Other income		-			250			-			4,263
Total Other Income (Expense)		(501,685	)		(114,004	)		(625,340	)		(162,970	)
Loss before provision (benefit) for Income Taxes		(3,347,756	)		(2,879,340	)		(6,367,470	)		(4,624,788	)
Provision (benefit) for Income Taxes		(74,151	)		(111,800	)		(74,151	)		(181,800	)
Net loss		(3,273,605	)		(2,767,540	)		(6,293,319	)		(4,442,988	)
Net loss attributable to noncontrolling interest		190,148			37,230			327,072			37,230
Net Loss Attributable to ZBB Energy Corporation	$	(3,083,457	)	$	(2,730,310	)	$	(5,966,247	)	$	(4,405,758	)
Net Loss per share
Basic and diluted	$	(0.04	)	$	(0.08	)	$	(0.08	)	$	(0.14	)
Weighted average shares-basic and diluted		77,568,535			33,681,776			77,443,772			32,089,356
See accompanying notes to condensed consolidated financial statements.

2

ZBB ENERGY CORPORATION
Condensed Consolidated Statements of Conmprehensive Loss (Unaudited)
	Three months ended December 31,						Six months ended December 31,
	2012			2011			2012			2011
Net loss	$	(3,273,605	)	$	(2,767,540	)	$	(6,293,319	)	$	(4,442,988	)
Foreign exchange translation adjustments		(984	)		10,297			(743	)		(12,209	)
Comprehensive loss	$	(3,274,589	)	$	(2,757,243	)	$	(6,294,062	)	$	(4,455,197	)
Net loss attributable to noncontrolling interest		190,148			37,230			327,072			37,230
Comprehensive Loss Attributable to ZBB Energy Corporation	$	(3,084,441	)	$	(2,720,013	)	$	(5,966,990	)	$	(4,417,967	)
See accompanying notes to condensed consolidated financial statements.

3

ZBB Energy Corporation
Condensed Consolidated Statements of Changes in Equity (Unaudited)
																									Accumulated Other Comprehensive (Loss)
	Preferred Stock						Common Stock						Additional Paid-in Capital			Notes Receivable - Common Stock			Treasury Stock			Accumulated Deficit						Noncontrolling Interest
	Shares			Amount			Shares			Amount
Balance: July 1, 2011		355.4678		$	3,715,470			29,912,415		$	299,124		$	60,777,286		$	(3,707,799	)	$	(11,136	)	$	(55,343,683	)	$	(1,572,752	)
Net loss																							(13,710,226	)				$	(210,714	)
Net translation adjustment																										(12,169	)
Warrants issued in connection   with convertible debt														423,672
Beneficial conversion on   convertible debt														418,585
Issuance of common stock, net of   costs and underwriting fees								31,872,169			388,962			14,072,955
Warrants issued to underwriters														1,024,726
Issuance of preferred stock,    net of issuance costs		219.6602			2,197,240			11,156,497			41,326			2,053,413			(2,187,330	)
Stock-based compensation								50,000		500				1,586,298
Retirement of treasury shares								(13,833	)		(139	)		(10,997	)					11,136
Interest on notes receivable -   common stock														529,651			(529,651	)
Accretion of dividends on   preferred stock					523,379									(523,379	)
Redemption of Preferred Stock		(575.1280	)		(6,436,089	)								11,309			6,424,780
Issuance of subsidiary shares to    noncontrolling interest																													3,083,062
Balance: June 30, 2012		-			-			72,977,248			729,773			80,363,519			-			-			(69,053,909	)		(1,584,921	)		2,872,348
Net loss																							(5,966,247	)					(327,072	)
Net translation adjustment																										(743	)
Issuance of common stock, net of   costs and underwriting fees								4,591,287			45,913			1,555,766
Stock-based compensation														413,610
Issuance of subsidiary shares to    noncontrolling interest																													5,500
Balance: December 31, 2012		-			-			77,568,535		$	775,686		$	82,332,895			-			-		$	(75,020,156	)	$	(1,585,664	)	$	2,550,776

 See accompanying notes to condensed consolidated financial statements.

4

ZBB Energy Corporation
Condensed Consolidated Statements of Cash Flows (Unaudited)
	Six months ended December 31,
	2012			2011
Cash flows from operating activities
Net loss	$	(6,293,319	)	$	(4,442,988	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation of property, plant and equipment		314,441			349,388
Amortization of intangible assets		369,021			380,388
Stock-based compensation		413,610			644,640
Equity in loss of investee company		533,113			58,710
Changes in assets and liabilities
Accounts receivable		(690,922	)		(189,616	)
Inventories		67,723			(1,151,633	)
Prepaids and other current assets		(712,359	)		(87,896	)
Refundable income taxes		(79,847	)		47,450
Accounts payable		(562,705	)		904,531
Accrued compensation and benefits		(203,529	)		(169,134	)
Accrued expenses		(69,222	)		(206,541	)
Customer deposits		286,957			308,516
Net cash used in operating activities		(6,627,038	)		(3,554,185	)
Cash flows from investing activities
Expenditures for property and equipment		(91,690	)		(1,307,927	)
Investment in investee company		-			(1,640,728	)
Deposits of restricted cash		(310,000	)
Net cash used in investing activities		(401,690	)		(2,948,655	)
Cash flows from financing activities
Repayments of bank loans and notes payable		(283,495	)		(151,867	)
Proceeds from issuance of Series A preferred stock		-			2,197,240
Proceeds from issuance of common stock		1,744,688			1,887,398
Common stock issuance costs		(143,009	)		(176,934	)
Proceeds from noncontrolling interest		5,500			1,546,062
Net cash provided by financing activities		1,323,684			5,301,899
Effect of exchange rate changes on cash and cash equivalents		627			(29,111	)
Net decrease in cash and cash equivalents		(5,704,417	)		(1,230,052	)
Cash and cash equivalents - beginning of period		7,823,217			2,910,595
Cash and cash equivalents - end of period	$	2,118,800		$	1,680,543
Cash paid for interest	$	93,210		$	105,451
Cash received for income tax credit		-			223,703
Supplemental non-cash investing and financing activities:
Issuance of common stock for discounted notes receivable		-		$	2,187,330
See accompanying notes to condensed consolidated financial statements.

5

ZBB ENERGY CORPORATION

Notes to Condensed Consolidated Financial Statements (unaudited)

December 31, 2012

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

ZBB Energy Corporation (“ZBB,” “we,” “us,” “our” or the “Company”) develops and manufactures distributed energy storage solutions based upon the Company’s proprietary zinc bromide rechargeable electrical energy storage technology and proprietary power electronics systems.  A developer and manufacturer of modular, scalable and environmentally friendly power systems (“ZBB EnerSystem”), ZBB was incorporated in Wisconsin in1998 and is headquartered in Wisconsin, USA with offices also located in Perth, Western Australia.

The Company provides advanced electrical power management platforms targeted at the growing global need for distributed renewable energy, energy efficiency, power quality, and grid modernization.  The Company and its power electronics subsidiary, Tier Electronics LLC, have developed a portfolio of intelligent power management platforms that directly integrate multiple renewable and conventional onsite generation sources with rechargeable zinc bromide flow batteries and other storage technology. The Company also offers advanced systems to directly connect wind and solar equipment to the grid and systems that can form various levels of micro-grids.  Tier Electronics LLC participates in the energy efficiency markets through its hybrid vehicle control systems, and power quality markets with its line of regulation solutions. Together, these platforms solve a wide range of electrical system challenges in global markets for utility, governmental, commercial, industrial and residential end customers.

The consolidated financial statements include the accounts of the Company and those of its wholly-owned subsidiaries: Tier Electronics LLC which operates manufacturing facilities in Menomonee Falls, Wisconsin; ZBB Energy Pty Ltd. (formerly known as ZBB Technologies, Ltd.) which has an advanced engineering and development facility in Perth, Australia; and its sixty percent owned subsidiary ZBB PowerSav Holdings Limited located in Hong Kong which was formed in connection with the Company’s investment in the China joint venture. A former wholly-owned subsidiary ZBB Technologies, Inc. was merged with and into ZBB on January 1, 2012.

Interim Financial Data

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting only of adjustments of a normal and recurring nature) considered necessary for fair presentation of the results of operations have been included. Operating results for the six month period ended December 31, 2012 are not necessarily indicative of the results that might be expected for the year ending June 30, 2013.

The condensed consolidated balance sheet at June 30, 2012 has been derived from audited financial statements at that date, but does not include all of the information and disclosures required by GAAP. For a more complete discussion of accounting policies and certain other information, refer to the Company’s annual report filed on Form 10-K for the fiscal year ended June 30, 2012.

Basis of Presentation

The accompanying consolidated financial statements include the accounts of the Company and its wholly and majority-owned subsidiaries and have been prepared in accordance with U.S. GAAP. All significant intercompany accounts and transactions have been eliminated upon consolidation.

Cash and Cash Equivalents

The Company considers all highly liquid investments with maturities of three months or less to be cash equivalents.  The Company maintains its cash deposits in fully insured accounts at financial institutions predominately in the United States, Australia, and Hong Kong.  The Company has not experienced any losses in such accounts.

6

Restricted Cash on Deposit

The Company had $310,000 and $0 in restricted cash on deposit as of December 31, 2012 and June 30, 2012, respectively, as collateral for certain credit arrangements with vendors.

Accounts Receivable

The Company records allowances for doubtful accounts based on customer-specific analysis and general matters such as current assessments of past due balances and economic conditions.  The Company writes off accounts receivable against the allowance when they become uncollectible.  Accounts receivable are stated net of an allowance for doubtful accounts of $0 and $80,000, as of December 31, 2012 and June 30, 2012, respectively.

Inventories

Inventories are stated at the lower of cost or market using the first-in, first-out (FIFO) or average cost methods.  The carrying value of inventories is reviewed for obsolescence on at least a quarterly basis or more frequently if warranted due to changes in conditions.  Market is determined on the basis of estimated net realizable values.

Property, Plant and Equipment

Land, building, equipment, computers and furniture and fixtures are recorded at cost.  Maintenance, repairs and betterments are charged to expense as incurred. Depreciation is provided for all plant and equipment on a straight line basis over the estimated useful lives of the assets.  The estimated useful lives used for each class of depreciable asset are:

	Estimated Useful Lives
Manufacturing equipment	3 - 7 years
Office equipment	3 - 7 years
Building and improvements	7 - 40 years

Investment in Investee Company

Investee companies that are not consolidated, but over which the Company exercises significant influence, are accounted for under the equity method of accounting. Whether or not the Company exercises significant influence with respect to an investee depends on an evaluation of several factors including, among others, representation on the investee company’s board of directors and ownership level, which is generally a 20% to 50% interest in the voting securities of the investee company. Under the equity method of accounting, an investee company’s accounts are not reported in the Company’s condensed consolidated balance sheets and condensed statements of operations; however, the Company’s share of the earnings or losses of the investee company is reflected in the caption ‘‘Equity in loss of investee company” in the condensed consolidated statements of operations. The Company’s carrying value in an equity method investee company is reported in the caption ‘‘Investment in investee company’’ in the Company’s condensed consolidated balance sheets.

When the Company’s carrying value in an equity method investee company is reduced to zero, no further losses are recorded in the Company’s consolidated financial statements unless the Company guaranteed obligations of the investee company or has committed additional funding. When the investee company subsequently reports income, the Company will not record its share of such income until it equals the amount of its share of losses not previously recognized.

Intangible Assets

Intangible assets generally result from business acquisitions.  Assets acquired and liabilities assumed are recorded at their estimated fair values.  Intangible assets consist of a non-compete agreement, license agreement, and trade secrets.  Amortization is recorded for intangible assets with determinable lives. Intangible assets are amortized using the straight line method over the three year estimated useful lives of the respective assets.

7

Goodwill

Goodwill is recognized as the excess cost of an acquired entity over the net amount assigned to assets acquired and liabilities assumed. Goodwill is not amortized but reviewed for impairment annually as of June 30 or more frequently if events or changes in circumstances indicate that its carrying value may be impaired.  These conditions could include a significant change in the business climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant portion of a reporting unit.

In September 2011, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) to Accounting Standards Codification (“ASC”) Topic 350, “Intangibles — Goodwill and Other.”  This ASU amends the guidance in ASC Topic 350-20 on testing for goodwill impairment. The revised guidance allows entities testing for goodwill impairment to have the option of performing a qualitative assessment before calculating the fair value of the reporting unit. If the Company determines, on the basis of qualitative factors, that it is more likely than not that the fair value of the reporting unit is less than the carrying amount, the two-step impairment test is required.  If we cannot determine on the basis of qualitative factors that goodwill is not impaired, the two-step impairment test is required.

The first step of the impairment test requires the comparing of a reporting unit’s fair value to its carrying value. If the carrying value is less than the fair value, no impairment exists and the second step is not performed. If the carrying value is higher than the fair value, there is an indication that impairment may exist and the second step must be performed to compute the amount of the impairment. In the second step, the impairment is computed by estimating the fair values of all recognized and unrecognized assets and liabilities of the reporting unit and comparing the implied fair value of reporting unit goodwill with the carrying amount of that unit’s goodwill.  The Company determined fair value as evidenced by market capitalization, and concluded that there was no need for an impairment charge as of December 31, 2012 and June 30, 2012.

Impairment of Long-Lived Assets

In accordance with FASB ASC Topic 360, "Impairment or Disposal of Long-Lived Assets," the Company assesses potential impairments to its long-lived assets including property, plant and equipment and intangible assets when there is evidence that events or changes in circumstances indicate that the carrying value may not be recoverable.

If such an indication exists, the recoverable amount of the asset is compared to the asset’s carrying value. Any excess of the asset’s carrying value over its recoverable amount is expensed in the consolidated statement of operations. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate.  Management has determined that there were no long-lived assets impaired as of December 31, 2012 and June 30, 2012.

Warranty Obligations

The Company typically warrants its products for twelve months after installation or eighteen months after date of shipment, whichever first occurs. Warranty costs are provided for estimated claims and charged to cost of product sales as revenue is recognized.  Warranty obligations are also evaluated quarterly to determine a reasonable estimate for the replacement of potentially defective materials of all energy storage systems that have been shipped to customers.

While the Company actively engages in monitoring and improving its evolving battery and production technologies, there is only a limited product history and relatively short time frame available to test and evaluate the rate of product failure.  Should actual product failure rates differ from the Company’s estimates, revisions will be made to the estimated rate of product failures and resulting changes to the liability for warranty obligations.  In addition, from time to time, specific warranty accruals may be made if unforeseen technical problems arise.

As of December 31, 2012 and June 30, 2012, included in the Company’s accrued expenses were $673,030 and $418,557, respectively, related to warranty obligations.  Such amounts are included in accrued expenses in the accompanying condensed consolidated balance sheets.

The following is a summary of accrued warranty activity:

8

	Six Months and Year Ended
	December 31, 2012			June 30, 2012
Beginning balance	$	418,557		$	413,203
Accruals for warranties during the period		308,692			196,753
Settlements during the period		(78,337	)		(126,902	)
Adjustments relating to preexisting warranties		24,118			(64,497	)
Ending balance	$	673,030		$	418,557

Revenue Recognition

Revenues are recognized when persuasive evidence of a contractual arrangement exits, delivery has occurred or services have been rendered, the seller’s price to buyer is fixed and determinable, and collectability is reasonably assured. The portion of revenue related to installation and final acceptance, is deferred until such installation and final customer acceptance are completed.

For sales arrangements containing multiple elements (products or services), revenue relating to undelivered elements is deferred at the estimated fair value until delivery of the deferred elements. To be considered a separate element, the product or service in question must represent a separate unit under SEC Staff Accounting Bulletin 104, and fulfill the following criteria: the delivered item(s) has value to the customer on a standalone basis; there is objective and reliable evidence of the fair value of the undelivered item(s); and if the arrangement includes a general right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially in our control. If the arrangement does not meet all criteria above, the entire amount of the transaction is deferred until all elements are delivered. Revenue from time and materials based service arrangements is recognized as the service is performed.

The portion of revenue related to engineering and development is recognized ratably upon delivery of the goods or services pertaining to the underlying contractual arrangement or revenue is recognized as certain activities are performed by the Company over the estimated performance period.

The Company charges shipping and handling fees when products are shipped or delivered to a customer, and includes such amounts in net revenues. The Company reports its revenues net of estimated returns and allowances.

Revenues from government funded research and development contracts are recognized proportionally as costs are incurred and compared to the estimated total research and development costs for each contract. In many cases, the Company is reimbursed only a portion of the costs incurred or to be incurred on the contract. Government funded research and development contracts are generally multi-year, cost-reimbursement and/or cost-share type contracts. The Company is generally reimbursed for reasonable and allocable costs up to the reimbursement limits set by the contract.

Total revenues of $2,748,007 and $4,571,328 were recognized for the three and six months ended December 31, 2012, respectively.  Revenues for the three months ended December 31, 2012 were comprised of four significant customers (83% of total revenues) and revenues for the six months ended December 31, 2012 were comprised of five significant customers (77% of total revenues).  Total revenues of $440,921 and $2,078,778 were recognized for the three and six months ended December 31, 2011, and were comprised of one significant customer (81% of total revenues).

Engineering and Development Revenues

On April 8, 2011, the Company entered into a Collaboration Agreement (the “Collaboration Agreement”) with Honam Petrochemical Corporation (“Honam”), a division of LOTTE Petrochemical, pursuant to which the Company agreed with Honam to collaborate on the further technical development of the Company’s third generation zinc bromide flow battery module (the “Version 3 Battery Module”).  Pursuant to the Collaboration Agreement, Honam was required to pay the Company a total of $3,000,000 as follows:  (1) $1,000,000 within 10 days following the execution of the Collaboration Agreement (subsequently received on April 9, 2011); (2) $500,000 by June 30, 2011 (subsequently received on June 30, 2011); (3) $1,200,000 by October 10, 2011 (subsequently received on October 10, 2011) and (4) $300,000 within 10 days after a single Version 3 Battery Module test station  is set up at Honam’s research and development center (subsequently received on March 30, 2012).  The Company had recognized $2,300,000 of revenue under this agreement as of December 31, 2011 and the Company had recognized $3,000,000 as revenue as of June 30, 2012 based on performance milestones achieved.  Pursuant to the Collaboration Agreement, the parties are required to negotiate a license agreement under which upon the completion of the collaboration project and the receipt by the Company of all payments due under the Collaboration Agreement, the Company shall grant to Honam: (1) a fully paid-up, exclusive and royalty-free license to sell and manufacture the Version 3 Battery Module in Korea and (2) non-exclusive rights to sell the Version 3 Battery Module in Japan, Thailand, Taiwan, Malaysia, Vietnam and Singapore.  In connection with such non-exclusive rights, Honam is required to pay us a royalty.  No royalties have been earned to date.

9

On December 13, 2011, the Company entered into a joint development and license agreement with a global technology company to jointly develop flow batteries. The objective of the joint development agreement is to develop low cost, high energy density grid scale flow battery stacks and systems that could lead to a significant cost reduction for grid level storage.  The joint development agreement provided for payments to the Company as follows:  $175,000 in December 2011 (subsequently received $175,000 in December 2011), payments of $75,000 every three months starting April 2012 through January 2013 (subsequently received $75,000 during April, June  and October of 2012) and $100,000 every three months starting in April 2013 through January 2014.  The global technology company also purchased 933,333 shares of the Company’s common stock in December 2011 for $700,000.  The Company recognizes revenue under this agreement upon achievement of certain performance milestones.  The Company recognized $0 and $200,000 of revenue under this agreement in the three and six months ended December 31, 2012.

Milestone payments under collaborative arrangements are triggered by the results of the Company’s engineering and development efforts. Milestones related to the Company’s development-based activities may include initiation of various phases of engineering and development activities, successful completion of a phase of development, or delivery of specified equipment or products. Due to the uncertainty involved in meeting these development-based milestones, the development-based milestones are considered to be substantial (i.e. not just achieved through passage of time) at the inception of the collaboration agreement. In addition, the amounts of the payments assigned thereto are considered to be commensurate with the enhancement of the value of the delivered intellectual property as a result of our performance. The Company’s involvement is necessary to the achievement of development-based milestones. The Company accounts for development-based milestones as revenue upon achievement of the substantive milestone events. In addition, upon the achievement of development-based milestone events, the Company has no future performance obligations related to any milestone payments.

Included in engineering and development revenues were $0 and $218,183 respectively, for the three and six months ended December 31, 2012 related to the collaborative agreements.  Engineering and development costs related to the collaboration agreements totaled $0 and $45,065 for the three and six months ended December 31, 2012.  Included in engineering and development revenues were $200,000 and $1,600,000 respectively, for the three and six months ended December 31, 2011 related to the collaborative agreements.  Engineering and development costs related to the collaboration agreements totaled $0 and $481,107 for the three and six months ended December 31, 2011.

As of December 31, 2012 and June 30, 2012, the Company had no unbilled amounts from engineering and development contracts in process. The Company had received $25,195 and $129,950 in customer payments for engineering and development contracts, representing deposits in advance of performance of the contracted work, as of December 31, 2012 and June 30, 2012, respectively.

Advanced Engineering and Development Expenses

The Company expenses advanced engineering and development costs as incurred. These costs consist primarily of labor, overhead, and materials to build prototype units, materials for testing, development of manufacturing processes and include consulting fees and other costs.

To the extent these costs are separately identifiable, incurred and funded by advanced engineering and development type agreements with outside parties, they are shown separately on the consolidated statements of operations as a “cost of engineering and development.”

Stock-Based Compensation

The Company measures all “Share-Based Payments", including grants of stock options, restricted shares and restricted stock units, to be recognized in its consolidated statement of operations based on their fair values on the grant date, consistent with FASB ASC Topic 718, “Stock Compensation,” guidelines.

Accordingly, the Company measures share-based compensation cost for all share-based awards at the fair value on the grant date and recognition of share-based compensation over the service period for awards that are expected to vest. The fair value of stock options is determined based on the number of shares granted and the price of the shares at grant, and calculated based on the Black-Scholes valuation model.

10

The Company compensates its outside directors primarily with restricted stock units (“RSUs”) rather than cash.  The grant date fair value of the restricted stock unit awards is determined using the closing stock price of the Company’s common stock on the day prior to the date of the grant, with the compensation expense recognized over the vesting period of restricted stock unit awards, net of estimated forfeitures.

The Company only recognizes expense to its condensed consolidated statements of operations for those options or shares that are expected ultimately to vest, using two attribution methods to record expense, the straight-line method for grants with only service-based vesting or the graded-vesting method, which considers each performance period, for all other awards. See Note 9.

Income Taxes

The Company records deferred income taxes in accordance with FASB ASC Topic 740, “Accounting for Income Taxes.” This ASC Topic requires recognition of deferred income tax assets and liabilities for temporary differences between the tax basis of assets and liabilities and the amounts at which they are carried in the financial statements, based upon the enacted tax rates in effect for the year in which the differences are expected to reverse. The Company establishes a valuation allowance when necessary to reduce deferred income tax assets to the amount expected to be realized.  There were no net deferred income tax assets recorded as of December 31, 2012 and June 30, 2012.

The Company applies a more-likely-than-not recognition threshold for all tax uncertainties as required under FASB ASC Topic 740, which only allows the recognition of those tax benefits that have a greater than fifty percent likelihood of being sustained upon examination by the taxing authorities.

The Company’s U.S. Federal income tax returns for the years ended June 30, 2009 through June 30, 2012 and the Company’s Wisconsin and Australian income tax returns for the years ended June 30, 2008 through June 30, 2012 are subject to examination by taxing authorities.

Foreign Currency

The Company uses the United States dollar as its functional and reporting currency, while the Australian dollar and Hong Kong dollar are the functional currencies of its foreign subsidiaries. Assets and liabilities of the Company’s foreign subsidiaries are translated into United States dollars at exchange rates that are in effect at the balance sheet date while equity accounts are translated at historical exchange rates. Income and expense items are translated at average exchange rates which were applicable during the reporting period. Translation adjustments are accumulated in accumulated other comprehensive loss as a separate component of equity in the condensed consolidated balance sheets.

Loss per Share

The Company follows the FASB ASC Topic 260, “Earnings per Share,” provisions which require the reporting of both basic and diluted earnings (loss) per share.  Basic earnings (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding for the period.  Diluted earnings (net loss) per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. In accordance with the FASB ASC Topic 260, any anti-dilutive effects on net income (loss) per share are excluded.  For the six months ended December 31, 2012 and December 31, 2011 there were 15,937,380 and 7,711,897 shares of common stock underlying options, restricted stock units and warrants that are excluded, respectively.

Concentrations of Credit Risk and Fair Value

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivable.

The Company maintains significant cash deposits primarily with three financial institutions.  All deposits are fully insured as of December 31, 2012. The Company has not previously experienced any losses on such deposits. Additionally, the Company performs periodic evaluations of the relative credit ratings of these institutions as part of its investment strategy.

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Concentrations of credit risk with respect to accounts receivable are limited due to accelerated payment terms in current customer contracts and creditworthiness of the current customer base.

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value due to the short-term nature of these instruments. The carrying value of bank loans and notes payable approximate fair value based on their terms which reflect market conditions existing as of December 31, 2012 and June 30, 2012.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. It is reasonably possible that the estimates we have made may change in the near future. Significant estimates underlying the accompanying consolidated financial statements include those related to:

·   the timing of revenue recognition;

·   the allowance for doubtful accounts;

·   provisions for excess and obsolete inventory;

·   the lives and recoverability of property, plant and equipment and other long-lived assets, including goodwill and other intangible assets;

·   contract costs and reserves;

·   warranty obligations;

·   income tax valuation allowances;

·   stock-based compensation;

·   fair values of assets acquired and liabilities assumed in a business combination; and

·   valuation of warrants

Reclassifications

Certain amounts previously reported have been reclassified to conform to the current presentation.

Segment Information

The Company has determined that it operates as one reportable segment.

Recent Accounting Pronouncements

In July 2012, the FASB amended its authoritative guidance related to testing indefinite-lived intangible assets for impairment.  Under the revised guidance, entities testing their indefinite-lived intangible assets for impairment have the option of performing a qualitative assessment before performing further impairment testing.  If entities determine, on a basis of qualitative factors, that it is more-likely-than-not that the asset is impaired, a quantitative test is required.  The guidance becomes effective in the beginning of the Company’s fiscal 2014, with early adoption permitted. The Company is currently evaluating the timing of adopting this guidance which is not expected to have an impact on the Company’s consolidated financial statements.

In June 2011, the FASB issued new accounting guidance related to the presentation of comprehensive income (loss) that eliminates the current option to report other comprehensive income (loss) and its components in the statement of changes in equity. We elected to present items of net income (loss) and other comprehensive income (loss) in two consecutive statements. This guidance was adopted and effective for our reporting period ended September 30, 2012.

NOTE 2 - CHINA JOINT VENTURE

On August 30, 2011, the Company entered into agreements providing for establishment of a joint venture to develop, produce, sell, distribute and service advanced storage batteries and power electronics in China (the “Joint Venture”).  Joint venture partners include PowerSav, Inc. (“PowerSav”), AnHui Xinlong Electrical Co. and Wuhu Huarui Power Transmission and Transformation Engineering Co.  The Joint Venture was established upon receipt of certain governmental approvals from China which were received in November 2011.

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The Joint Venture operates through a jointly-owned Chinese company located in Wuhu City, Anhui Province named Anhui Meineng Store Energy Co., Ltd. (“AHMN”).  AHMN intends to initially assemble and ultimately manufacture the Company’s products for sale in the power management industry on an exclusive basis in mainland China and on a non-exclusive basis in Hong Kong and Taiwan.

In connection with the Joint Venture, on August 30, 2011 the Company and certain of its subsidiaries entered into the following agreements:

·   Joint Venture Agreement of Anhui Meineng Store Energy Co., Ltd. (the “China JV Agreement”) by and between ZBB PowerSav Holdings Limited, a Hong Kong limited liability company (“Holdco”), and Anhui Xinrui Investment Co., Ltd, a Chinese limited liability company; and

·   Limited Liability Company Agreement of ZBB PowerSav Holdings Limited by and between ZBB Cayman Corporation and PowerSav, Inc. (the “Holdco Agreement”).

In connection with the Joint Venture, upon establishment of AHMN, the Company and certain of its subsidiaries entered into the following agreements:

·   Management Services Agreement by and between AHMN and Holdco (the “Management Services Agreement”);

·   License Agreement by and between Holdco and AHMN (the “License Agreement”); and

·   Research and Development Agreement by and between the Company and AHMN (the “Research and Development Agreement”).

Pursuant to the China JV Agreement, AHMN was capitalized with approximately $13.6 million of equity capital.  The Company’s only capital contributions to the Joint Venture were the contribution of technology to AHMN via the License Agreement and $200,000 in cash.  The Company’s indirect interest in AHMN equals approximately 33%.

The Company’s investment in AHMN was made through Holdco, a holding company formed with PowerSav.  Pursuant to the Holdco Agreement, the Company contributed to Holdco technology via a license agreement with an agreed upon value of approximately $4.1 million and $200,000 in cash in exchange for a 60% equity interest and PowerSav agreed to contribute to Holdco $3.3 million in cash in exchange for a 40% equity interest.  The initial capital contributions (consisting of the Company’s technology contribution and one half of required cash contributions) were made in December 2011. The subsequent capital contributions (consisting of one half of the required cash contribution) were made on May 16, 2012.  For financial reporting purposes, Holdco’s assets and liabilities are consolidated with those of the Company and PowerSav’s 40% interest in Holdco is included in the Company’s consolidated financial statements as a noncontrolling interest.  For the three and six months ended December 31, 2012, AHMN had a net loss of $878,198 and $1,510,583 respectively. For the three and six months ended December 31, 2011, AHMN had a net loss of $0 and $171,949, respectively.

The Company’s basis in the technology contributed to Holdco is $0 due to U.S. GAAP requirements related to research and development expenditures.  The difference of approximately $4.1 million in the Company’s basis in this technology and the valuation of the technology by AHMN is accounted for by the Company through the elimination of the amortization expense recognized by AHMN related to the technology.

The Company has the right to appoint a majority of the members of the Board of Directors of Holdco and Holdco has the right to appoint a majority of the members of the Board of Directors of AHMN.

Pursuant to the Management Services Agreement Holdco will provide certain management services to AHMN in exchange for a management services fee equal to five percent of AHMN’s net sales for the first five years and three percent of AHMN’s net sales for the subsequent three years.

Pursuant to the License Agreement, Holdco granted to AHMN (1) an exclusive royalty-free license to manufacture and distribute the Company’s ZBB EnerStore, zinc bromide flow battery, version three (V3) (50KW) and ZBB EnerSection,  power and energy control center (up to 250KW) (the “Products”) in mainland China in the power supply management industry and (2) a non-exclusive royalty-free license to manufacture and distribute the Products in Hong Kong and Taiwan in the power supply management industry.

Pursuant to the Research and Development Agreement, AHMN may request the Company to provide research and development services upon commercially reasonable terms and conditions.  AHMN would pay the Company’s fully-loaded costs and expense incurred in providing such services.

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The Company had product sales of $191,868 and $895,306 to AHMN during the three and six months ended December 31, 2012, respectively.  The Company did not have any product sales to AHMN during the three and six months ended December 31, 2011.

The operating results for AHMN for the period from July 1, 2012 to December 31, 2012 are summarized as follows:

	Three months ended December 31,						Six months ended December 31,
	2012			2011			2012			2011
Revenues	$	54,294		$	-		$	54,294		$	-
Gross Profit		1,041			-			1,041			-
Income (loss) from operations		(860,224	)		(171,949	)		(1,510,668	)		(171,949	)
Net Income (loss)	$	(878,198	)	$	(171,949	)	$	(1,510,583	)	$	(171,949	)

NOTE 3 - GOING CONCERN

The accompanying condensed consolidated financial statements have been prepared on the basis of a going concern which contemplates that the Company will be able to realize assets and discharge its liabilities in the normal course of business. Accordingly, they do not give effect to any adjustments that would be necessary should the Company be required to liquidate its assets. The Company incurred a net loss of $5,966,247 attributable to ZBB Energy Corporation for the six months ended December 31, 2012 and as of December 31, 2012 has an accumulated deficit of $75,020,156 and total ZBB Energy Corporation equity of $6,502,761.  The ability of the Company to settle its total liabilities of $7,946,181 and to continue as a going concern is dependent upon obtaining additional financing, closing additional sales orders and achieving profitability.  The accompanying condensed consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

As described in detail in Notes 8 and 11, in the year ended June 30, 2012 the Company raised approximately $2.2 million in net proceeds through the issuance of Zero Coupon Convertible Subordinated Notes in May 2012 (subsequently repaid in full by June 30, 2012), approximately $2.2 million in net proceeds through the issuance of shares of Series A Preferred Stock pursuant to the Socius Agreement and approximately $15.5 million through the issuance of shares of common stock in various transactions to certain investors.

The Company believes it has sufficient capital to pursue current operations through the third quarter of fiscal year 2013 and will require additional investment capital or other funding during the fourth quarter of fiscal 2013 to support its current business.  The Company is currently exploring various possible financing options that may be available to it, which may include a sale of securities and/or strategic partnership transactions.  The Company has no commitments to obtain any additional funds, and there can be no assurance such funds will be available on acceptable terms or at all.  If the Company is unable to obtain additional required funding, the Company’s financial condition and results of operations may be materially adversely affected and the Company may not be able to continue operations.

NOTE 4 - INVENTORIES

Inventories are comprised of the following as of December 31, 2012 and June 30, 2012:

	December 31, 2012		June 30, 2012
Raw materials	$	2,074,176	$	2,396,545
Work in progress		770,308		515,662
Total	$	2,844,484	$	2,912,207

NOTE 5 - PROPERTY, PLANT & EQUIPMENT

Property, plant, and equipment are comprised of the following as of December 31, 2012 and June 30, 2012:

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	December 31, 2012			June 30, 2012
Land	$	217,000		$	217,000
Building and improvements		3,520,872			3,520,872
Manufacturing equipment		3,958,285			4,597,020
Office equipment		401,673			313,928
Construction in process		1,770			31,050
Total, at cost		8,099,600			8,679,870
Less, accumulated depreciation		(2,837,806	)		(3,195,325	)
Property, Plant & Equipment, Net	$	5,261,794		$	5,484,545

NOTE 6 - INTANGIBLE ASSETS

Intangible assets are comprised of the following as of December 31, 2012 and June 30, 2012:

	December 31, 2012			June 30, 2012
Non-compete agreement	$	310,888		$	310,888
License agreement		288,087			288,087
Trade secrets		1,599,122			1,599,122
Total, at cost		2,198,097			2,198,097
Less, accumulated amortization		(1,423,996	)		(1,054,975	)
Intangible Assets, Net	$	774,101		$	1,143,122

Estimated amortization expense for fiscal periods subsequent to December 31, 2012 are as follows:

2013	$	362,992
2014		411,109
	$	774,101

NOTE 7 - GOODWILL

The Company acquired ZBB Technologies, Inc., a former wholly-owned subsidiary, through a series of transactions in March 1996.  ZBB Technologies Inc. was subsequently merged with and into ZBB Energy Corporation on January 1, 2012.  The goodwill amount of $1.134 million, the difference between the price paid for ZBB Technologies, Inc. and the net assets of the acquisition, amortized through fiscal 2002, resulted in the net goodwill amount of $803,079 as of December 31, 2012 and June 30, 2012.

The Company accounts for goodwill in accordance with FASB ASC Topic 350-20, “Intangibles - Goodwill and Other - Goodwill” under which goodwill and other intangible assets deemed to have indefinite lives are not amortized but are subject to annual impairment tests. The implied fair value of goodwill is the amount determined by deducting the estimated fair value of all tangible and identifiable intangible net assets of the reporting unit to which goodwill has been allocated from the estimated fair value of the reporting unit. If the recorded value of goodwill exceeds its implied value, an impairment charge is recorded for the excess.

NOTE 8 - BANK LOANS AND NOTES PAYABLE

The Company's debt consisted of the following as of December 31, 2012 and June 30, 2012:

	December 31, 2012		June 30, 2012
Bank loans and notes payable-current	$	935,207	$	1,022,826
Bank loans and notes payable-long term		2,719,258		2,915,134
Total	$	3,654,465	$	3,937,960

In May 2012 the Company entered into Securities Purchase Agreements with certain investors providing for the sale of a total of $2,465,000 of Zero Coupon Convertible Subordinated Notes (the “Notes”).  The Notes, which were to mature on August 31, 2012, were issued to investors with a principal amount equal to the investor’s subscription amount times 110% and did not bear interest except in the instance of default.  The Notes were convertible into shares of common stock of the Company at an exercise price equal to $0.53, which was the closing price of the common stock on May 1, 2012 (the “Conversion Price”).  In connection with the Notes, the Company entered into a security agreement with the lenders providing for a security interest in all of the assets of the Company and certain subsidiaries of the Company.  In connection with the purchase of Notes, each investor  received a five-year warrant to purchase a number of shares of Common Stock equal to 55% times such investor’s investment in the Notes divided by the Conversion Price at an exercise price equal to the Conversion Price.  Certain directors and officers of the Company invested $330,000 in the Notes. The proceeds to the Company were $2,223,307.  The Company recorded financing costs of approximately $227,693 in connection with the issuance of the Notes as interest expense during the year ended June 30, 2012.  As of June 30, 2012 the Notes were either converted into the Company’s stock or paid in full.  Interest expense related to the Notes was $1,366,450 for the year ended June 30, 2012.

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Bank loans and notes payable consisted of the following at December 31, 2012 and June 30, 2012:

	December 31, 2012		June 30, 2012
Note payable to the seller of Tier Electronics LLC payable in annual installments of   $450,000 on January 21, 2013 and January 21, 2014.  Interest accrues at a rate of   8% and is payable monthly.  The promissory note is collateralized by the Company’s   membership interest in its wholly-owned subsidiary Tier Electronics LLC.  See note   (a) below.	$	900,000	$	900,000
Note payable to Wisconsin Department of Commerce payable in monthly   installments of $22,800, including interest at 2%, with the final payment due   May 1, 2017; collateralized by equipment purchased with the loan proceeds and   substantially all assets of the Company not otherwise collateralized.  The Company   is required to maintain and increase a specified number of employees, and the   interest rate is increased in certain cases for failure to meet this requirement.		1,154,842		1,279,367
Bank loan payable in fixed monthly payments of $6,800 of principal and interest   at a rate of .25% below prime, as defined, subject to a floor of 5% as of June 30,   2012 and 2011 with any principal due at maturity on June 1, 2018; collateralized by   the building and land.		696,873		719,528
Note payable in fixed monthly installments of $6,716 of principal and interest at   a rate of 5.5% with any principal due at maturity on May 1, 2028; collateralized   by the building and land.		749,818		764,981
Bank loan payable in monthly installments of $21,000 of principal and interest at a   rate equal to prime, as defined, subject to a floor of 4.25% with any principal due   at maturity on December 1, 2013; collateralized by specific equipment.		152,932		274,084
	$	3,654,465	$	3,937,960

(a)   If the federal capital gains  tax rate exceeds 15% and or the State of Wisconsin capital gains tax rate  exceeds 5.425% at any time prior to the payment in full of the unpaid  principal balance and accrued interest on the promissory note, then the  principal amount of the promissory note shall  be retroactively increased by an amount equal to the product of (a) the aggregate amount  of federal and state capital gain realized by the Seller or Seller’s sole member,  as applicable, in connection with the acquisition, multiplied by (b) the  difference between (i) the combined federal and State of Wisconsin capital  gains tax rate as of the date of calculation, minus (ii) the combined federal and  State of Wisconsin capital gains tax rate of 20.425% as of January 21, 2011.  Any adjustment to the principal amount of the promissory note shall be effected by increasing the amount of the last payment due under the promissory note without affecting the next regularly scheduled payment(s) under the promissory note.  On January 2, 2013, the American Taxpayer Relief Act of 2012 was signed, effectively raising the top rate for capital gains to 20%.  The Company is in the process of assessing the effect of the tax law change on the note and has determined the maximum impact on the Company will be approximately $50,000 in additional principal and interest that will be recognized as a result of the aforementioned change in tax law.  The loan was amended in January 2013 and the payment of $450,000 due on January 21, 2013 was deferred to be paid in three installments of $150,000 on January 22, 2013, $75,000 at any time thereafter upon five days written notice by the holder to the Company and $225,000 on February 21, 2013.  Interest continued to accrue at a rate of 8% and is payable monthly.

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Aggregate annual principal payments for fiscal periods subsequent to December 31, 2012, before the impact of the adjustment for the change in the tax law previously discussed are as follows:

2013 (six months)	$	738,830
2014		816,002
2015		346,433
2016		356,292
2017		342,826
2018 and thereafter		1,054,082
	$	3,654,465

NOTE 9 - EMPLOYEE/DIRECTOR EQUITY INCENTIVE PLANS

During the six months ended December 31, 2012 and December 31, 2011, the Company’s results of operations include compensation expense for stock options granted and restricted shares vested under its various equity incentive plans. The amount recognized in the financial statements related to stock-based compensation was $413,610 and $644,640, based on the amortized grant date fair value of options and vesting of restricted shares during the six months ended December 31, 2012 and December 31, 2011, respectively.

At the annual meeting of shareholders held on November 10, 2010, the Company’s shareholders approved the Company’s 2010 Omnibus Long-Term Incentive Plan (the “Omnibus Plan”). The Omnibus Plan authorizes the board of directors or a committee thereof, to grant the following types of equity awards under the Omnibus Plan:  Incentive Stock Options (“ISOs”), Non-qualified Stock Options (“NSOs”), Stock Appreciation Rights (“SARs”), Restricted Stock, Restricted Stock Units (“RSUs”), cash- or stock-based Performance awards (as defined in the Omnibus Plan) and other stock-based awards. Four million shares of common stock were initially reserved for issuance under the Omnibus Plan.  In connection with the adoption of the Omnibus Plan the Company’s Board of Directors froze the Company’s other stock option plans and no further grants may be made under those plans.

On November 10, 2010, (1) a total of 511,143 RSUs were granted to the Company’s directors in payment of directors fees through November 2011 pursuant to the Company’s Director Compensation Policy, (2) a total of 574,242 RSUs previously issued to the Company’s directors pursuant to this policy which provided for cash settlement were converted to stock settled RSUs, and (3) 115,000 RSUs were granted in total to a consultant and to the Company’s President and CEO.  On November 9, 2011, an additional 548,051 RSUs were granted to the Company’s directors in payment of directors fees through November 2012.  On May 6, 2011 the Company’s President and CEO was awarded 200,000 RSUs that vest ratably over a three year period.  On March 23, 2012, the Company’s Compensation Committee of the Company’s Board of Directors awarded 500,000 RSUs to the Company’s President and CEO which vested based on the satisfaction of certain performance targets for the six-month period ending September 30, 2012.  As of September 30, 2012, 450,000 shares had vested and the remaining shares were cancelled.

At the annual of meeting of shareholders held on November 7, 2012 the Company’s shareholders approved an amendment of the 2010 Omnibus Long-Term Incentive Plan (“Omnibus Plan”) which increased the number of shares of the Company’s common stock available for issuance pursuant to awards under the Omnibus Plan by 4,500,000 shares and the creation of the 2012 Non-employee Director Equity Compensation Plan (“2012 Director Equity Plan”), under which the Company may issue up to 3,500,000 restricted stock unit awards and other equity awards to our non-employee directors pursuant to the Company’s director compensation policy.

During the six months ended December 31, 2012 options to purchase 661,050 shares were granted to employees exercisable at prices from $0.35 to $0.38 and exercisable at various dates through December 2020 under the Omnibus Plan.  As of December 31, 2012, an additional 4,347,953 shares were available to be issued under the Omnibus Plan.

On January 21, 2011, certain members of management of Tier Electronics LLC were awarded inducement options to purchase a total of 750,000 shares of the Company’s common stock at an exercise price of $1.15.  The options vest as follows: (1) 420,000 vest in three equal annual installments beginning on December 31, 2011 based on achievement of certain performance targets, (2) 330,000 vest in three equal annual installments beginning on the one-year anniversary of the grant date.  As of December 31, 2012, 140,000 of the 420,000 shares had vested and 110,000 of the 330,000 had vested.

During 2007 the Company established the 2007 Equity Incentive Plan (the “2007 Plan”) that authorized the Board of Directors or a committee thereof to grant options to purchase up to a maximum of 1,500,000 shares to employees and directors of the Company.    In 2005, the Company established an Employee Stock Option Scheme (the “2005 Plan”) and in 2002 the Company established the 2002 Stock Option Plan (the “SOP”) which plans authorized the board of directors or a committee thereof to grant options to employees and directors of the Company. No options were issued under either the 2007 Plan, the 2005 Plan or the SOP during the six months ended December 31, 2012 as there are no options available to be issued under either the 2007 Plan, 2005 Plan or the SOP.

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In January 2010 the Company’s new President and CEO was awarded two inducement option grants covering a total of 500,000 shares with an exercise price of $1.33 per share.  100,000 of these options vested in two equal installments on June 30, 2010 and December 31, 2010, based on the satisfaction of certain performance targets for each of the six-month periods then ended.   The remaining 400,000 of these options vested over three years with the first one-third vesting on January 7, 2011 and the remaining two-thirds vested in 24 equal monthly installments beginning on January 31, 2011 and ending on December 31, 2012.

In November 2011, the Company’s Chief Operating Officer was awarded two inducement option grants covering a total of 500,000 shares with an exercise price of $0.79 per share which was the closing price of the Company’s common stock on the NYSE MKT on the date of his appointment.  100,000 of these options will vest in two equal installments on September 30, 2012 and June 30, 2013 based on the achievement of certain performance targets.  The remaining 400,000 of these options will vest over three years with the first one-third vesting on November 9, 2012 and the remaining two-thirds vesting in 24 equal monthly installments beginning in on December 9, 2012 and ending November 9, 2014.  As of December 31, 2012, 124,000 of the remaining 400,000 shares had vested.

In aggregate for all plans, at December 31, 2012 the Company had a total of 4,179,914 options outstanding, 4,648,436 RSUs outstanding and 4,347,953 shares available for future grant under the Omnibus Plan.

Information with respect to stock option activity under the employee and director plans is as follows:

	Number of Options			Weighted-Average Exercise Price Per Share
Balance at June 30, 2011		3,322,303		$	1.55
Options granted		1,454,500			0.82
Options forfeited		(537,739	)		1.91
Balance at June 30, 2012		4,239,064			1.25
Options granted		661,050			0.38
Options forfeited		(720,200	)		1.10
Balance at December 31, 2012		4,179,914			1.14

The following table summarizes information relating to the stock options outstanding at December 31, 2012:

	Outstanding						Exercisable
Range of Exercise Prices	Number of Options		Average Remaining Contractual Life (in years)		Weighted Average Exercise Price		Number of Options		Average Remaining Contractual Life (in years)		Weighted Average Exercise Price
$0.34 to $0.50		728,550		7.71	$	0.38		42,332		5.41	$	0.48
$0.51 to $1.00		1,088,500		6.64		0.78		385,667		6.36		0.78
$1.01 to $1.50		2,062,864		5.46		1.24		1,315,644		5.23		1.27
3.50 to $3.82		300,000		1.89		3.59		300,000		1.89		3.59
Balance at December 31, 2012		4,179,914		5.90		1.14		2,043,643		5.00		1.50

During the six months ended December 31, 2012 options to purchase 661,050 shares were granted to employees  exercisable at prices from $0.35 to $0.38 per share based on various service and performance based vesting terms from July 2012 through December 2015 and exercisable at various dates through December 2020. During the six months ended December 31, 2011 options to purchase 654,500 shares were granted to employees exercisable at prices from $0.59 to $1.16 per share based on various service and performance based vesting terms from July 2011 through December 2014 and exercisable at various dates through December 2019.

The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing method. The Company uses historical data to estimate the expected price volatility, the expected option life and the expected forfeiture rate. The Company has not made any dividend payments nor does it have plans to pay dividends in the foreseeable future. The following assumptions were used to estimate the fair value of options granted during the six months ended December 31, 2012 and the year ended June 30, 2012 using the Black-Scholes option-pricing model:

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	FY 2013	FY 2012
Expected life of option (years)	4	2.5
Risk-free interest rate	.46 - .60%	.24 - .55%
Assumed volatility	100 - 104%	103 - 107%
Expected dividend rate	0%	0%
Expected forfeiture rate	4.19 - 6.66%	4.35 - 6.80%

Time-vested and performance-based stock awards, including stock options, restricted stock and restricted stock units, are accounted for at fair value at date of grant.  Compensation expense is recognized over the requisite service and performance periods.

A summary of the status of unvested employee stock options as of December 31, 2012 and June 30, 2012 and the changes during the periods then ended is presented below:  

	Number of  Options			Weighted-Average Grant Date Fair Value Per Share
Balance at June 30, 2011		1,735,224		$	0.62
Granted		1,454,500			0.38
Vested		(722,837	)		0.81
Forfeited		(226,334	)		0.87
Balance at June 30, 2012		2,240,553			0.79
Granted		661,050			0.38
Vested		(214,665	)		0.81
Forfeited		(550,667	)		0.87
Balance at December 31, 2012		2,136,271			0.79

Total fair value of options granted in the six months ended December 31, 2012 and December 31, 2011 was $155,201 and $576,618, respectively.  At December 31, 2012 there was $288,638 in unrecognized compensation cost related to unvested stock options, which is expected to be recognized over the next three years.

The Company compensates its directors with restricted stock units (“RSUs”) and cash.  There were $165,997 in directors’ fees expense settled with RSUs for the six months ended December 31, 2012.  As of December 31, 2012 there were 2,158,332 unvested RSUs outstanding which will vest through May 6, 2014 and $615,667 in unrecognized compensation cost related to unvested RSUs which is expected to be recognized through May 6, 2014.  Shares of common stock related to vested RSUs are to be issued six months after the holder’s separation from service with the Company.

The table below summarizes the status of restricted stock unit balances:  

	Number of Restricted Stock Units			Weighted-Average Valuation Price Per Unit
Balance at June 30, 2011		1,400,385		$	0.70
RSUs granted		1,048,051			0.74
RSUs forfeited		-			-
Balance at June 30, 2012		2,448,436			0.72
RSUs granted		2,250,000			0.22
RSUs forfeited		(50,000	)		0.70
Balance at December 31, 2012		4,648,436		$	0.37

NOTE 10 - WARRANTS

At December 31, 2012 there were outstanding warrants to purchase 75,000 common shares issued by the Company as partial payment for services exercisable at $0.42 per share which expire in July 2015.

At December 31, 2012 there were outstanding warrants to purchase 2,895,303 common shares issued by the Company in connection with the Underwriting Agreement entered into with MDB Capital Group, LLC as part of underwriting compensation which provided for the sale of $12 million of common stock as described in Note 11 on June 19, 2012 exercisable at $0.475 per share and which expire in June 2017.

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At December 31, 2012 there were outstanding warrants to purchase 2,558,019 common shares issued by the Company in connection with Securities Purchase Agreements entered into with certain investors providing for the sale of a total of $2,465,000 of Zero Coupon Convertible Subordinated Notes as described in Note 8 on May 1, 2012 exercisable at $0.53 per share and which expire in May 2017.

At December 31, 2012 there were outstanding warrants to purchase 60,500 common shares issued by the Company as partial payment for services exercisable at $1.00 per share which expire March 2015 through July 2015.

At December 31, 2012 there were outstanding warrants to purchase 40,000 common shares issued by the Company to an equipment supplier in January 2011 exercisable at $0.56 per share and which expire in January 2014.  The fair value of the warrants was $11,834 and was included in the cost of the equipment.

At December 31, 2012 there were outstanding warrants to purchase 1,121,875 common shares acquired by certain purchasers of Company shares in March 2010 exercisable at $1.04 per share and which expire in September 2015.

At December 31, 2012 there were outstanding warrants to purchase 358,333 common shares acquired by certain purchasers of Company shares in August 2009 exercisable at $1.33 per share and which expire in August 2015.

Warrants to purchase 50,000 shares acquired by Empire Financial Group, Ltd. as part of the underwriting compensation in connection with our United States public offering which are exercisable at $7.20 per share expired during June 2012.

Warrants to purchase 48,950 shares issued and outstanding to Strategic Growth International in connection with capital raising activities in 2007, with an exercise price of $7.20 per share expired during June 2012.

Warrants to purchase 120,023 common shares acquired by Empire Financial Group, Ltd. in 2006 exercisable at $3.23 per share expired during September 2011.

The table below summarizes warrant activity:

	Number of Warrants			Weighted-Average Exercise Price Per Share
Balance at June 30, 2011		1,886,031		$	1.73
Warrants granted		9,614,875			0.53
Warrants expired		(365,823	)		(4.54	)
Warrants exercised		(4,132,553	)		(0.53	)
Balance at June 30, 2012		7,002,530			0.63
Warrants granted		106,500			0.59
Warrants expired		-			-
Warrants exercised		-			-
Balance at December 31, 2012		7,109,030		$	0.63

For the three and six months ended December 31, 2012, the Company had approximately $4,000 and $7,000 of stock based compensation expense related to warrants.

NOTE 11 - EQUITY

On August 30, 2010, the Company entered into an amended and restated securities purchase agreement (“Socius Agreement”) with Socius CG II, Ltd. (“Socius”). Pursuant to the Socius Agreement, the Company had the right over a term of two years, subject to certain conditions, to require Socius to purchase up to $10 million of redeemable subordinated debentures and/or shares of redeemable Series A preferred stock in one or more tranches.  The debentures accrued interest at an annual rate of 10% and the shares of Series A preferred stock accumulated dividends at the same rate.  Both the debentures and the shares of Series A preferred stock were redeemable at the Company’s election at any time after the one year anniversary of issuance.  Neither the debentures nor the Series A preferred shares were convertible into common stock.

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On November 10, 2010, the Company’s Board of Directors approved a certificate of designation of preferences, rights and limitations to authorize shares of Series A preferred stock in accordance with the terms of the Socius Agreement.  Upon the authorization of Series A preferred stock and in accordance with the terms of the Socius Agreement, the $517,168 of outstanding debentures issued by the Company to Socius CG II, Ltd. on September 2, 2010, and $7,510 of accrued interest were exchanged into 52.468 shares of Series A preferred stock.  Following the authorization of the Series A Preferred Stock all future tranches under the Socius Agreement involved shares of Series A preferred stock instead of debentures.

Under the Socius Agreement, in connection with each tranche, Socius was obligated to purchase that number of shares of our common stock equal in value to 135% of the amount of the tranche at a per share price equal to the closing bid price of the common stock on the trading day preceding our delivery of the tranche notice.  Socius had the option to pay for the shares it purchased at its option, in cash or a collateralized promissory note.  Any such promissory note accrued interest at 2.0% per year and was collateralized by securities owned by Socius with a fair market value equal to the principal amount of the promissory note. The entire principal balance and interest on the promissory note was due and payable on the later of the fourth anniversary of the date of the promissory note or when we redeemed all the Series A preferred stock issued by us to Socius under the Socius Agreement, and was applied by us toward the redemption of the shares of Series A preferred stock held by Socius.

Under the terms of the Socius Agreement, the Company was obligated to pay Socius a commitment fee in the form of shares of common stock or cash, at the option of the Company, in the amount of $500,000 if it is paid in cash and $588,235 if it is paid in shares of common stock. Payment of the commitment fee occurred 50% at the closing of the first tranche and 50% at the closing of the second tranche.

The following summarizes the transactions under the Socius agreement:

Tranche	Date of Notice	Series A Preferred Stock Purchased by Socius		Shares of Common Stock Purchased by Socius		Total Purchase Price of Common Stock		Per Share Price		Shares of Common Stock Issued by ZBB in Payment of Commitment Fee		Discount on Collateralized Promissory Note Issued by Socius
1	September 2, 2010	$	517,168		1,163,629	$	698,177	$	0.60		490,196	$	183,922
2	November 12, 2010		490,000		906,165		661,500		0.73		402,901		173,872
3	January 12, 2011		2,020,000		1,934,042		2,727,000		1.41				716,777
4	March 16, 2011		520,000		557,142		702,000		1.26				184,461
5 & 6	September 8, 2011		1,447,240		2,621,359		1,953,775		0.75				512,815
7	November 16, 2011		750,000		1,511,194		1,012,500		0.67				266,130
		$	5,744,408		8,693,531	$	7,754,952				893,097	$	2,037,977

The Company’s accounting for the 2% notes receivable – common stock was to accrue interest on the discounted notes receivable at 10% as a credit to additional paid-in capital.  The Company’s accounting for the Series A preferred stock was to accrete dividends at 10% as a charge to additional paid-in capital.

In the event of liquidation, dissolution or winding up (whether voluntary or involuntary) of the Company, the holders of shares of Series A preferred stock were entitled to be paid the full amount payable on such shares upon the liquidation, dissolution or winding up of the corporation fixed by the Board of Directors with respect to such shares, if any, before any amount was to be paid to the holders of the common stock.  

In connection with the May 2012 Note transaction described in Note 8, on May 7, 2012 the Company sent a notice to Socius to terminate the Socius Agreement.

In June 2012, we entered into a redemption agreement with Socius pursuant to which we acquired and redeemed all the shares of Series A Preferred Stock issued to Socius under the Socius Agreement (the “Shares”) in exchange for the cancellation of the secured promissory notes issued by Socius to us under the Socius Agreement.  Following completion of the June 2012 redemption and the retirement and cancellation of the Shares, no shares of Series A Preferred Stock remain outstanding.  Subsequent to June 30, 2012, we cancelled the Series A preferred stock.

The liquidation preference of the outstanding Series A preferred stock was $0 and $3,715,470 as of June 30, 2012 and June 30, 2011, respectively.  Redemption of the preferred shares was settled by application of the Socius 2% notes receivable.

On December 13, 2011, the Company entered into Stock Purchase Agreements with a strategic investor previously known to the Company and certain Company officers and directors providing for the issuance of a total of 1,167,340 shares of common stock for an aggregate purchase price of $875,505 at a price per share equal to $0.75 which was the closing price of the Company’s common stock on December 12, 2011.  On December 14, 2011, the Company entered into Stock Purchase Agreements with certain investors providing for the issuance of a total of 1,425,000 shares of the Company’s common stock for an aggregate purchase price of $1,011,893 at a price per share of $0.7101 which was the closing price of the Company’s common stock on December 13, 2011.  The closing for both transactions took place on December 16, 2011.  The net proceeds to the Company after deducting $84,343 of offering costs were $1,803,055.

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On January 31, 2012 and February 1, 2012, the Company entered into Stock Purchase Agreements with certain investors including certain members of the Company’s Board of Directors and management providing for the issuance of a total of 4,431,603 shares of the Company’s common stock for an aggregate purchase price of $3,165,000 at a weighted average price per share of $0.71.  The closing took place on February 7, 2012.  The net proceeds to the Company, after deducting $308,049 of offering costs, were $2,856,954.

On June 19, 2012 the Company issued 31,600,000 shares of its common stock at a price to the public of $0.38 per share. The net proceeds to ZBB from this offering were approximately $10.7 million after deducting approximately $1.3 million in underwriting discounts and other offering expenses.   In connection with the offering, the Company granted the underwriter warrants to purchase 2,895,303 shares of common stock at an exercise price of $0.475 per share.  These warrants expire on June 13, 2017.  The estimated fair value of these warrants was $1,024,726, as determined using the Black-Scholes methodology (assuming estimated volatility of 100.86%, risk-free interest rate of 0.71%, expected dividend yield of 0.0%). This amount was recorded as both an increase to additional paid in capital and as a non-cash issuance cost of the financing transaction.

On July 5, 2012 the underwriter for the Company’s June 2012 underwritten public offering exercised substantially all of its over-allotment option and purchased an additional 4,591,287 shares of the Company's common stock. The net proceeds to the Company from this issuance were $1.6 million after deducting approximately $143,000 in offering expenses.

At the annual of meeting of shareholders held on November 7, 2012 the Company’s shareholders approved a series of amendments to the Company’s Articles of Incorporation to affect a reverse stock split of our common stock at a ratio of 1:5, 1:10 or 1:15, subject to further Board of Directors’ discretion whether to implement a reverse stock split and at which of the three proposed split ratios to do so.

NOTE 12 - COMMITMENTS

Leasing Activities

The Company leases its Australian research and development facility from a non-related Australian company under the terms of a lease that expires October 31, 2016.  The rental rate was $75,596 per annum (A$72,431) and was subject to an annual CPI adjustment. Rent expense was $26,315 and $51,724 for the three and six months ended December 31, 2012, respectively and $23,017 and $43,210 for the three and six months ended December 31, 2011, respectively.  The Company renewed the lease on its Australian research and development facility through October 2016 at a rental rate of $95,855 per annum (A$95,000) subject to an annual CPI adjustment.  The Company also leases a building from an officer of its subsidiary, Tier Electronics LLC, who is also a shareholder and director, under a lease agreement expiring December 31, 2014.  The current year rental is $84,000 per annum and is subject to a CPI adjustment at renewal.  The rent expense for the three and six months ended December 31, 2012 and 2011 was $21,000 and $42,000 respectively.  The Company is required to pay real estate taxes and other occupancy costs related to the facility.

The future payments required under the terms of the leases for fiscal periods subsequent to December 31, 2012 are as follows:

2013 (six months)	$	93,734
2014		145,468
2015		103,468
2016		34,489
	$	377,159

Employment Contracts

The Company has entered into employment contracts with executives and management personnel. The contracts provide for salaries, bonuses and stock option grants, along with other employee benefits. The employment contracts generally have no set term and can be terminated by either party. There is a provision for payments of nine months to eighteen months of annual salary as severance if we terminate a contract without cause, along with the acceleration of certain unvested stock option grants.

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NOTE 13 - RETIREMENT PLANS

All Australian based employees are entitled to varying degrees of benefits on retirement, disability, or death.  The Company contributes to an accumulation fund on behalf of the employees under an award which is legally enforceable.  For U.S. employees, the Company has a 401(k) plan.  All active participants are 100% vested immediately.  Expenses under these plans were $34,697 and $65,150 for the three and six months ended December 31, 2012, respectively and $27,324 and 42,780 for the three and six months ended December 31, 2011, respectively.

NOTE 14 - INCOME TAXES

The provision (benefit) for income taxes consists of the following:

	Six months ended December 31,
	2012			2011
Current	$	(74,151	)	$	(181,800	)
Deferred		-			-
Provision (benefit) for income taxes	$	(74,151	)	$	(181,800	)

The Company accounts for income taxes using an asset and liability approach which generally requires the recognition of deferred income tax assets and liabilities based on the expected future income tax consequences of events that have previously been recognized in the Company’s financial statements or tax returns. In addition, a valuation allowance is recognized if it is more likely than not that some or all of the deferred income tax assets will not be realized in the foreseeable future. Deferred income tax assets are reviewed for recoverability based on historical taxable income, the expected reversals of existing temporary differences, tax planning strategies and projections of future taxable income. As a result of this analysis, the Company has provided for a valuation allowance against its net deferred income tax assets as of December 31, 2012 and 2011.

The Company’s combined effective income tax rate differed from the U.S. federal statutory income rate as follows:

	Six months ended December 31,
	2012	2011
Income tax benefit computed at the U.S. federal statutory rate	-34%	-34%
Australia research and development credit	-1	-4
Change in valuation allowance	34	34
Total	-1%	-4%

Significant components of the Company’s net deferred income tax assets as of December 31, 2012 and June 30, 2012 were as follows:

	December 31, 2012			June 30, 2012
Federal net operating loss carryforwards	$	18,989,245		$	17,063,374
Federal - other		1,563,977			1,578,175
Wisconsin net operating loss carryforwards		2,371,369			2,080,223
Australia net operating loss carryforwards		1,557,751			1,291,699
Deferred income tax asset valuation allowance		(24,482,342	)		(22,013,471	)
Total deferred income tax assets	$	-		$	-

The Company has U.S. federal net operating loss carryforwards of approximately $56 million as of December 31, 2012, that expire at various dates between June 30, 2015 and 2033.  The Company also has $1,203,368 in other federal deferred tax assets comprised of charitable contributions carryforwards and intangible amortization.  The Company has U.S. federal research and development tax credit carryforwards of approximately $87,000 as of December 31, 2012 that expire at various dates through June 30, 2032.  As of December 31, 2012, the Company has approximately $45.5 million of Wisconsin net operating loss carryforwards that expire at various dates between June 30, 2013 and 2028.  As of June 30, 2012, the Company also has approximately $5.2 million of Australian net operating loss carryforwards available to reduce future taxable income of its Australian subsidiaries with an indefinite carryforward period.

A reconciliation of the beginning and ending balance of unrecognized income tax benefits is as follows:

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	December 31, 2012		June 30, 2012
Beginning balance	$	208,593	$	219,500
Effect of foreign currency translation		6,549		(10,907	)
Ending balance	$	215,142	$	208,593

The unrecognized income tax benefits relate to the credit the Company claimed during fiscal 2011 related to a refundable Australian research and development tax credit for qualified expenditures incurred during fiscal year 2010.  If recognized, it would favorably affect the effective income tax rate.  The amount is included in accrued expenses in the accompanying consolidated balance sheets.

The Company’s issuance of additional shares of common stock has constituted ownership changes under Section 382 of the Internal Revenue Code which places an annual dollar limit on the use of net operating loss (“NOL”) carryforwards and other tax attributes that may be utilized in the future.  The calculation of the annual limitation of usage is based on a percentage of the equity value immediately after any ownership change.  The annual amount of tax attributes that may be utilized after the change in ownership is limited.  Previous issuances of additional shares of common stock also resulted in ownership changes and the annual amount of tax attributes from previous years is limited as well.  The extent of any limitations on the usage of net operating losses has not been determined.

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ZBB ENERGY CORPORATION

Item 2.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

ZBB Energy Corporation (“We,” “Us,” “Our,” “ZBB” or the “Company”) develops and manufactures modular, scalable and environmentally friendly power systems (ZBB EnerSystem™) based upon the Company’s proprietary zinc bromide rechargeable electrical energy storage technology.

We provide advanced electrical power management platforms targeted at the growing global need for distributed renewable energy, energy efficiency, power quality, and grid modernization.  We and our power electronics subsidiary, Tier Electronics, have developed a portfolio of intelligent power management platforms that directly integrate multiple renewable and conventional onsite generation sources with rechargeable zinc bromide flow batteries and other storage technology. We also offer advanced systems to directly connect wind and solar equipment to the grid and systems that can form various levels of micro-grids.  Tier Electronics participates in the energy efficiency markets through its hybrid vehicle control systems, and power quality markets with its line of regulation solutions. Together, these platforms solve a wide range of electrical system challenges in global markets for utility, governmental, commercial, industrial and residential end customers.  

On August 30, 2011, we entered into agreements providing for establishment of a joint venture to develop, produce, sell, distribute and service advanced storage batteries and power electronics in China (the “Joint Venture”).  Joint Venture partners include PowerSav, Inc., AnHui Xinlong Electrical Co. and Wuhu Huarui Power Transmission &Transformation Engineering Co.

The Joint Venture was established in November 2011 and operates through a jointly-owned company located in Wuhu City, Anhui Province named Anhui Meineng Store Energy Co., Ltd. (the “JV Company”).  The JV Company will initially assemble and ultimately manufacture the Company’s products for sale in the power management industry on an exclusive basis in mainland China and on a non-exclusive basis in Hong Kong and Taiwan.

The JV Company has been capitalized with approximately $13.6 million of equity capital, which includes approximately $9.5 million of cash and a contribution of technology from us to the JV Company via a license agreement (the “License Agreement”) valued at approximately $4.1 million by the JV Company.  Our indirect interest in the JV Company equals approximately 33%.

Our investment in the JV Company was made through ZBB PowerSav Holdings Limited, a Hong Kong limited liability company, a holding company formed with PowerSav (“Hong Kong Holdco”).  We own 60% of Hong Kong Holdco’s equity interests.  We have the right to appoint a majority of the members of the Board of Directors of Hong Kong Holdco and Hong Kong Holdco has the right to appoint a majority of the members of the Board of Directors of the JV Company.

Pursuant to a management services agreement Hong Kong Holdco will provide certain management services to the JV Company in exchange for a management services fee equal to five percent of the JV Company’s net sales for the first five years and three percent of the JV Company’s net sales for the subsequent three years.

Pursuant to the License Agreement, the Company has granted to the JV Company (1) an exclusive royalty-free license to manufacture and distribute our Version 3 battery Module and ZBB EnerSection™ POWR PECC (up to 250KW) (the “Products”) in mainland China in the power supply management industry and (2) a non-exclusive royalty-free license to manufacture and distribute the Products in Hong Kong and Taiwan in the power supply management industry.

Pursuant to a research and development agreement, the JV Company may request us to provide research and development services upon commercially reasonable terms and conditions.  The JV Company would pay our fully-loaded costs and expense incurred in providing such services.

Risks and Uncertainties

The following discussion of the consolidated financial position and results of operations of the Company should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this form 10-Q and the Company’s annual report filed on form 10-K for the fiscal year ended June 30, 2012. In addition to historical information, this discussion contains forward-looking statements such as statements of the Company’s expectations, plans, objectives and beliefs. These statements use such words as “may,” “will,” “expect,” “anticipate,” “believe,” “plan,” and other similar terminology.  In addition to the risks and uncertainties faced generally by participants in the renewable energy industry, we face the following risks and uncertainties:

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·   Our stock price could be volatile and our trading volume may fluctuate substantially.

·   We have incurred losses and anticipate incurring continuing losses.

·   We will need additional financing and we do not have any commitments for additional financing at this time.

·   Our industry is highly competitive and we may be unable to successfully compete.

·   Our ability to achieve significant revenue growth will be dependent on the successful commercialization of our new products, including our third generation ZBB EnerStore™, zinc bromide flow battery and ZBB EnerSection™ power and energy control center.

·   To achieve profitability, we will need to increase our sales, lower our costs and increase our margins, which we may not be able to do.

·   If our products do not perform as promised, we could experience increased costs, lower margins and harm to our reputation.

·   To succeed, we will need to rapidly grow and we may not be successful in managing this rapid growth.

·   Our relationships with our strategic partners may not be successful and we may not be successful in establishing additional partnerships, which could adversely affect our ability to commercialize our products and services.

·   Shortages or delay of supplies of component parts may adversely affect our operating results until alternate sources can be developed.

·   We have no experience manufacturing our products on a large-scale basis and may be unable to do so at our manufacturing facilities.

·   Our China joint venture could be adversely affected by the laws and regulations of the Chinese government, our lack of decision-making authority and disputes between us and the Joint Venture.

·   Business practices in Asia may entail greater risk and dependence upon the personal relationships of senior management than is common in North America, and therefore some of our agreements with other parties in China and South Korea could be difficult or impossible to enforce.

·   Our success depends on our ability to retain our managerial personnel and to attract additional personnel.

·   We market and sell, and plan to market and sell, our products in numerous international markets. If we are unable to manage our international operations effectively, our business, financial condition and results of operations could be adversely affected.

·   Our financial results may vary significantly from period-to-period due to long and unpredictable sales cycles for some of our products and the cyclical nature of certain end-markets into which we sell our products, which may in turn lead to volatility in our stock price.

·   Businesses and consumers might not adopt alternative energy solutions as a means for obtaining their electricity and power needs, and therefore our revenues may not increase, and we may be unable to achieve and then sustain profitability.

·   The success of our business depends on our ability to develop and protect our intellectual property rights, which could be expensive.

·   We may be subject to claims that we infringe the intellectual property rights of others, and unfavorable outcomes could harm our business.

·   If our shareholders’ equity falls below the minimum requirement, our common stock may be delisted from the NYSE MKT, which would cause our common stock to become less liquid.

·   We may engage in acquisitions that could disrupt our business, cause dilution to our stockholder and reduce our financial resources.

·   We have never paid cash dividends and do not intend to do so.

For further information concerning these risks and uncertainties see the Risk Factors sections of our Annual Report on Form 10-K for the year ended June 30, 2012 and in any subsequently filed Quarterly Reports on Form 10-Q.

New Accounting Pronouncements

Refer to Note 1 of the Notes to Condensed Consolidated Financial Statements for a discussion of recently issued accounting pronouncements.

Critical Accounting Policies and Estimates

The preparation of our financial statements conforms to accounting principles generally accepted in the United States of America, which requires management, in applying our accounting policies, to make estimates and judgments that have an important impact on our reported amounts of assets, liabilities, revenue, expenses and related disclosures at the date of our financial statements. On an on-going basis, management evaluates its estimates including those related to bad debts, inventory valuations, warranty obligations and income taxes. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from management’s estimates. During the current reporting period we adopted the new guidance related to the reporting of other comprehensive income (loss).  Since June 30, 2012, there have been no other significant changes to our critical accounting policies discussed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2012. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America and related disclosures require management to make estimates and assumptions.

26

Results of Operations

Three months ended December 31, 2012 compared with the three months ended December 31, 2011

Revenue:

Our revenues for the three months ended December 31, 2012 and December 31, 2011 were $2,748,007 and $440,921 respectively.  The increase of $2,307,086 was the result of a $2,507,086 increase in commercial product sales and a $200,000 decrease in engineering and development revenues as compared to the three months ended December 31, 2011.  The increase in commercial product sales principally consisted of sales of ZBB EnerStore and ZBB EnerSection systems which we began selling in the quarter ended March 31, 2012.  Engineering and development revenues for the quarter ended December 31, 2011 consisted primarily of revenue recognized under the Honam Collaboration agreement which was recognized over the performance period through June 2012.

Costs and Expenses:

Total costs and expenses for the three months ended December 31, 2012 and December 31, 2011 were $5,594,078 and $3,206,257 respectively.  This increase of $2,387,821 in the three months ended December 31, 2012 was primarily due to the following factors:

·   a $2,077,586 increase in costs of product sales was due to an increase in commercial product sales;

·   a $189,448 increase in advanced engineering and development expenses due to a shift from engineering contracts to product development and pilot plant operation for the Company’s ZBB EnerStore and ZBB EnerSection products; and

·   a $188,732 increase in selling, general and administrative expenses due primarily to a planned increase in engineering and sales personnel.

Other Expense:

Total Other Expense for the three months ended December 31, 2012 increased by $387,681 to $501,685 from $114,004 for the three months ended December 31, 2011 primarily as a result of a $456,632 equity in loss of investee company.

Income Taxes (Benefit):

Benefit for income taxes during the three months ended December 31, 2012 decreased by $37,649 to $74,151 from $111,800 for the three months ended December 31, 2011.  Benefit for income taxes represents an estimate of a refundable research and development tax credit we expect to receive from the government of Australia for the fiscal year ending June 30, 2013 related to the qualified expenditures we incurred during the three months ended December  31, 2012.

Net Loss:

Our net loss for the three months ended December 31, 2012 increased by $353,147 to $3,083,457 from the $2,730,310 net loss for the three months ended December 31, 2011.  This increase in loss was primarily the result of increases in expenses as described above.  For the three months ended December 31, 2012 there was a net loss of $190,148 attributable to noncontrolling interest.

Six months ended December 31, 2012 compared with the six months ended December 31, 2011

27

Revenue:

Our revenues for the six months ended December 31, 2012 and December 31, 2011 were $4,571,328 and $2,078,778 respectively.  The increase of $2,492,550 was the result of a $3,886,117 increase in commercial product sales offset by a $1,393,567 decrease in engineering and development revenues as compared to the six months ended December 31, 2011.  The increase in commercial product sales principally consisted of sales of ZBB EnerStore and ZBB EnerSection systems which we began selling in the quarter ended March 31, 2012.  Engineering and development revenues for the 2012 period consisted primarily of revenue recognized under the Honam Collaboration agreement which was recognized over the performance period through June 2012.

Costs and Expenses:

Total costs and expenses for the six months ended December 31, 2012 and December 31, 2011 were $10,313,458 and $6,540,596 respectively.  This increase of $3,772,862 in the six months ended December 31, 2012 was primarily due to the following factors:

·   a $3,413,307 increase in costs of product sales was due to an increase in commercial product sales;

·   a $436,042 decrease in costs of engineering and development sales was due to diminished activities related to engineering and development agreements;

·   a $649,804 increase in advanced engineering and development expenses due to a shift from engineering contracts to product development and pilot plant operation for the Company’s ZBB EnerStore and ZBB EnerSection products; and

·   a $192,287 increase in selling, general and administrative expenses due primarily to a planned increase in engineering and sales personnel.

Other Expense:

Total Other Expense for the six months ended December 31, 2012 increased by $462,370 to $625,340 from $162,970 for the six months ended December 31, 2011 primarily as a result of a $533,113 equity in loss of investee company.

Income Taxes (Benefit):

Benefit for income taxes during the six months ended December 31, 2012 decreased by $107,649 to $74,151 from $181,800 for the six months ended December 31, 2011.  Benefit for income taxes represents an estimate of a refundable research and development tax credit we expect to receive from the government of Australia for the fiscal year ending June 30, 2013 related to the qualified expenditures we incurred during the six months ended December  31, 2012.

Net Loss:

Our net loss for the six months ended December 31, 2012 increased by $1,560,489 to $5,966,247 from the $4,405,758 net loss for the six months ended December 31, 2011.  This increase in loss was primarily the result of increases in expenses as described above.  For the six months ended December 31, 2012 there was a net loss of $327,072 attributable to noncontrolling interest.

Liquidity and Capital Resources

Since our inception, our research, advanced engineering and development, and operations have been primarily financed through debt and equity financings, and government and other research and development contracts.  Total paid in capital as of December 31, 2012 was $83,108,581 and $81,093,292 as of June 30, 2012.   We had a cumulative deficit of $75,020,156 as of December 31, 2012 compared to a cumulative deficit of $69,053,909 as of June 30, 2012.  At December 31, 2012 we had working capital of $2,383,045 compared to June 30, 2012 working capital of $5,727,309.  Our shareholders’ equity as of December 31, 2012 and June 30, 2012 was $9,053,537 and $13,326,810, respectively.

At December 31, 2012, our principal sources of liquidity were our cash and cash equivalents which totaled $2,428,800 and accounts receivable of $1,171,485.

In June 2012 we completed an underwritten public offering of 31,600,000 shares of common stock at a price to the public of $0.38 per share for net proceeds of $10.7 million.  In connection with the offering, the Company granted the underwriter warrants to purchase 2,895,303 shares of common stock at an exercise price of $0.475 per share.  These warrants expire on June 13, 2017.  The estimated fair value of these warrants was $1,024,726, as determined using the Black-Scholes methodology (assuming estimated volatility of 100.86%, risk-free interest rate of 0.71%, expected dividend yield of 0.0%). This amount was recorded as both an increase to additional paid in capital and as a non-cash issuance cost of the financing transaction.  During the year ended June 30, 2012 we also sold an additional 11,478,666 shares of common stock in various transactions for net proceeds of $4.8 million.

28

On August 30, 2010 we entered into an amended and restated securities purchase agreement (the “Socius Agreement”) with Socius CG II, Ltd. (“Socius”) pursuant to which we had the right over a term of two years, subject to certain conditions, to require Socius to purchase up to $10 million of 10% redeemable subordinated debentures and/or shares of 10% redeemable Series A preferred stock in tranches.  Under the Socius Agreement, in connection with each tranche Socius was obligated to purchase a number of shares of our common stock equal in value to 135% of the amount of the tranche at a per share price equal to the closing bid price of the common stock on the trading day preceding our delivery of the tranche notice.  We cancelled the Socius agreement on May 7, 2012.

During the year ended June 30, 2012 we delivered a total of three tranche notices under the Socius Agreement pursuant to which Socius purchased $2,197,240 of shares of Series A preferred stock.  In connection with the tranches, Socius purchased 4,132,553 shares of common stock for a total purchase price of $2,966,275 and at a weighted average per share purchase price of $0.72. Socius paid for the shares of common stock it purchased with secured promissory notes.

In June 2012, we entered into a redemption agreement with Socius pursuant to which we acquired and redeemed all the shares of Series A Preferred Stock issued to Socius under the Socius Agreement in exchange for the cancellation of the secured promissory notes issued by Socius to us under the Socius Agreement.  Following completion of the June 2012 redemption and the retirement and cancellation of the Shares, no shares of Series A Preferred Stock remain outstanding.  Subsequent to June 30, 2012, we cancelled the Series A preferred stock.

In July 2012 the underwriter for the Company’s June 2012 underwritten public offering exercised substantially all of its over-allotment option and purchased an additional 4,591,287 shares of the Company's common stock. The net proceeds to the Company from this issuance were $1.6 million after deducting approximately $143,000 in offering expenses.

We believe we have sufficient capital to pursue our operations through the third quarter of fiscal year 2013.  We will require additional investment capital or other funding during the third quarter of fiscal 2013 to support our current business and growth plan.  We are currently exploring various possible financing options that may be available to us, which may include a sale of our securities and/or strategic partnership transactions.  We have no commitments to obtain any additional funds, and there can be no assurance such funds will be available on acceptable terms or at all. If we are unable to obtain such needed funds, our financial condition and results of operations may be materially adversely affected and we may not be able to continue operations.

Operating Activities

Our operating activities used net cash of $6,627,038 for the six months ended December 31, 2012.  Cash used in operations resulted from a net loss of $6,293,319 reduced by $1,630,185 in non-cash adjustments and increased by $1,963,904 in net changes to working capital.  Non-cash adjustments included $413,610 of stock-based compensation expense, and $683,462 of depreciation and amortization expense.  Net changes in working capital were primarily due to an increase in accounts receivable of $690,922, a decrease in inventories of $67,723 and an increase in customer deposits of $286,957 offset by a decrease in accounts payable of $562,704 and accrued expenses of $69,222.

Investing Activities

Our investing activities used net cash of $401,690 for the six months ended December 31, 2012, for the purchase of property and equipment and deposits of restricted cash.

Financing Activities

Our financing activities provided net cash of $1,323,684 for the six months ended December 31, 2012.  Net cash provided by financing activities was comprised primarily of $1,744,688 in proceeds from issuance of common stock less repayments of $283,495 of principal on bank loans and notes payable, and $143,009 in common stock issuance costs.

29

Off-Balance Sheet Arrangements

We had no off-balance sheet arrangements as of December 31, 2012.

Item 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable for smaller reporting companies.

Item 4.     CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined under Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report.  Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that material information relating to the Company is accumulated and communicated to management, including our principal executive officer and our principal financial officer, as appropriate to allow timely decisions regarding required disclosures.

Changes in Internal Controls

During the period covered by this quarterly report on Form 10-Q, the Company has not made any changes to its internal control over financial reporting (as referred to in Paragraph 4(b) of the Certifications of the Company’s principal executive officer and principal financial officer included as exhibits 31.1 and 31.2 filed with this report) that have materially affected, or are reasonably likely to affect the Company’s internal control over financial reporting.

30

PART II

OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS

Not applicable.

ITEM 1A.RISK FACTORS

We operate in a rapidly changing environment that involves a number of risks that could materially affect our business, financial condition or future results, some of which are beyond our control.  In addition to the other information set forth in this report, the risks and uncertainties that we believe are most important for you to consider are discussed in Part I, “Item 1A. Risk Factors” in our most recent Annual Report on Form 10-K and in any subsequent Quarterly Reports on Form 10-Q.

ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable.

ITEM 3.DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4.MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.OTHER INFORMATION

Not applicable.

ITEM 6.EXHIBITS

The exhibits required to be filed as a part of this report are listed in the Exhibit Index.

31

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	ZBB ENERGY CORPORATION
February 14, 2013	By:	/s/ Eric C. Apfelbach
	Name:	Eric C. Apfelbach
	Title:	Chief Executive Officer
		(Principal Executive Officer)
February 14, 2013	By:	/s/ Will Hogoboom
	Name:	Will Hogoboom
	Title:	Chief Financial Officer
		(Principal financial officer and
		Principal accounting officer)

32

EXHIBIT INDEX

Item 6 Exhibits:

Exhibit No.	Description	Incorporated by Reference to
31.1	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Principal Financial and Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101	Interactive Data Files

33

EX-31.1

CERTIFICATION Exhibit 31.1

I, Eric C. Apfelbach, Chief Executive Officer of ZBB Energy Corporation, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of ZBB Energy Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the registrant’s  internal control over financial reporting that occurred during the registrant’s  most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

February 14, 2013	/s/ Eric C. Apfelbach
	Eric C. Apfelbach
	(Principal Executive Officer)

EX-31.2

CERTIFICATION Exhibit 31.2

I, Will Hogoboom, Chief Financial Officer of ZBB Energy Corporation, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of ZBB Energy Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the registrant’s  disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

February 14, 2013	/s/ Will Hogoboom
	Will Hogoboom
	(Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 In connection with the Quarterly Report of ZBB Energy Corporation (the “Company”) on Form 10-Q for the period ended December 31, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Eric C. Apfelbach, Chief Executive Officer of the Company, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, to my knowledge, that:

(1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

A signed original of this written statement required by Section 906 has been provided to ZBB Energy Corporation and will be retained by ZBB Energy Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

February 14, 2013	/s/ Eric C. Apfelbach
	Eric C. Apfelbach
	(Principal Executive Officer)

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of ZBB Energy Corporation (the “Company”) on Form 10-Q for the period ended December 31, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Will Hogoboom, Chief Financial Officer of the Company, certify, pursuant to section Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, to my knowledge, that:

(1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

A signed original of this written statement required by Section 906 has been provided to ZBB Energy Corporation and will be retained by ZBB Energy Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

February 14, 2013	/s/ Will Hogoboom
	Will Hogoboom
	(Principal Financial Officer)

XML

6. INTANGIBLE ASSETS (Details) (USD $)	Dec. 31, 2012	Jun. 30, 2012
Intangible Assets Details
Non-compete agreement	$ 310,888	$ 310,888
License agreement	288,087	288,087
Trade secrets	1,599,122	1,599,122
Total, at cost	2,198,097	2,198,097
Less, accumulated amortization	(1,423,996)	(1,054,975)
Intangible Assets, Net	$ 774,101	$ 1,143,122

XML

14. INCOME TAXES (Details 2) (USD $)	Dec. 31, 2012	Jun. 30, 2012
Income Taxes Details 2
Federal net operating loss carryforwards	$ 18,989,245	$ 17,063,374
Federal - other	1,563,977	1,578,175
Wisconsin net operating loss carryforwards	2,371,369	2,080,223
Australia net operating loss carryforwards	1,557,751	1,291,699
Deferred income tax asset valuation allowance	(24,482,342)	(22,013,471)
Total deferred income tax assets

XML

9. EMPLOYEE/DIRECTOR EQUITY INCENTIVE PLANS (Details 4)	6 Months Ended	12 Months Ended
	Dec. 31, 2012	Jun. 30, 2012
Number of Restricted Stock Units
Beginning Balance	2,448,436	1,400,385
RSUs granted	2,250,000	1,048,051
RSUs forfeited	(50,000)
Ending balance	4,648,436	2,448,436
Weighted Average Valuation Price Per Unit
Beginning Balance	0.72	0.7
RSUs granted	0.22
RSUs forfeited	0.7
Ending balance	0.37	0.72

XML

14. INCOME TAXES (Details 3) (USD $)	6 Months Ended	12 Months Ended
	Dec. 31, 2012	Jun. 30, 2012
Income Taxes Details 3
Beginning balance	$ 208,593	$ 219,500
Effect of foreign currency translation	6,549	(10,907)
Ending balance	$ 215,142	$ 208,593

XML

9. EMPLOYEE/DIRECTOR EQUITY INCENTIVE PLANS (Details 2)	Dec. 31, 2012	Jun. 30, 2012
Employeedirector Equity Incentive Plans Details 2
Expected life of option (years)	4	2.5
Risk-free interest rate	.46 - .60%	.24 - .55%
Assumed volatility	100-104%	103 - 107%
Expected dividend rate	0	0
Expected forfeiture rate	4.19 - 6.66%	4.35 - 6.80%

XML

14. INCOME TAXES (Tables)

6 Months Ended

Dec. 31, 2012

Income Tax Disclosure [Abstract]

Provision (benefit) for income taxes

	Six months ended December 31,
	2012			2011
Current	$	(74,151	)	$	(181,800	)
Deferred		-			-
Provision (benefit) for income taxes	$	(74,151	)	$	(181,800	)

Effective income tax rate reconciliation

	Six months ended December 31,
	2012	2011
Income tax benefit computed at the U.S. federal statutory rate	-34%	-34%
Australia research and development credit	-1	-4
Change in valuation allowance	34	34
Total	-1%	-4%

Significant components of the Company’s net deferred income tax assets

	December 31, 2012			June 30, 2012
Federal net operating loss carryforwards	$	18,989,245		$	17,063,374
Federal - other		1,563,977			1,578,175
Wisconsin net operating loss carryforwards		2,371,369			2,080,223
Australia net operating loss carryforwards		1,557,751			1,291,699
Deferred income tax asset valuation allowance		(24,482,342	)		(22,013,471	)
Total deferred income tax assets	$	-		$	-

Reconciliation of the beginning and ending balance of unrecognized income tax benefits

	December 31, 2012		June 30, 2012
Beginning balance	$	208,593	$	219,500
Effect of foreign currency translation		6,549		(10,907	)
Ending balance	$	215,142	$	208,593

XML

2. CHINA JOINT VENTURE (Details Narrative) (USD $)	3 Months Ended		6 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012	Dec. 31, 2011
Notes to Financial Statements
Net loss	$ (878,198)	$ (171,949)	$ (1,510,583)	$ (171,949)
Product sales	$ 191,868		$ 895,306

XML

4. INVENTORIES (Tables)

6 Months Ended

Dec. 31, 2012

Inventory Disclosure [Abstract]

Inventories

	December 31, 2012		June 30, 2012
Raw materials	$	2,074,176	$	2,396,545
Work in progress		770,308		515,662
Total	$	2,844,484	$	2,912,207

XML

11. EQUITY (Details) (USD $)	Dec. 31, 2012
Series A Preferred Stock Purchased by Socius	5,744,408
Shares of Common Stock Purchased by Socius	8,693,531
Total Purchase Price of Common Stock	$ 7,754,952
Shares of Common Stock Issued by ZBB in Payment of Commitment Fee	893,097
Discount on Collateralized Promissory Note Issued by Socius	2,037,977
Tranche 1
Date of Notice	2010-09-02
Series A Preferred Stock Purchased by Socius	517,168
Shares of Common Stock Purchased by Socius	1,163,629
Total Purchase Price of Common Stock	698,177
Per Share Price	$ 0.6
Shares of Common Stock Issued by ZBB in Payment of Commitment Fee	490,196
Discount on Collateralized Promissory Note Issued by Socius	183,922
Tranche 2
Date of Notice	2010-11-12
Series A Preferred Stock Purchased by Socius	490,000
Shares of Common Stock Purchased by Socius	906,165
Total Purchase Price of Common Stock	661,500
Per Share Price	$ 0.73
Shares of Common Stock Issued by ZBB in Payment of Commitment Fee	402,901
Discount on Collateralized Promissory Note Issued by Socius	173,872
Tranche 3
Date of Notice	2011-01-12
Series A Preferred Stock Purchased by Socius	2,020,000
Shares of Common Stock Purchased by Socius	1,934,042
Total Purchase Price of Common Stock	2,727,000
Per Share Price	$ 1.41
Discount on Collateralized Promissory Note Issued by Socius	716,777
Tranche 4
Date of Notice	2011-03-16
Series A Preferred Stock Purchased by Socius	520,000
Shares of Common Stock Purchased by Socius	557,142
Total Purchase Price of Common Stock	702,000
Per Share Price	$ 1.26
Discount on Collateralized Promissory Note Issued by Socius	184,461
Tranche 5 & 6
Date of Notice	2011-09-08
Series A Preferred Stock Purchased by Socius	1,447,240
Shares of Common Stock Purchased by Socius	2,621,359
Total Purchase Price of Common Stock	1,953,775
Per Share Price	$ 0.75
Discount on Collateralized Promissory Note Issued by Socius	512,815
Tranche 7
Date of Notice	2011-11-16
Series A Preferred Stock Purchased by Socius	750,000
Shares of Common Stock Purchased by Socius	1,511,194
Total Purchase Price of Common Stock	1,012,500
Per Share Price	$ 0.67
Discount on Collateralized Promissory Note Issued by Socius	$ 266,130

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8. BANK LOANS AND NOTES PAYABLE (Details 1) (USD $)	Dec. 31, 2012	Jun. 30, 2012
Bank Loans And Notes Payable Details 1
Note payable to the seller of Tier Electronics LLC payable in annual installments of 450,000 on January 21, 2013 and January 21, 2014. Interest accrues at a rate of 8% and is payable monthly. The promissory note is collateralized by the Company’s membership interest in its wholly-owned subsidiary Tier Electronics LLC.	$ 900,000	$ 900,000
Note payable to Wisconsin Department of Commerce payable in monthly installments of $22,800, including interest at 2%, with the final payment due May 1, 2017; collateralized by equipment purchased with the loan proceeds and substantially all assets of the Company not otherwise collateralized. The Company is required to maintain and increase a specified number of employees, and the interest rate is increased in certain cases for failure to meet this requirement.	1,154,842	1,279,367
Bank loan payable in fixed monthly payments of $6,800 of principal and interest at a rate of .25% below prime, as defined, subject to a floor of 5% as of June 30, 2012 and 2011 with any principal due at maturity on June 1, 2018; collateralized by the building and land.	696,873	719,528
Note payable in fixed monthly installments of $6,716 of principal and interest at a rate of 5.5% with any principal due at maturity on May 1, 2028; collateralized by the building and land.	749,818	764,981
Bank loan payable in monthly installments of $21,000 of principal and interest at a rate equal to prime, as defined, subject to a floor of 4.25% with any principal due at maturity on December 1, 2013; collateralized by specific equipment.	152,932	274,084
Total	$ 3,654,465	$ 3,937,960

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4. INVENTORIES (Details) (USD $)	Dec. 31, 2012	Jun. 30, 2012
Inventories Details
Raw materials	$ 2,074,176	$ 2,396,545
Work in progress	770,308	515,662
Total	$ 2,844,484	$ 2,912,207

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14. INCOME TAXES (Details) (USD $)	3 Months Ended		6 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012	Dec. 31, 2011
Income Taxes Details
Current			$ (74,151)	$ (181,800)
Deferred
Provision (benefit) for income taxes	$ (74,151)	$ (111,800)	$ (74,151)	$ (181,800)

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9. EMPLOYEE/DIRECTOR EQUITY INCENTIVE PLANS (Details Narrative) (USD $)	6 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Stock-based compensation	$ 413,610	$ 644,640
Shares vested and cancelled - RSU	As of September 30, 2012, 450,000 shares had vested and the remaining shares were cancelled.
Shares granted to employees	661,050	654,500
Exercisable price, minimum	$ 0.35	$ 0.59
Exercisable price, maximum	$ 0.38	$ 1.16
Vesting term	From July 2012 through December 2015 and exercisable at various dates through December 2020.	From July 2011 through December 2014 and exercisable at various dates through December 2019.
shares available for future grant	4,347,953
Options outstanding	4,179,914
Total fair value of options granted	155,201	576,618
Unrecognized compensation cost related to unvested stock options	288,638
Directors fees expense settled with RSUs	165,997
Unvested RSUs outstanding	2,158,332
Unvested RSUs outstanding vest through	May 06, 2014
Unrecognized compensation cost related to unvested RSUs	$ 615,667
Tier Electronics LLC [Member]
Shares vested and cancelled	As of December 31, 2012, 140,000 of the 420,000 shares had vested and 110,000 of the 330,000 had vested.

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9. EMPLOYEE/DIRECTOR EQUITY INCENTIVE PLANS (Details 3) (USD $)	6 Months Ended	12 Months Ended
	Dec. 31, 2012	Jun. 30, 2012
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Beginning Balance, Number of Options	2,240,553	1,735,224
Granted	661,050	1,454,500
Vested	(214,665)	(722,837)
Forfeited	(550,667)	(226,334)
Ending Balance, number of options	2,136,271	2,240,553
Beginning Balance, grant date fair value	$ 0.79	$ 0.62
Granted	$ 0.38	$ 0.38
Vested	$ 0.81	$ 0.81
Forfeited	$ 0.87	$ 0.87
Ending Balance, grant date fair value	$ 0.79	$ 0.79

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2. CHINA JOINT VENTURE

6 Months Ended

Dec. 31, 2012

Notes to Financial Statements

CHINA JOINT VENTURE

On August 30, 2011, the Company entered into agreements providing for establishment of a joint venture to develop, produce, sell, distribute and service advanced storage batteries and power electronics in China (the “Joint Venture”).  Joint venture partners include PowerSav, Inc. (“PowerSav”), AnHui Xinlong Electrical Co. and Wuhu Huarui Power Transmission and Transformation Engineering Co.  The Joint Venture was established upon receipt of certain governmental approvals from China which were received in November 2011.

The Joint Venture operates through a jointly-owned Chinese company located in Wuhu City, Anhui Province named Anhui Meineng Store Energy Co., Ltd. (“AHMN”).  AHMN intends to initially assemble and ultimately manufacture the Company’s products for sale in the power management industry on an exclusive basis in mainland China and on a non-exclusive basis in Hong Kong and Taiwan.

In connection with the Joint Venture, on August 30, 2011 the Company and certain of its subsidiaries entered into the following agreements:

·   Joint Venture Agreement of Anhui Meineng Store Energy Co., Ltd. (the “China JV Agreement”) by and between ZBB PowerSav Holdings Limited, a Hong Kong limited liability company (“Holdco”), and Anhui Xinrui Investment Co., Ltd, a Chinese limited liability company; and

·   Limited Liability Company Agreement of ZBB PowerSav Holdings Limited by and between ZBB Cayman Corporation and PowerSav, Inc. (the “Holdco Agreement”).

In connection with the Joint Venture, upon establishment of AHMN, the Company and certain of its subsidiaries entered into the following agreements:

·   Management Services Agreement by and between AHMN and Holdco (the “Management Services Agreement”);

·   License Agreement by and between Holdco and AHMN (the “License Agreement”); and

·   Research and Development Agreement by and between the Company and AHMN (the “Research and Development Agreement”).

Pursuant to the China JV Agreement, AHMN was capitalized with approximately $13.6 million of equity capital.  The Company’s only capital contributions to the Joint Venture were the contribution of technology to AHMN via the License Agreement and $200,000 in cash.  The Company’s indirect interest in AHMN equals approximately 33%.

The Company’s investment in AHMN was made through Holdco, a holding company formed with PowerSav.  Pursuant to the Holdco Agreement, the Company contributed to Holdco technology via a license agreement with an agreed upon value of approximately $4.1 million and $200,000 in cash in exchange for a 60% equity interest and PowerSav agreed to contribute to Holdco $3.3 million in cash in exchange for a 40% equity interest.  The initial capital contributions (consisting of the Company’s technology contribution and one half of required cash contributions) were made in December 2011. The subsequent capital contributions (consisting of one half of the required cash contribution) were made on May 16, 2012.  For financial reporting purposes, Holdco’s assets and liabilities are consolidated with those of the Company and PowerSav’s 40% interest in Holdco is included in the Company’s consolidated financial statements as a noncontrolling interest.  For the three and six months ended December 31, 2012, AHMN had a net loss of $878,198 and $1,510,583 respectively. For the three and six months ended December 30, 2011, AHMN had a net loss of $0 and $171,949, respectively.

The Company’s basis in the technology contributed to Holdco is $0 due to U.S. GAAP requirements related to research and development expenditures.  The difference of approximately $4.1 million in the Company’s basis in this technology and the valuation of the technology by AHMN is accounted for by the Company through the elimination of the amortization expense recognized by AHMN related to the technology.

The Company has the right to appoint a majority of the members of the Board of Directors of Holdco and Holdco has the right to appoint a majority of the members of the Board of Directors of AHMN.

Pursuant to the Management Services Agreement Holdco will provide certain management services to AHMN in exchange for a management services fee equal to five percent of AHMN’s net sales for the first five years and three percent of AHMN’s net sales for the subsequent three years.

Pursuant to the License Agreement, Holdco granted to AHMN (1) an exclusive royalty-free license to manufacture and distribute the Company’s ZBB EnerStore, zinc bromide flow battery, version three (V3) (50KW) and ZBB EnerSection,  power and energy control center (up to 250KW) (the “Products”) in mainland China in the power supply management industry and (2) a non-exclusive royalty-free license to manufacture and distribute the Products in Hong Kong and Taiwan in the power supply management industry.

Pursuant to the Research and Development Agreement, AHMN may request the Company to provide research and development services upon commercially reasonable terms and conditions.  AHMN would pay the Company’s fully-loaded costs and expense incurred in providing such services.

The Company had product sales of $191,868 and $895,306 to AHMN during the three and six months ended December 31, 2012, respectively.  The Company did not have any product sales to AHMN during the three and six months ended December 31, 2011.

The operating results for AHMN for the period from July 1, 2012 to December 31, 2012 are summarized as follows:

	Three months ended December 31,						Six months ended December 31,
	2012			2011			2012			2011
Revenues	$	54,294		$	-		$	54,294		$	-
Gross Profit		1,041			-			1,041			-
Income (loss) from operations		(860,224	)		(171,949	)		(1,510,668	)		(171,949	)
Net Income (loss)	$	(878,198	)	$	(171,949	)	$	(1,510,583	)	$	(171,949	)

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10. WARRANTS (Details Narrative) (USD $)	Dec. 31, 2012
Outstanding warrants to purchase	75,000
Exercise price of warrants outstanding	$ 0.42
warrant expiration dates	July 2015.
Underwriting compensation on sale of common stock	$ 12,000,000
Fair value of the warrants	11,834
MDB Capital Group, LLC [Member]
Outstanding warrants to purchase	2,895,303
Exercise price of warrants outstanding	$ 0.475
warrant expiration dates	June 2017.
 Zero Coupon Convertible Subordinated [Member]
Outstanding warrants to purchase	2,558,019
Exercise price of warrants outstanding	$ 0.53
warrant expiration dates	May 2017.
Sale of a Zero Coupon Convertible Subordinated Notes	$ 2,465,000
Exercisable [Member]
Outstanding warrants to purchase	60,500
Exercise price of warrants outstanding	$ 1.00
warrant expiration dates	March 2015 through July 2015.
Equipment Supplier [Member]
Outstanding warrants to purchase	40,000
Exercise price of warrants outstanding	$ 0.56
warrant expiration dates	January 2014.
Certain Purchasers of Company [Member]
Outstanding warrants to purchase	1,121,875
Exercise price of warrants outstanding	$ 1.04
warrant expiration dates	September 2015.

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8. BANK LOANS AND NOTES PAYABLE (Details 2) (USD $)	Dec. 31, 2012	Jun. 30, 2012
Bank Loans And Notes Payable Details 2
2013 (six months)	$ 738,830
2014	816,002
2015	346,433
2016	356,292
2017	342,826
2018 and thereafter	1,054,082
Total	$ 3,654,465	$ 3,937,960

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9. EMPLOYEE/DIRECTOR EQUITY INCENTIVE PLANS (Tables)

6 Months Ended

Dec. 31, 2012

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock option activity under the employee and director plans

	Number of Options			Weighted-Average Exercise Price Per Share
Balance at June 30, 2011		3,322,303		$	1.55
Options granted		1,454,500			0.82
Options forfeited		(537,739	)		1.91
Balance at June 30, 2012		4,239,064			1.25
Options granted		661,050			0.38
Options forfeited		(720,200	)		1.10
Balance at December 31, 2012		4,179,914			1.14

Stock options outstanding

	Outstanding						Exercisable
Range of Exercise Prices	Number of Options		Average Remaining Contractual Life (in years)		Weighted Average Exercise Price		Number of Options		Average Remaining Contractual Life (in years)		Weighted Average Exercise Price
$0.34 to $0.50		728,550		7.71	$	0.38		42,332		5.41	$	0.48
$0.51 to $1.00		1,088,500		6.64		0.78		385,667		6.36		0.78
$1.01 to $1.50		2,062,864		5.46		1.24		1,315,644		5.23		1.27
3.50 to $3.82		300,000		1.89		3.59		300,000		1.89		3.59
Balance at December 31, 2012		4,179,914		5.90		1.14		2,043,643		5.00		1.50

Assumptions were used to estimate the fair value of options

	FY 2013	FY 2012
Expected life of option (years)	4	2.5
Risk-free interest rate	.46 - .60%	.24 - .55%
Assumed volatility	100 - 104%	103 - 107%
Expected dividend rate	0%	0%
Expected forfeiture rate	4.19 - 6.66%	4.35 - 6.80%

Summary of the status of unvested employee stock options

	Number of  Options			Weighted-Average Grant Date Fair Value Per Share
Balance at June 30, 2011		1,735,224		$	0.62
Granted		1,454,500			0.38
Vested		(722,837	)		0.81
Forfeited		(226,334	)		0.87
Balance at June 30, 2012		2,240,553			0.79
Granted		661,050			0.38
Vested		(214,665	)		0.81
Forfeited		(550,667	)		0.87
Balance at December 31, 2012		2,136,271			0.79

Status of restricted stock unit balances

	Number of Restricted Stock Units			Weighted-Average Valuation Price Per Unit
Balance at June 30, 2011		1,400,385		$	0.70
RSUs granted		1,048,051			0.74
RSUs forfeited		-			-
Balance at June 30, 2012		2,448,436			0.72
RSUs granted		2,250,000			0.22
RSUs forfeited		(50,000	)		0.70
Balance at December 31, 2012		4,648,436		$	0.37

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8. BANK LOANS AND NOTES PAYABLE (Tables)

6 Months Ended

Dec. 31, 2012

Debt Disclosure [Abstract]

Company's debt

	December 31, 2012		June 30, 2012
Bank loans and notes payable-current	$	935,207	$	1,022,826
Bank loans and notes payable-long term		2,719,258		2,915,134
Total	$	3,654,465	$	3,937,960

Bank loans and notes payable

	December 31, 2012		June 30, 2012
Note payable to the seller of Tier Electronics LLC payable in annual installments of   $450,000 on January 21, 2013 and January 21, 2014.  Interest accrues at a rate of   8% and is payable monthly.  The promissory note is collateralized by the Company’s   membership interest in its wholly-owned subsidiary Tier Electronics LLC.  See note   (a) below.	$	900,000	$	900,000
Note payable to Wisconsin Department of Commerce payable in monthly   installments of $22,800, including interest at 2%, with the final payment due   May 1, 2017; collateralized by equipment purchased with the loan proceeds and   substantially all assets of the Company not otherwise collateralized.  The Company   is required to maintain and increase a specified number of employees, and the   interest rate is increased in certain cases for failure to meet this requirement.		1,154,842		1,279,367
Bank loan payable in fixed monthly payments of $6,800 of principal and interest   at a rate of .25% below prime, as defined, subject to a floor of 5% as of June 30,   2012 and 2011 with any principal due at maturity on June 1, 2018; collateralized by   the building and land.		696,873		719,528
Note payable in fixed monthly installments of $6,716 of principal and interest at   a rate of 5.5% with any principal due at maturity on May 1, 2028; collateralized   by the building and land.		749,818		764,981
Bank loan payable in monthly installments of $21,000 of principal and interest at a   rate equal to prime, as defined, subject to a floor of 4.25% with any principal due   at maturity on December 1, 2013; collateralized by specific equipment.		152,932		274,084
	$	3,654,465	$	3,937,960

Maximum aggregate annual principal payments for fiscal periods

2013 (six months)	$	738,830
2014		816,002
2015		346,433
2016		356,292
2017		342,826
2018 and thereafter		1,054,082
	$	3,654,465

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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) (USD $)	3 Months Ended		6 Months Ended		12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012	Dec. 31, 2011	Jun. 30, 2012	Jun. 30, 2011
Allowance for doubtful accounts	$ 0		$ 0		$ 80,000
Accrued expenses	673,030		673,030		418,557	413,203
Total revenues			2,748,007	4,571,328
Percentage revenues of significant customers			83.00%	77.00%
Engineering and development revenues		200,000	218,183	1,611,750
Engineering and development costs			45,065	481,107
Received from customers for engineering and development contracts	25,195		25,195		129,950
Revenue recognized				1,400,000	3,000,000
Agreement [Member]
Revenue recognized			$ 200,000

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9. EMPLOYEE/DIRECTOR EQUITY INCENTIVE PLANS (Details)	6 Months Ended			12 Months Ended	6 Months Ended	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012 Employee and Director Plans Weighted Average Excercise Price	Jun. 30, 2012 Employee and Director Plans Weighted Average Excercise Price	Dec. 31, 2012 Employee and Director Plans Number of Options	Jun. 30, 2012 Employee and Director Plans Number of Options
Beginning balance			1.25	1.55	4,239,064	3,322,303
Options granted	661,050	654,500	0.38	0.82	661,050	1,454,500
Options forfeited			1.10	1.91	(720,200)	(537,739)
Ending balance			1.14	1.25	4,179,914	4,239,064

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10. WARRANTS (Tables)

6 Months Ended

Dec. 31, 2012

Notes to Financial Statements

Warrant balances

	Number of Warrants			Weighted-Average Exercise Price Per Share
Balance at June 30, 2011		1,886,031		$	1.73
Warrants granted		9,614,875			0.53
Warrants expired		(365,823	)		(4.54	)
Warrants exercised		(4,132,553	)		(0.53	)
Balance at June 30, 2012		7,002,530			0.63
Warrants granted		106,500			0.59
Warrants expired		-			-
Warrants exercised		-			-
Balance at December 31, 2012		7,109,030		$	0.63

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11. EQUITY (Tables)

6 Months Ended

Dec. 31, 2012

Equity [Abstract]

Transactions under the Socius agreement

Tranche	Date of Notice	Series A Preferred Stock Purchased by Socius		Shares of Common Stock Purchased by Socius		Total Purchase Price of Common Stock		Per Share Price		Shares of Common Stock Issued by ZBB in Payment of Commitment Fee		Discount on Collateralized Promissory Note Issued by Socius
1	September 2, 2010	$	517,168		1,163,629	$	698,177	$	0.60		490,196	$	183,922
2	November 12, 2010		490,000		906,165		661,500		0.73		402,901		173,872
3	January 12, 2011		2,020,000		1,934,042		2,727,000		1.41				716,777
4	March 16, 2011		520,000		557,142		702,000		1.26				184,461
5 & 6	September 8, 2011		1,447,240		2,621,359		1,953,775		0.75				512,815
7	November 16, 2011		750,000		1,511,194		1,012,500		0.67				266,130
		$	5,744,408		8,693,531	$	7,754,952				893,097	$	2,037,977

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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Dec. 31, 2012

Notes to Financial Statements

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

ZBB Energy Corporation (“ZBB,” “we,” “us,” “our” or the “Company”) develops and manufactures distributed energy storage solutions based upon the Company’s proprietary zinc bromide rechargeable electrical energy storage technology and proprietary power electronics systems.  A developer and manufacturer of modular, scalable and environmentally friendly power systems (“ZBB EnerSystem”), ZBB was incorporated in Wisconsin in1998 and is headquartered in Wisconsin, USA with offices also located in Perth, Western Australia.

The Company provides advanced electrical power management platforms targeted at the growing global need for distributed renewable energy, energy efficiency, power quality, and grid modernization.  The Company and its power electronics subsidiary, Tier Electronics LLC, have developed a portfolio of intelligent power management platforms that directly integrate multiple renewable and conventional onsite generation sources with rechargeable zinc bromide flow batteries and other storage technology. The Company also offers advanced systems to directly connect wind and solar equipment to the grid and systems that can form various levels of micro-grids.  Tier Electronics LLC participates in the energy efficiency markets through its hybrid vehicle control systems, and power quality markets with its line of regulation solutions. Together, these platforms solve a wide range of electrical system challenges in global markets for utility, governmental, commercial, industrial and residential end customers.

The consolidated financial statements include the accounts of the Company and those of its wholly-owned subsidiaries: Tier Electronics LLC which operates manufacturing facilities in Menomonee Falls, Wisconsin; ZBB Energy Pty Ltd. (formerly known as ZBB Technologies, Ltd.) which has an advanced engineering and development facility in Perth, Australia; and its sixty percent owned subsidiary ZBB PowerSav Holdings Limited located in Hong Kong which was formed in connection with the Company’s investment in the China joint venture. A former wholly-owned subsidiary ZBB Technologies, Inc. was merged with and into ZBB on January 1, 2012.

Interim Financial Data

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting only of adjustments of a normal and recurring nature) considered necessary for fair presentation of the results of operations have been included. Operating results for the six month period ended December 31, 2012 are not necessarily indicative of the results that might be expected for the year ending June 30, 2013.

The condensed consolidated balance sheet at June 30, 2012 has been derived from audited financial statements at that date, but does not include all of the information and disclosures required by GAAP. For a more complete discussion of accounting policies and certain other information, refer to the Company’s annual report filed on Form 10-K for the fiscal year ended June 30, 2012.

Basis of Presentation

The accompanying consolidated financial statements include the accounts of the Company and its wholly and majority-owned subsidiaries and have been prepared in accordance with U.S. GAAP. All significant intercompany accounts and transactions have been eliminated upon consolidation.

Cash and Cash Equivalents

The Company considers all highly liquid investments with maturities of three months or less to be cash equivalents.  The Company maintains its cash deposits in fully insured accounts at financial institutions predominately in the United States, Australia, and Hong Kong.  The Company has not experienced any losses in such accounts.

Restricted Cash on Deposit

The Company had $310,000 and $0 in restricted cash on deposit as of December 31, 2012 and June 30, 2012, respectively, as collateral for certain credit arrangements with vendors.

Accounts Receivable

The Company records allowances for doubtful accounts based on customer-specific analysis and general matters such as current assessments of past due balances and economic conditions.  The Company writes off accounts receivable against the allowance when they become uncollectible.  Accounts receivable are stated net of an allowance for doubtful accounts of $0 and $80,000, as of December 31, 2012 and June 30, 2012, respectively.

Inventories

Inventories are stated at the lower of cost or market using the first-in, first-out (FIFO) or average cost methods.  The carrying value of inventories is reviewed for obsolescence on at least a quarterly basis or more frequently if warranted due to changes in conditions.  Market is determined on the basis of estimated net realizable values.

Property, Plant and Equipment

Land, building, equipment, computers and furniture and fixtures are recorded at cost.  Maintenance, repairs and betterments are charged to expense as incurred. Depreciation is provided for all plant and equipment on a straight line basis over the estimated useful lives of the assets.  The estimated useful lives used for each class of depreciable asset are:

	Estimated Useful Lives
Manufacturing equipment	3 - 7 years
Office equipment	3 - 7 years
Building and improvements	7 - 40 years

Investment in Investee Company

Investee companies that are not consolidated, but over which the Company exercises significant influence, are accounted for under the equity method of accounting. Whether or not the Company exercises significant influence with respect to an investee depends on an evaluation of several factors including, among others, representation on the investee company’s board of directors and ownership level, which is generally a 20% to 50% interest in the voting securities of the investee company. Under the equity method of accounting, an investee company’s accounts are not reported in the Company’s condensed consolidated balance sheets and condensed statements of operations; however, the Company’s share of the earnings or losses of the investee company is reflected in the caption ‘‘Equity in loss of investee company” in the condensed consolidated statements of operations. The Company’s carrying value in an equity method investee company is reported in the caption ‘‘Investment in investee company’’ in the Company’s condensed consolidated balance sheets.

When the Company’s carrying value in an equity method investee company is reduced to zero, no further losses are recorded in the Company’s consolidated financial statements unless the Company guaranteed obligations of the investee company or has committed additional funding. When the investee company subsequently reports income, the Company will not record its share of such income until it equals the amount of its share of losses not previously recognized.

Intangible Assets

Intangible assets generally result from business acquisitions.  Assets acquired and liabilities assumed are recorded at their estimated fair values.  Intangible assets consist of a non-compete agreement, license agreement, and trade secrets.  Amortization is recorded for intangible assets with determinable lives. Intangible assets are amortized using the straight line method over the three year estimated useful lives of the respective assets.

Goodwill

Goodwill is recognized as the excess cost of an acquired entity over the net amount assigned to assets acquired and liabilities assumed. Goodwill is not amortized but reviewed for impairment annually as of June 30 or more frequently if events or changes in circumstances indicate that its carrying value may be impaired.  These conditions could include a significant change in the business climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant portion of a reporting unit.

In September 2011, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) to Accounting Standards Codification (“ASC”) Topic 350, “Intangibles — Goodwill and Other.”  This ASU amends the guidance in ASC Topic 350-20 on testing for goodwill impairment. The revised guidance allows entities testing for goodwill impairment to have the option of performing a qualitative assessment before calculating the fair value of the reporting unit. If the Company determines, on the basis of qualitative factors, that it is more likely than not that the fair value of the reporting unit is less than the carrying amount, the two-step impairment test is required.  If we cannot determine on the basis of qualitative factors that goodwill is not impaired, the two-step impairment test is required.

The first step of the impairment test requires the comparing of a reporting unit’s fair value to its carrying value. If the carrying value is less than the fair value, no impairment exists and the second step is not performed. If the carrying value is higher than the fair value, there is an indication that impairment may exist and the second step must be performed to compute the amount of the impairment. In the second step, the impairment is computed by estimating the fair values of all recognized and unrecognized assets and liabilities of the reporting unit and comparing the implied fair value of reporting unit goodwill with the carrying amount of that unit’s goodwill.  The Company determined fair value as evidenced by market capitalization, and concluded that there was no need for an impairment charge as of December 31, 2012 and June 30, 2012.

Impairment of Long-Lived Assets

In accordance with FASB ASC Topic 360, "Impairment or Disposal of Long-Lived Assets," the Company assesses potential impairments to its long-lived assets including property, plant and equipment and intangible assets when there is evidence that events or changes in circumstances indicate that the carrying value may not be recoverable.

If such an indication exists, the recoverable amount of the asset is compared to the asset’s carrying value. Any excess of the asset’s carrying value over its recoverable amount is expensed in the consolidated statement of operations. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate.  Management has determined that there were no long-lived assets impaired as of December 31, 2012 and June 30, 2012.

Warranty Obligations

The Company typically warrants its products for twelve months after installation or eighteen months after date of shipment, whichever first occurs. Warranty costs are provided for estimated claims and charged to cost of product sales as revenue is recognized.  Warranty obligations are also evaluated quarterly to determine a reasonable estimate for the replacement of potentially defective materials of all energy storage systems that have been shipped to customers.

While the Company actively engages in monitoring and improving its evolving battery and production technologies, there is only a limited product history and relatively short time frame available to test and evaluate the rate of product failure.  Should actual product failure rates differ from the Company’s estimates, revisions will be made to the estimated rate of product failures and resulting changes to the liability for warranty obligations.  In addition, from time to time, specific warranty accruals may be made if unforeseen technical problems arise.

As of December 31, 2012 and June 30, 2012, included in the Company’s accrued expenses were $673,030 and $418,557, respectively, related to warranty obligations.  Such amounts are included in accrued expenses in the accompanying condensed consolidated balance sheets.

The following is a summary of accrued warranty activity:

	Six Months and Year Ended
	December 31, 2012			June 30, 2012
Beginning balance	$	418,557		$	413,203
Accruals for warranties during the period		308,692			196,753
Settlements during the period		(78,337	)		(126,902	)
Adjustments relating to preexisting warranties		24,118			(64,497	)
Ending balance	$	673,030		$	418,557

Revenue Recognition

Revenues are recognized when persuasive evidence of a contractual arrangement exits, delivery has occurred or services have been rendered, the seller’s price to buyer is fixed and determinable, and collectability is reasonably assured. The portion of revenue related to installation and final acceptance, is deferred until such installation and final customer acceptance are completed.

For sales arrangements containing multiple elements (products or services), revenue relating to undelivered elements is deferred at the estimated fair value until delivery of the deferred elements. To be considered a separate element, the product or service in question must represent a separate unit under SEC Staff Accounting Bulletin 104, and fulfill the following criteria: the delivered item(s) has value to the customer on a standalone basis; there is objective and reliable evidence of the fair value of the undelivered item(s); and if the arrangement includes a general right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially in our control. If the arrangement does not meet all criteria above, the entire amount of the transaction is deferred until all elements are delivered. Revenue from time and materials based service arrangements is recognized as the service is performed.

The portion of revenue related to engineering and development is recognized ratably upon delivery of the goods or services pertaining to the underlying contractual arrangement or revenue is recognized as certain activities are performed by the Company over the estimated performance period.

The Company charges shipping and handling fees when products are shipped or delivered to a customer, and includes such amounts in net revenues. The Company reports its revenues net of estimated returns and allowances.

Revenues from government funded research and development contracts are recognized proportionally as costs are incurred and compared to the estimated total research and development costs for each contract. In many cases, the Company is reimbursed only a portion of the costs incurred or to be incurred on the contract. Government funded research and development contracts are generally multi-year, cost-reimbursement and/or cost-share type contracts. The Company is generally reimbursed for reasonable and allocable costs up to the reimbursement limits set by the contract.

Total revenues of $2,748,007 and $4,571,328 were recognized for the three and six months ended December 31, 2012, respectively.  Revenues for the three months ended December 31, 2012 were comprised of four significant customers (83% of total revenues) and revenues for the six months ended December 31, 2012 were comprised of five significant customers (77% of total revenues).  Total revenues of $440,921 and $2,078,778 were recognized for the three and six months ended December 31, 2011, and were comprised of one significant customer (81% of total revenues).

Engineering and Development Revenues

On April 8, 2011, the Company entered into a Collaboration Agreement (the “Collaboration Agreement”) with Honam Petrochemical Corporation (“Honam”), a division of LOTTE Petrochemical, pursuant to which the Company agreed with Honam to collaborate on the further technical development of the Company’s third generation zinc bromide flow battery module (the “Version 3 Battery Module”).  Pursuant to the Collaboration Agreement, Honam was required to pay the Company a total of $3,000,000 as follows:  (1) $1,000,000 within 10 days following the execution of the Collaboration Agreement (subsequently received on April 9, 2011); (2) $500,000 by June 30, 2011 (subsequently received on June 30, 2011); (3) $1,200,000 by October 10, 2011 (subsequently received on October 10, 2011) and (4) $300,000 within 10 days after a single Version 3 Battery Module test station  is set up at Honam’s research and development center (subsequently received on March 30, 2012).  The Company had recognized $2,300,000 of revenue under this agreement as of December 31, 2011 and the Company had recognized $3,000,000 as revenue as of June 30, 2012 based on performance milestones achieved.  Pursuant to the Collaboration Agreement, the parties are required to negotiate a license agreement under which upon the completion of the collaboration project and the receipt by the Company of all payments due under the Collaboration Agreement, the Company shall grant to Honam: (1) a fully paid-up, exclusive and royalty-free license to sell and manufacture the Version 3 Battery Module in Korea and (2) non-exclusive rights to sell the Version 3 Battery Module in Japan, Thailand, Taiwan, Malaysia, Vietnam and Singapore.  In connection with such non-exclusive rights, Honam is required to pay us a royalty.  No royalties have been earned to date.

On December 13, 2011, the Company entered into a joint development and license agreement with a global technology company to jointly develop flow batteries. The objective of the joint development agreement is to develop low cost, high energy density grid scale flow battery stacks and systems that could lead to a significant cost reduction for grid level storage.  The joint development agreement provided for payments to the Company as follows:  $175,000 in December 2011 (subsequently received $175,000 in December 2011), payments of $75,000 every three months starting April 2012 through January 2013 (subsequently received $75,000 during April, June  and October of 2012) and $100,000 every three months starting in April 2013 through January 2014.  The global technology company also purchased 933,333 shares of the Company’s common stock in December 2011 for $700,000.  The Company recognizes revenue under this agreement upon achievement of certain performance milestones.  The Company recognized $0 and $200,000 of revenue under this agreement in the three and six months ended December 31, 2012.

Milestone payments under collaborative arrangements are triggered by the results of the Company’s engineering and development efforts. Milestones related to the Company’s development-based activities may include initiation of various phases of engineering and development activities, successful completion of a phase of development, or delivery of specified equipment or products. Due to the uncertainty involved in meeting these development-based milestones, the development-based milestones are considered to be substantial (i.e. not just achieved through passage of time) at the inception of the collaboration agreement. In addition, the amounts of the payments assigned thereto are considered to be commensurate with the enhancement of the value of the delivered intellectual property as a result of our performance. The Company’s involvement is necessary to the achievement of development-based milestones. The Company accounts for development-based milestones as revenue upon achievement of the substantive milestone events. In addition, upon the achievement of development-based milestone events, the Company has no future performance obligations related to any milestone payments.

Included in engineering and development revenues were $0 and $218,183 respectively, for the three and six months ended December 31, 2012 related to the collaborative agreements.  Engineering and development costs related to the collaboration agreements totaled $0 and $45,065 for the three and six months ended December 31, 2012.  Included in engineering and development revenues were $200,000 and $1,600,000 respectively, for the three and six months ended December 31, 2011 related to the collaborative agreements.  Engineering and development costs related to the collaboration agreements totaled $0 and $481,107 for the three and six months ended December 31, 2011.

As of December 31, 2012 and June 30, 2012, the Company had no unbilled amounts from engineering and development contracts in process. The Company had received $25,195 and $129,950 in customer payments for engineering and development contracts, representing deposits in advance of performance of the contracted work, as of December 31, 2012 and June 30, 2012, respectively.

Advanced Engineering and Development Expenses

The Company expenses advanced engineering and development costs as incurred. These costs consist primarily of labor, overhead, and materials to build prototype units, materials for testing, development of manufacturing processes and include consulting fees and other costs.

To the extent these costs are separately identifiable, incurred and funded by advanced engineering and development type agreements with outside parties, they are shown separately on the consolidated statements of operations as a “cost of engineering and development.”

Stock-Based Compensation

The Company measures all “Share-Based Payments", including grants of stock options, restricted shares and restricted stock units, to be recognized in its consolidated statement of operations based on their fair values on the grant date, consistent with FASB ASC Topic 718, “Stock Compensation,” guidelines.

Accordingly, the Company measures share-based compensation cost for all share-based awards at the fair value on the grant date and recognition of share-based compensation over the service period for awards that are expected to vest. The fair value of stock options is determined based on the number of shares granted and the price of the shares at grant, and calculated based on the Black-Scholes valuation model.

The Company compensates its outside directors primarily with restricted stock units (“RSUs”) rather than cash.  The grant date fair value of the restricted stock unit awards is determined using the closing stock price of the Company’s common stock on the day prior to the date of the grant, with the compensation expense recognized over the vesting period of restricted stock unit awards, net of estimated forfeitures.

The Company only recognizes expense to its condensed consolidated statements of operations for those options or shares that are expected ultimately to vest, using two attribution methods to record expense, the straight-line method for grants with only service-based vesting or the graded-vesting method, which considers each performance period, for all other awards. See Note 9.

Income Taxes

The Company records deferred income taxes in accordance with FASB ASC Topic 740, “Accounting for Income Taxes.” This ASC Topic requires recognition of deferred income tax assets and liabilities for temporary differences between the tax basis of assets and liabilities and the amounts at which they are carried in the financial statements, based upon the enacted tax rates in effect for the year in which the differences are expected to reverse. The Company establishes a valuation allowance when necessary to reduce deferred income tax assets to the amount expected to be realized.  There were no net deferred income tax assets recorded as of December 31, 2012 and June 30, 2012.

The Company applies a more-likely-than-not recognition threshold for all tax uncertainties as required under FASB ASC Topic 740, which only allows the recognition of those tax benefits that have a greater than fifty percent likelihood of being sustained upon examination by the taxing authorities.

The Company’s U.S. Federal income tax returns for the years ended June 30, 2009 through June 30, 2012 and the Company’s Wisconsin and Australian income tax returns for the years ended June 30, 2008 through June 30, 2012 are subject to examination by taxing authorities.

Foreign Currency

The Company uses the United States dollar as its functional and reporting currency, while the Australian dollar and Hong Kong dollar are the functional currencies of its foreign subsidiaries. Assets and liabilities of the Company’s foreign subsidiaries are translated into United States dollars at exchange rates that are in effect at the balance sheet date while equity accounts are translated at historical exchange rates. Income and expense items are translated at average exchange rates which were applicable during the reporting period. Translation adjustments are accumulated in accumulated other comprehensive loss as a separate component of equity in the condensed consolidated balance sheets.

Loss per Share

The Company follows the FASB ASC Topic 260, “Earnings per Share,” provisions which require the reporting of both basic and diluted earnings (loss) per share.  Basic earnings (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding for the period.  Diluted earnings (net loss) per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. In accordance with the FASB ASC Topic 260, any anti-dilutive effects on net income (loss) per share are excluded.  For the six months ended December 31, 2012 and December 31, 2011 there were 15,937,380 and 7,711,897 shares of common stock underlying options, restricted stock units and warrants that are excluded, respectively.

Concentrations of Credit Risk and Fair Value

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivable.

The Company maintains significant cash deposits primarily with three financial institutions.  All deposits are fully insured as of December 31, 2012. The Company has not previously experienced any losses on such deposits. Additionally, the Company performs periodic evaluations of the relative credit ratings of these institutions as part of its investment strategy.

Concentrations of credit risk with respect to accounts receivable are limited due to accelerated payment terms in current customer contracts and creditworthiness of the current customer base.

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value due to the short-term nature of these instruments. The carrying value of bank loans and notes payable approximate fair value based on their terms which reflect market conditions existing as of December 31, 2012 and June 30, 2012.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. It is reasonably possible that the estimates we have made may change in the near future. Significant estimates underlying the accompanying consolidated financial statements include those related to:

·   the timing of revenue recognition;

·   the allowance for doubtful accounts;

·   provisions for excess and obsolete inventory;

·   the lives and recoverability of property, plant and equipment and other long-lived assets, including goodwill and other intangible assets;

·   contract costs and reserves;

·   warranty obligations;

·   income tax valuation allowances;

·   stock-based compensation;

·   fair values of assets acquired and liabilities assumed in a business combination; and

·   valuation of warrants

Reclassifications

Certain amounts previously reported have been reclassified to conform to the current presentation.

Segment Information

The Company has determined that it operates as one reportable segment.

Recent Accounting Pronouncements

In July 2012, the FASB amended its authoritative guidance related to testing indefinite-lived intangible assets for impairment.  Under the revised guidance, entities testing their indefinite-lived intangible assets for impairment have the option of performing a qualitative assessment before performing further impairment testing.  If entities determine, on a basis of qualitative factors, that it is more-likely-than-not that the asset is impaired, a quantitative test is required.  The guidance becomes effective in the beginning of the Company’s fiscal 2014, with early adoption permitted. The Company is currently evaluating the timing of adopting this guidance which is not expected to have an impact on the Company’s consolidated financial statements.

In June 2011, the FASB issued new accounting guidance related to the presentation of comprehensive income (loss) that eliminates the current option to report other comprehensive income (loss) and its components in the statement of changes in equity. We elected to present items of net income (loss) and other comprehensive income (loss) in two consecutive statements. This guidance was adopted and effective for our reporting period ended September 30, 2012.

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12. COMMITMENTS (Tables)

6 Months Ended

Dec. 31, 2012

Commitments and Contingencies Disclosure [Abstract]

Future payments required under the terms of the leases for fiscal periods

2013 (six months)	$	93,734
2014		145,468
2015		103,468
2016		34,489
	$	377,159

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6. INTANGIBLE ASSETS (Details 1) (USD $)	Dec. 31, 2012
Intangible Assets Details 1
2013	$ 362,992
2014	411,109
Intangible Assets, Net	$ 774,101

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14. INCOME TAXES (Details 1)	6 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Income Taxes Details 1
Income tax benefit computed at the U.S. federal statutory rate	(34.00%)	(34.00%)
Australia research and development credit	(1.00%)	(4.00%)
Change in valuation allowance	34.00%	34.00%
Total	(1.00%)	(4.00%)

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Condensed Consolidated Balance Sheets (USD $)	Dec. 31, 2012	Jun. 30, 2012
Current assets:
Cash and cash equivalents	$ 2,118,800	$ 7,823,217
Restricted cash on deposit	310,000
Accounts receivable, net	1,171,485	480,563
Inventories	2,844,484	2,912,207
Prepaid and other current assets	899,807	187,448
Refundable income tax credit	265,392	185,545
Total current assets	7,609,968	11,588,980
Long-term assets:
Property, plant and equipment, net	5,261,794	5,484,545
Investment in investee company	2,550,776	3,083,889
Intangible assets, net	774,101	1,143,122
Goodwill	803,079	803,079
Total assets	16,999,718	22,103,615
Current liabilities:
Bank loans and notes payable	935,207	1,022,826
Accounts payable	1,336,324	1,899,029
Accrued expenses	1,221,286	1,289,138
Customer deposits	1,602,266	1,315,309
Accrued compensation and benefits	131,840	335,369
Total current liabilities	5,226,923	5,861,671
Long-term liabilities:
Bank loans and notes payable	2,719,258	2,915,134
Total liabilities	7,946,181	8,776,805
Equity
Series A preferred stock ($0.01 par value, $10,000 face value)
Common stock ($0.01 par value); 150,000,000 authorized, 77,568,535 and 72,977,248 shares issued and outstanding as of December 31, 2012 and June 30, 2012, respectively	775,686	729,773
Additional paid-in capital	82,332,895	80,363,519
Accumulated deficit	(75,020,156)	(69,053,909)
Accumulated other comprehensive loss	(1,585,664)	(1,584,921)
Total ZBB Energy Corporation Equity	6,502,761	10,454,462
Noncontrolling interest	2,550,776	2,872,348
Total equity	9,053,537	13,326,810
Total liabilities and equity	$ 16,999,718	$ 22,103,615

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9. EMPLOYEE/DIRECTOR EQUITY INCENTIVE PLANS (Details 1) (USD $)	Dec. 31, 2012
Outstanding Number of Options	4,179,914
Outstanding Number of Options Average Remaining Contractual Life (in years)	5 years 10 months 21 days
Outstanding Number of OptionsWeighted Average Exercise Price	$ 1.14
Exercisable Number of Options	2,043,643
Exercisable Average Remaining Contractual Life (in years)	5 years
Exercisable Weighted Average Exercise Price	$ 1.50
Range 0.34 to 0.50
Outstanding Number of Options	728,550
Outstanding Number of Options Average Remaining Contractual Life (in years)	7 years 8 months 16 days
Outstanding Number of OptionsWeighted Average Exercise Price	$ 0.38
Exercisable Number of Options	42,332
Exercisable Average Remaining Contractual Life (in years)	5 years 4 months 28 days
Exercisable Weighted Average Exercise Price	$ 0.48
Range 0.51 to 1.00
Outstanding Number of Options	1,088,500
Outstanding Number of Options Average Remaining Contractual Life (in years)	6 years 7 months 21 days
Outstanding Number of OptionsWeighted Average Exercise Price	$ 0.78
Exercisable Number of Options	385,667
Exercisable Average Remaining Contractual Life (in years)	6 years 4 months 10 days
Exercisable Weighted Average Exercise Price	$ 0.78
Range 1.01 to 1.50
Outstanding Number of Options	2,062,864
Outstanding Number of Options Average Remaining Contractual Life (in years)	5 years 5 months 15 days
Outstanding Number of OptionsWeighted Average Exercise Price	$ 1.24
Exercisable Number of Options	1,315,644
Exercisable Average Remaining Contractual Life (in years)	5 years 2 months 24 days
Exercisable Weighted Average Exercise Price	$ 1.27
Range 3.50 to 3.82
Outstanding Number of Options	300,000
Outstanding Number of Options Average Remaining Contractual Life (in years)	1 year 10 months 21 days
Outstanding Number of OptionsWeighted Average Exercise Price	$ 3.59
Exercisable Number of Options	300,000
Exercisable Average Remaining Contractual Life (in years)	1 year 10 months 21 days
Exercisable Weighted Average Exercise Price	$ 3.59

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Condensed Consolidated Statements of Changes in Equity (Unaudited) (USD $)	Preferred Stock	Common Stock	Additional Paid-In Capital	Notes Receivable - CommonStock	Treasury Stock	Retained Earnings / Accumulated Deficit	Accumulated Other Comprehensive Income (Loss)	Noncontrolling Interest
Beginning Balance Amount at Jun. 30, 2011	$ 3,715,470	$ 29,912,415	$ 60,777,286	$ (3,707,799)	$ (11,136)	$ (55,343,683)	$ (1,572,752)
Beginning Balance Shares at Jun. 30, 2011	355.4678	299,124
Net loss						(13,710,226)		(210,714)
Net translation adjustment							(12,169)
Warrants issued in connection with convertible debt			423,672
Beneficial conversion on convertible debt			418,585
Issuance of common stock, net of costs and underwriting fees, Shares		31,872,169
Issuance of common stock, net of costs and underwriting fees, Amount		388,962	14,072,955
Warrants issued to underwriters			1,024,726
Issuance of preferred stock, net of issuance costs,Shares	219.6602	11,156,497
Issuance of preferred stock, net of issuance costs,Amount	2,197,240	41,326	2,053,413	(2,187,330)
Stock-based compensation, Shares		50,000
Stock-based compensation, Amount		500	1,586,298
Retirement of treasury shares, Shares		(13,833)
Retirement of treasury shares, Amount		(139)	(10,997)		11,136
Interest on notes receivable - common stock			529,651	(529,651)
Accretion of dividends on preferred stock	523,379		(523,379)
Redemption of Preferred Stock, Shares	(575.1280)
Redemption of Preferred Stock, Amount	(6,436,089)		11,309	6,424,780
Issuance of subsidiary shares to noncontrolling interest								3,083,062
Ending Balance Amount at Jun. 30, 2012	0	729,773	80,363,519	0	0	(69,053,909)	(1,584,921)	2,872,348
Ending Balance Shares at Jun. 30, 2012	0	72,977,248
Net loss						(5,966,247)		(327,072)
Net translation adjustment							(743)
Issuance of common stock, net of costs and underwriting fees, Shares			4,591,287
Issuance of common stock, net of costs and underwriting fees, Amount			45,913	1,555,766
Stock-based compensation, Amount			413,610
Issuance of subsidiary shares to noncontrolling interest								5,500
Ending Balance Amount at Dec. 31, 2012	$ 0	$ 775,686	$ 82,332,895			$ (75,020,156)	$ (1,585,664)	$ 2,550,776
Ending Balance Shares at Dec. 31, 2012	0	77,568,535

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7. GOODWILL (Details Narrative) (USD $)	Dec. 31, 2012	Jun. 30, 2012
Goodwill Details Narrative
Net goodwill amount	$ 803,079	$ 803,079

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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 1) (USD $)	6 Months Ended	12 Months Ended
	Dec. 31, 2012	Jun. 30, 2012
Notes to Financial Statements
Beginning balance	$ 418,557	$ 413,203
Accruals for warranties during the period	308,692	196,753
Settlements during the perioid	(78,337)	(126,902)
Adjustments relating to preexisting warranties	24,118	(64,497)
Ending balance	$ 673,030	$ 418,557

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14. INCOME TAXES (Details Narrative) (USD $)	6 Months Ended
	Dec. 31, 2012	Dec. 31, 2012 Wisconsin [Member]	Jun. 30, 2012 Australia [Member]
Net operating loss carryforwards	$ 56,000,000	$ 45,500,000	$ 5,200,000
Operating Loss Carry forwards Expiration Dates	expire at various dates between June 30, 2015 and 2033.	expire at various dates between June 30, 2013 and 2028.
Other federal deferred tax assets	1,203,368
U.S. federal research and development tax credit carryforwards	$ 87,000
U.S. federal research and development tax credit carryforwards expiration dates	expire at various dates through June 30, 2032.

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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

6 Months Ended

Dec. 31, 2012

Notes to Financial Statements

Description of Business

Description of Business

ZBB Energy Corporation (“ZBB,” “we,” “us,” “our” or the “Company”) develops and manufactures distributed energy storage solutions based upon the Company’s proprietary zinc bromide rechargeable electrical energy storage technology and proprietary power electronics systems.  A developer and manufacturer of modular, scalable and environmentally friendly power systems (“ZBB EnerSystem”), ZBB was incorporated in Wisconsin in1998 and is headquartered in Wisconsin, USA with offices also located in Perth, Western Australia.

The Company provides advanced electrical power management platforms targeted at the growing global need for distributed renewable energy, energy efficiency, power quality, and grid modernization.  The Company and its power electronics subsidiary, Tier Electronics LLC, have developed a portfolio of intelligent power management platforms that directly integrate multiple renewable and conventional onsite generation sources with rechargeable zinc bromide flow batteries and other storage technology. The Company also offers advanced systems to directly connect wind and solar equipment to the grid and systems that can form various levels of micro-grids.  Tier Electronics LLC participates in the energy efficiency markets through its hybrid vehicle control systems, and power quality markets with its line of regulation solutions. Together, these platforms solve a wide range of electrical system challenges in global markets for utility, governmental, commercial, industrial and residential end customers.

The consolidated financial statements include the accounts of the Company and those of its wholly-owned subsidiaries: Tier Electronics LLC which operates manufacturing facilities in Menomonee Falls, Wisconsin; ZBB Energy Pty Ltd. (formerly known as ZBB Technologies, Ltd.) which has an advanced engineering and development facility in Perth, Australia; and its sixty percent owned subsidiary ZBB PowerSav Holdings Limited located in Hong Kong which was formed in connection with the Company’s investment in the China joint venture. A former wholly-owned subsidiary ZBB Technologies, Inc. was merged with and into ZBB on January 1, 2012.

Interim Financial Data

Interim Financial Data

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting only of adjustments of a normal and recurring nature) considered necessary for fair presentation of the results of operations have been included. Operating results for the six month period ended December 31, 2012 are not necessarily indicative of the results that might be expected for the year ending June 30, 2013.

The condensed consolidated balance sheet at June 30, 2012 has been derived from audited financial statements at that date, but does not include all of the information and disclosures required by GAAP. For a more complete discussion of accounting policies and certain other information, refer to the Company’s annual report filed on Form 10-K for the fiscal year ended June 30, 2012.

Basis of Presentation

Basis of Presentation

The accompanying consolidated financial statements include the accounts of the Company and its wholly and majority-owned subsidiaries and have been prepared in accordance with U.S. GAAP. All significant intercompany accounts and transactions have been eliminated upon consolidation.

Cash and Cash Equivalents

Cash and Cash Equivalents

The Company considers all highly liquid investments with maturities of three months or less to be cash equivalents.  The Company maintains its cash deposits in fully insured accounts at financial institutions predominately in the United States, Australia, and Hong Kong.  The Company has not experienced any losses in such accounts.

Restricted Cash on Deposit

Restricted Cash on Deposit

The Company had $310,000 and $0 in restricted cash on deposit as of December 31, 2012 and June 30, 2012, respectively, as collateral for certain credit arrangements with vendors.

Accounts Receivable

Accounts Receivable

The Company records allowances for doubtful accounts based on customer-specific analysis and general matters such as current assessments of past due balances and economic conditions.  The Company writes off accounts receivable against the allowance when they become uncollectible.  Accounts receivable are stated net of an allowance for doubtful accounts of $0 and $80,000, as of December 31, 2012 and June 30, 2012, respectively.

Inventories

Inventories

Inventories are stated at the lower of cost or market using the first-in, first-out (FIFO) or average cost methods.  The carrying value of inventories is reviewed for obsolescence on at least a quarterly basis or more frequently if warranted due to changes in conditions.  Market is determined on the basis of estimated net realizable values.

Property, Plant and Equipment

Property, Plant and Equipment

Land, building, equipment, computers and furniture and fixtures are recorded at cost.  Maintenance, repairs and betterments are charged to expense as incurred. Depreciation is provided for all plant and equipment on a straight line basis over the estimated useful lives of the assets.  The estimated useful lives used for each class of depreciable asset are:

	Estimated Useful Lives
Manufacturing equipment	3 - 7 years
Office equipment	3 - 7 years
Building and improvements	7 - 40 years

Investment in Investee Company

Investment in Investee Company

Investee companies that are not consolidated, but over which the Company exercises significant influence, are accounted for under the equity method of accounting. Whether or not the Company exercises significant influence with respect to an investee depends on an evaluation of several factors including, among others, representation on the investee company’s board of directors and ownership level, which is generally a 20% to 50% interest in the voting securities of the investee company. Under the equity method of accounting, an investee company’s accounts are not reported in the Company’s condensed consolidated balance sheets and condensed statements of operations; however, the Company’s share of the earnings or losses of the investee company is reflected in the caption ‘‘Equity in loss of investee company” in the condensed consolidated statements of operations. The Company’s carrying value in an equity method investee company is reported in the caption ‘‘Investment in investee company’’ in the Company’s condensed consolidated balance sheets.

When the Company’s carrying value in an equity method investee company is reduced to zero, no further losses are recorded in the Company’s consolidated financial statements unless the Company guaranteed obligations of the investee company or has committed additional funding. When the investee company subsequently reports income, the Company will not record its share of such income until it equals the amount of its share of losses not previously recognized.

Intangible Assets

Intangible Assets

Intangible assets generally result from business acquisitions.  Assets acquired and liabilities assumed are recorded at their estimated fair values.  Intangible assets consist of a non-compete agreement, license agreement, and trade secrets.  Amortization is recorded for intangible assets with determinable lives. Intangible assets are amortized using the straight line method over the three year estimated useful lives of the respective assets.

Goodwill

Goodwill

Goodwill is recognized as the excess cost of an acquired entity over the net amount assigned to assets acquired and liabilities assumed. Goodwill is not amortized but reviewed for impairment annually as of June 30 or more frequently if events or changes in circumstances indicate that its carrying value may be impaired.  These conditions could include a significant change in the business climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant portion of a reporting unit.

In September 2011, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) to Accounting Standards Codification (“ASC”) Topic 350, “Intangibles — Goodwill and Other.”  This ASU amends the guidance in ASC Topic 350-20 on testing for goodwill impairment. The revised guidance allows entities testing for goodwill impairment to have the option of performing a qualitative assessment before calculating the fair value of the reporting unit. If the Company determines, on the basis of qualitative factors, that it is more likely than not that the fair value of the reporting unit is less than the carrying amount, the two-step impairment test is required.  If we cannot determine on the basis of qualitative factors that goodwill is not impaired, the two-step impairment test is required.

The first step of the impairment test requires the comparing of a reporting unit’s fair value to its carrying value. If the carrying value is less than the fair value, no impairment exists and the second step is not performed. If the carrying value is higher than the fair value, there is an indication that impairment may exist and the second step must be performed to compute the amount of the impairment. In the second step, the impairment is computed by estimating the fair values of all recognized and unrecognized assets and liabilities of the reporting unit and comparing the implied fair value of reporting unit goodwill with the carrying amount of that unit’s goodwill.  The Company determined fair value as evidenced by market capitalization, and concluded that there was no need for an impairment charge as of December 31, 2012 and June 30, 2012.

Impairment of Long-Lived Assets

Impairment of Long-Lived Assets

In accordance with FASB ASC Topic 360, "Impairment or Disposal of Long-Lived Assets," the Company assesses potential impairments to its long-lived assets including property, plant and equipment and intangible assets when there is evidence that events or changes in circumstances indicate that the carrying value may not be recoverable.

If such an indication exists, the recoverable amount of the asset is compared to the asset’s carrying value. Any excess of the asset’s carrying value over its recoverable amount is expensed in the consolidated statement of operations. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate.  Management has determined that there were no long-lived assets impaired as of December 31, 2012 and June 30, 2012.

Warranty Obligations

Warranty Obligations

The Company typically warrants its products for twelve months after installation or eighteen months after date of shipment, whichever first occurs. Warranty costs are provided for estimated claims and charged to cost of product sales as revenue is recognized.  Warranty obligations are also evaluated quarterly to determine a reasonable estimate for the replacement of potentially defective materials of all energy storage systems that have been shipped to customers.

While the Company actively engages in monitoring and improving its evolving battery and production technologies, there is only a limited product history and relatively short time frame available to test and evaluate the rate of product failure.  Should actual product failure rates differ from the Company’s estimates, revisions will be made to the estimated rate of product failures and resulting changes to the liability for warranty obligations.  In addition, from time to time, specific warranty accruals may be made if unforeseen technical problems arise.

As of December 31, 2012 and June 30, 2012, included in the Company’s accrued expenses were $673,030 and $418,557, respectively, related to warranty obligations.  Such amounts are included in accrued expenses in the accompanying condensed consolidated balance sheets.

The following is a summary of accrued warranty activity:

	Six Months and Year Ended
	December 31, 2012			June 30, 2012
Beginning balance	$	418,557		$	413,203
Accruals for warranties during the period		308,692			196,753
Settlements during the period		(78,337	)		(126,902	)
Adjustments relating to preexisting warranties		24,118			(64,497	)
Ending balance	$	673,030		$	418,557

Revenue Recognition

Revenue Recognition

Revenues are recognized when persuasive evidence of a contractual arrangement exits, delivery has occurred or services have been rendered, the seller’s price to buyer is fixed and determinable, and collectability is reasonably assured. The portion of revenue related to installation and final acceptance, is deferred until such installation and final customer acceptance are completed.

For sales arrangements containing multiple elements (products or services), revenue relating to undelivered elements is deferred at the estimated fair value until delivery of the deferred elements. To be considered a separate element, the product or service in question must represent a separate unit under SEC Staff Accounting Bulletin 104, and fulfill the following criteria: the delivered item(s) has value to the customer on a standalone basis; there is objective and reliable evidence of the fair value of the undelivered item(s); and if the arrangement includes a general right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially in our control. If the arrangement does not meet all criteria above, the entire amount of the transaction is deferred until all elements are delivered. Revenue from time and materials based service arrangements is recognized as the service is performed.

The portion of revenue related to engineering and development is recognized ratably upon delivery of the goods or services pertaining to the underlying contractual arrangement or revenue is recognized as certain activities are performed by the Company over the estimated performance period.

The Company charges shipping and handling fees when products are shipped or delivered to a customer, and includes such amounts in net revenues. The Company reports its revenues net of estimated returns and allowances.

Revenues from government funded research and development contracts are recognized proportionally as costs are incurred and compared to the estimated total research and development costs for each contract. In many cases, the Company is reimbursed only a portion of the costs incurred or to be incurred on the contract. Government funded research and development contracts are generally multi-year, cost-reimbursement and/or cost-share type contracts. The Company is generally reimbursed for reasonable and allocable costs up to the reimbursement limits set by the contract.

Total revenues of $2,748,007 and $4,571,328 were recognized for the three and six months ended December 31, 2012, respectively.  Revenues for the three months ended December 31, 2012 were comprised of four significant customers (83% of total revenues) and revenues for the six months ended December 31, 2012 were comprised of five significant customers (77% of total revenues).  Total revenues of $440,921 and $2,078,778 were recognized for the three and six months ended December 31, 2011, and were comprised of one significant customer (81% of total revenues).

Engineering and Development Revenues

Engineering and Development Revenues

On April 8, 2011, the Company entered into a Collaboration Agreement (the “Collaboration Agreement”) with Honam Petrochemical Corporation (“Honam”), a division of LOTTE Petrochemical, pursuant to which the Company agreed with Honam to collaborate on the further technical development of the Company’s third generation zinc bromide flow battery module (the “Version 3 Battery Module”).  Pursuant to the Collaboration Agreement, Honam was required to pay the Company a total of $3,000,000 as follows:  (1) $1,000,000 within 10 days following the execution of the Collaboration Agreement (subsequently received on April 9, 2011); (2) $500,000 by June 30, 2011 (subsequently received on June 30, 2011); (3) $1,200,000 by October 10, 2011 (subsequently received on October 10, 2011) and (4) $300,000 within 10 days after a single Version 3 Battery Module test station  is set up at Honam’s research and development center (subsequently received on March 30, 2012).  The Company had recognized $2,300,000 of revenue under this agreement as of December 31, 2011 and the Company had recognized $3,000,000 as revenue as of June 30, 2012 based on performance milestones achieved.  Pursuant to the Collaboration Agreement, the parties are required to negotiate a license agreement under which upon the completion of the collaboration project and the receipt by the Company of all payments due under the Collaboration Agreement, the Company shall grant to Honam: (1) a fully paid-up, exclusive and royalty-free license to sell and manufacture the Version 3 Battery Module in Korea and (2) non-exclusive rights to sell the Version 3 Battery Module in Japan, Thailand, Taiwan, Malaysia, Vietnam and Singapore.  In connection with such non-exclusive rights, Honam is required to pay us a royalty.  No royalties have been earned to date.

On December 13, 2011, the Company entered into a joint development and license agreement with a global technology company to jointly develop flow batteries. The objective of the joint development agreement is to develop low cost, high energy density grid scale flow battery stacks and systems that could lead to a significant cost reduction for grid level storage.  The joint development agreement provided for payments to the Company as follows:  $175,000 in December 2011 (subsequently received $175,000 in December 2011), payments of $75,000 every three months starting April 2012 through January 2013 (subsequently received $75,000 during April, June  and October of 2012) and $100,000 every three months starting in April 2013 through January 2014.  The global technology company also purchased 933,333 shares of the Company’s common stock in December 2011 for $700,000.  The Company recognizes revenue under this agreement upon achievement of certain performance milestones.  The Company recognized $0 and $200,000 of revenue under this agreement in the three and six months ended December 31, 2012.

Milestone payments under collaborative arrangements are triggered by the results of the Company’s engineering and development efforts. Milestones related to the Company’s development-based activities may include initiation of various phases of engineering and development activities, successful completion of a phase of development, or delivery of specified equipment or products. Due to the uncertainty involved in meeting these development-based milestones, the development-based milestones are considered to be substantial (i.e. not just achieved through passage of time) at the inception of the collaboration agreement. In addition, the amounts of the payments assigned thereto are considered to be commensurate with the enhancement of the value of the delivered intellectual property as a result of our performance. The Company’s involvement is necessary to the achievement of development-based milestones. The Company accounts for development-based milestones as revenue upon achievement of the substantive milestone events. In addition, upon the achievement of development-based milestone events, the Company has no future performance obligations related to any milestone payments.

Included in engineering and development revenues were $0 and $218,183 respectively, for the three and six months ended December 31, 2012 related to the collaborative agreements.  Engineering and development costs related to the collaboration agreements totaled $0 and $45,065 for the three and six months ended December 31, 2012.  Included in engineering and development revenues were $200,000 and $1,600,000 respectively, for the three and six months ended December 31, 2011 related to the collaborative agreements.  Engineering and development costs related to the collaboration agreements totaled $0 and $481,107 for the three and six months ended December 31, 2011.

As of December 31, 2012 and June 30, 2012, the Company had no unbilled amounts from engineering and development contracts in process. The Company had received $25,195 and $129,950 in customer payments for engineering and development contracts, representing deposits in advance of performance of the contracted work, as of December 31, 2012 and June 30, 2012, respectively.

Advanced Engineering and Development Expenses

Advanced Engineering and Development Expenses

The Company expenses advanced engineering and development costs as incurred. These costs consist primarily of labor, overhead, and materials to build prototype units, materials for testing, development of manufacturing processes and include consulting fees and other costs.

To the extent these costs are separately identifiable, incurred and funded by advanced engineering and development type agreements with outside parties, they are shown separately on the consolidated statements of operations as a “cost of engineering and development.”

Stock-Based Compensation

Stock-Based Compensation

The Company measures all “Share-Based Payments", including grants of stock options, restricted shares and restricted stock units, to be recognized in its consolidated statement of operations based on their fair values on the grant date, consistent with FASB ASC Topic 718, “Stock Compensation,” guidelines.

Accordingly, the Company measures share-based compensation cost for all share-based awards at the fair value on the grant date and recognition of share-based compensation over the service period for awards that are expected to vest. The fair value of stock options is determined based on the number of shares granted and the price of the shares at grant, and calculated based on the Black-Scholes valuation model.

The Company compensates its outside directors primarily with restricted stock units (“RSUs”) rather than cash.  The grant date fair value of the restricted stock unit awards is determined using the closing stock price of the Company’s common stock on the day prior to the date of the grant, with the compensation expense recognized over the vesting period of restricted stock unit awards, net of estimated forfeitures.

The Company only recognizes expense to its condensed consolidated statements of operations for those options or shares that are expected ultimately to vest, using two attribution methods to record expense, the straight-line method for grants with only service-based vesting or the graded-vesting method, which considers each performance period, for all other awards. See Note 9.

Income Taxes

Income Taxes

The Company records deferred income taxes in accordance with FASB ASC Topic 740, “Accounting for Income Taxes.” This ASC Topic requires recognition of deferred income tax assets and liabilities for temporary differences between the tax basis of assets and liabilities and the amounts at which they are carried in the financial statements, based upon the enacted tax rates in effect for the year in which the differences are expected to reverse. The Company establishes a valuation allowance when necessary to reduce deferred income tax assets to the amount expected to be realized.  There were no net deferred income tax assets recorded as of December 31, 2012 and June 30, 2012.

The Company applies a more-likely-than-not recognition threshold for all tax uncertainties as required under FASB ASC Topic 740, which only allows the recognition of those tax benefits that have a greater than fifty percent likelihood of being sustained upon examination by the taxing authorities.

The Company’s U.S. Federal income tax returns for the years ended June 30, 2009 through June 30, 2012 and the Company’s Wisconsin and Australian income tax returns for the years ended June 30, 2008 through June 30, 2012 are subject to examination by taxing authorities.

Foreign Currency

Foreign Currency

The Company uses the United States dollar as its functional and reporting currency, while the Australian dollar and Hong Kong dollar are the functional currencies of its foreign subsidiaries. Assets and liabilities of the Company’s foreign subsidiaries are translated into United States dollars at exchange rates that are in effect at the balance sheet date while equity accounts are translated at historical exchange rates. Income and expense items are translated at average exchange rates which were applicable during the reporting period. Translation adjustments are accumulated in accumulated other comprehensive loss as a separate component of equity in the condensed consolidated balance sheets.

Loss per Share

Loss per Share

The Company follows the FASB ASC Topic 260, “Earnings per Share,” provisions which require the reporting of both basic and diluted earnings (loss) per share.  Basic earnings (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding for the period.  Diluted earnings (net loss) per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. In accordance with the FASB ASC Topic 260, any anti-dilutive effects on net income (loss) per share are excluded.  For the six months ended December 31, 2012 and December 31, 2011 there were 15,937,380 and 7,711,897 shares of common stock underlying options, restricted stock units and warrants that are excluded, respectively.

Concentrations of Credit Risk and Fair Value

Concentrations of Credit Risk and Fair Value

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivable.

The Company maintains significant cash deposits primarily with three financial institutions.  All deposits are fully insured as of December 31, 2012. The Company has not previously experienced any losses on such deposits. Additionally, the Company performs periodic evaluations of the relative credit ratings of these institutions as part of its investment strategy.

Concentrations of credit risk with respect to accounts receivable are limited due to accelerated payment terms in current customer contracts and creditworthiness of the current customer base.

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value due to the short-term nature of these instruments. The carrying value of bank loans and notes payable approximate fair value based on their terms which reflect market conditions existing as of December 31, 2012 and June 30, 2012.

Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. It is reasonably possible that the estimates we have made may change in the near future. Significant estimates underlying the accompanying consolidated financial statements include those related to:

·   the timing of revenue recognition;

·   the allowance for doubtful accounts;

·   provisions for excess and obsolete inventory;

·   the lives and recoverability of property, plant and equipment and other long-lived assets, including goodwill and other intangible assets;

·   contract costs and reserves;

·   warranty obligations;

·   income tax valuation allowances;

·   stock-based compensation;

·   fair values of assets acquired and liabilities assumed in a business combination; and

·   valuation of warrants

Reclassifications

Reclassifications

Certain amounts previously reported have been reclassified to conform to the current presentation.

Segment Information

Segment Information

The Company has determined that it operates as one reportable segment.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In July 2012, the FASB amended its authoritative guidance related to testing indefinite-lived intangible assets for impairment.  Under the revised guidance, entities testing their indefinite-lived intangible assets for impairment have the option of performing a qualitative assessment before performing further impairment testing.  If entities determine, on a basis of qualitative factors, that it is more-likely-than-not that the asset is impaired, a quantitative test is required.  The guidance becomes effective in the beginning of the Company’s fiscal 2014, with early adoption permitted. The Company is currently evaluating the timing of adopting this guidance which is not expected to have an impact on the Company’s consolidated financial statements.

In June 2011, the FASB issued new accounting guidance related to the presentation of comprehensive income (loss) that eliminates the current option to report other comprehensive income (loss) and its components in the statement of changes in equity. We elected to present items of net income (loss) and other comprehensive income (loss) in two consecutive statements. This guidance was adopted and effective for our reporting period ended September 30, 2012.

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2. CHINA JOINT VENTURE (Details) (USD $)	3 Months Ended		6 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012	Dec. 31, 2011
China Joint Venture Details
Revenues	$ 54,294		$ 54,294
Gross Profit	1,041		1,041
Income (loss) from operations	(860,224)	(171,949)	(1,510,668)	(171,949)
Net Income (loss)	$ (878,198)	$ (171,949)	$ (1,510,583)	$ (171,949)

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2. CHINA JOINT VENTURE (Tables)

6 Months Ended

Dec. 31, 2012

Notes to Financial Statements

Operating results for AHMN

	Three months ended December 31,						Six months ended December 31,
	2012			2011			2012			2011
Revenues	$	54,294		$	-		$	54,294		$	-
Gross Profit		1,041			-			1,041			-
Income (loss) from operations		(860,224	)		(171,949	)		(1,510,668	)		(171,949	)
Net Income (loss)	$	(878,198	)	$	(171,949	)	$	(1,510,583	)	$	(171,949	)

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Condensed Consolidated Statements of Cash Flows (USD $)	6 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Cash flows from operating activities
Net loss	$ (6,293,319)	$ (4,442,988)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation of property, plant and equipment	314,441	349,388
Amortization of intangible assets	369,021	380,388
Stock-based compensation	413,610	644,640
Equity in loss of investee company	533,113	58,710
Changes in assets and liabilities
Accounts receivable	(690,922)	(189,616)
Inventories	67,723	(1,151,633)
Prepaids and other current assets	(712,359)	(87,896)
Refundable income taxes	(79,847)	47,450
Accounts payable	(562,705)	904,531
Accrued compensation and benefits	(203,529)	(169,134)
Accrued expenses	(69,222)	(206,541)
Customer deposits	286,957	308,516
Net cash used in operating activities	(6,627,038)	(3,554,185)
Cash flows from investing activities
Expenditures for property and equipment	(91,690)	(1,307,927)
Investment in investee company		(1,640,728)
Deposits of restricted cash	(310,000)
Net cash used in investing activities	(401,690)	(2,948,655)
Cash flows from financing activities
Repayments of bank loans and notes payable	(283,495)	(151,867)
Proceeds from issuance of Series A preferred stock		2,197,240
Proceeds from issuance of Common Stock	1,744,688	1,887,398
Common stock issuance costs	(143,009)	(176,934)
Proceeds from noncontrolling interest	5,500	1,546,062
Net cash provided by financing activities	1,323,684	5,301,899
Effect of exchange rate changes on cash and cash equivalents	627	(29,111)
Net decrease in cash and cash equivalents	(5,704,417)	(1,230,052)
Cash and cash equivalents - beginning of period	7,823,217	2,910,595
Cash and cash equivalents - end of period	2,118,800	1,680,543
Cash paid for interest	93,210	105,451
Cash received for income tax credit		223,703
Supplemental non-cash investing and financing activities:
Issuance of common stock for discounted notes receivable		$ 2,187,330

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Condensed Consolidated Balance Sheets (Parenthetical) (USD $)	Dec. 31, 2012	Jun. 30, 2012
Statement of Financial Position [Abstract]
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, face value	10,000	10,000
Common stock, par value	$ 0.01	$ 0.01
Common stock, Authorized	150,000,000	150,000,000
Common stock, Issued	77,568,535	72,977,248
Common stock, outstanding	77,568,535	72,977,248

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10. WARRANTS

6 Months Ended

Dec. 31, 2012

Notes to Financial Statements

WARRANTS

At December 31, 2012 there were outstanding warrants to purchase 75,000 common shares issued by the Company as partial payment for services exercisable at $0.42 per share which expire in July 2015.

At December 31, 2012 there were outstanding warrants to purchase 2,895,303 common shares issued by the Company in connection with the Underwriting Agreement entered into with MDB Capital Group, LLC as part of underwriting compensation which provided for the sale of $12 million of common stock as described in Note 11 on June 19, 2012 exercisable at $0.475 per share and which expire in June 2017.

At December 31, 2012 there were outstanding warrants to purchase 2,558,019 common shares issued by the Company in connection with Securities Purchase Agreements entered into with certain investors providing for the sale of a total of $2,465,000 of Zero Coupon Convertible Subordinated Notes as described in Note 8 on May 1, 2012 exercisable at $0.53 per share and which expire in May 2017.

At December 31, 2012 there were outstanding warrants to purchase 60,500 common shares issued by the Company as partial payment for services exercisable at $1.00 per share which expire March 2015 through July 2015.

At December 31, 2012 there were outstanding warrants to purchase 40,000 common shares issued by the Company to an equipment supplier in January 2011 exercisable at $0.56 per share and which expire in January 2014.  The fair value of the warrants was $11,834 and was included in the cost of the equipment.

At December 31, 2012 there were outstanding warrants to purchase 1,121,875 common shares acquired by certain purchasers of Company shares in March 2010 exercisable at $1.04 per share and which expire in September 2015.

At December 31, 2012 there were outstanding warrants to purchase 358,333 common shares acquired by certain purchasers of Company shares in August 2009 exercisable at $1.33 per share and which expire in August 2015.

Warrants to purchase 50,000 shares acquired by Empire Financial Group, Ltd. as part of the underwriting compensation in connection with our United States public offering which are exercisable at $7.20 per share expired during June 2012.

Warrants to purchase 48,950 shares issued and outstanding to Strategic Growth International in connection with capital raising activities in 2007, with an exercise price of $7.20 per share expired during June 2012.

Warrants to purchase 120,023 common shares acquired by Empire Financial Group, Ltd. in 2006 exercisable at $3.23 per share expired during September 2011.

The table below summarizes warrant activity:

	Number of Warrants			Weighted-Average Exercise Price Per Share
Balance at June 30, 2011		1,886,031		$	1.73
Warrants granted		9,614,875			0.53
Warrants expired		(365,823	)		(4.54	)
Warrants exercised		(4,132,553	)		(0.53	)
Balance at June 30, 2012		7,002,530			0.63
Warrants granted		106,500			0.59
Warrants expired		-			-
Warrants exercised		-			-
Balance at December 31, 2012		7,109,030		$	0.63

For the three and six months ended December 31, 2012, the Company had approximately $4,000 and $7,000 of stock based compensation expense related to warrants.

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Document and Entity Information	6 Months Ended
	Dec. 31, 2012	Feb. 14, 2013
Document And Entity Information
Entity Registrant Name	ZBB ENERGY CORP
Entity Central Index Key	0001140310
Document Type	10-Q
Document Period End Date	Dec. 31, 2012
Amendment Flag	false
Current Fiscal Year End Date	--06-30
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		77,608,535
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2013

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11. EQUITY

6 Months Ended

Dec. 31, 2012

Equity [Abstract]

EQUITY

On August 30, 2010, the Company entered into an amended and restated securities purchase agreement (“Socius Agreement”) with Socius CG II, Ltd. (“Socius”). Pursuant to the Socius Agreement, the Company had the right over a term of two years, subject to certain conditions, to require Socius to purchase up to $10 million of redeemable subordinated debentures and/or shares of redeemable Series A preferred stock in one or more tranches.  The debentures accrued interest at an annual rate of 10% and the shares of Series A preferred stock accumulated dividends at the same rate.  Both the debentures and the shares of Series A preferred stock were redeemable at the Company’s election at any time after the one year anniversary of issuance.  Neither the debentures nor the Series A preferred shares were convertible into common stock.

On November 10, 2010, the Company’s Board of Directors approved a certificate of designation of preferences, rights and limitations to authorize shares of Series A preferred stock in accordance with the terms of the Socius Agreement.  Upon the authorization of Series A preferred stock and in accordance with the terms of the Socius Agreement, the $517,168 of outstanding debentures issued by the Company to Socius CG II, Ltd. on September 2, 2010, and $7,510 of accrued interest were exchanged into 52.468 shares of Series A preferred stock.  Following the authorization of the Series A Preferred Stock all future tranches under the Socius Agreement involved shares of Series A preferred stock instead of debentures.

Under the Socius Agreement, in connection with each tranche, Socius was obligated to purchase that number of shares of our common stock equal in value to 135% of the amount of the tranche at a per share price equal to the closing bid price of the common stock on the trading day preceding our delivery of the tranche notice.  Socius had the option to pay for the shares it purchased at its option, in cash or a collateralized promissory note.  Any such promissory note accrued interest at 2.0% per year and was collateralized by securities owned by Socius with a fair market value equal to the principal amount of the promissory note. The entire principal balance and interest on the promissory note was due and payable on the later of the fourth anniversary of the date of the promissory note or when we redeemed all the Series A preferred stock issued by us to Socius under the Socius Agreement, and was applied by us toward the redemption of the shares of Series A preferred stock held by Socius.

Under the terms of the Socius Agreement, the Company was obligated to pay Socius a commitment fee in the form of shares of common stock or cash, at the option of the Company, in the amount of $500,000 if it is paid in cash and $588,235 if it is paid in shares of common stock. Payment of the commitment fee occurred 50% at the closing of the first tranche and 50% at the closing of the second tranche.

The following summarizes the transactions under the Socius agreement:

Tranche	Date of Notice	Series A Preferred Stock Purchased by Socius		Shares of Common Stock Purchased by Socius		Total Purchase Price of Common Stock		Per Share Price		Shares of Common Stock Issued by ZBB in Payment of Commitment Fee		Discount on Collateralized Promissory Note Issued by Socius
1	September 2, 2010	$	517,168		1,163,629	$	698,177	$	0.60		490,196	$	183,922
2	November 12, 2010		490,000		906,165		661,500		0.73		402,901		173,872
3	January 12, 2011		2,020,000		1,934,042		2,727,000		1.41				716,777
4	March 16, 2011		520,000		557,142		702,000		1.26				184,461
5 & 6	September 8, 2011		1,447,240		2,621,359		1,953,775		0.75				512,815
7	November 16, 2011		750,000		1,511,194		1,012,500		0.67				266,130
		$	5,744,408		8,693,531	$	7,754,952				893,097	$	2,037,977

The Company’s accounting for the 2% notes receivable – common stock was to accrue interest on the discounted notes receivable at 10% as a credit to additional paid-in capital.  The Company’s accounting for the Series A preferred stock was to accrete dividends at 10% as a charge to additional paid-in capital.

In the event of liquidation, dissolution or winding up (whether voluntary or involuntary) of the Company, the holders of shares of Series A preferred stock were entitled to be paid the full amount payable on such shares upon the liquidation, dissolution or winding up of the corporation fixed by the Board of Directors with respect to such shares, if any, before any amount was to be paid to the holders of the common stock.  

In connection with the May 2012 Note transaction described in Note 8, on May 7, 2012 the Company sent a notice to Socius to terminate the Socius Agreement.

In June 2012, we entered into a redemption agreement with Socius pursuant to which we acquired and redeemed all the shares of Series A Preferred Stock issued to Socius under the Socius Agreement (the “Shares”) in exchange for the cancellation of the secured promissory notes issued by Socius to us under the Socius Agreement.  Following completion of the June 2012 redemption and the retirement and cancellation of the Shares, no shares of Series A Preferred Stock remain outstanding.  Subsequent to June 30, 2012, we cancelled the Series A preferred stock.

The liquidation preference of the outstanding Series A preferred stock was $0 and $3,715,470 as of June 30, 2012 and June 30, 2011, respectively.  Redemption of the preferred shares was settled by application of the Socius 2% notes receivable.

On December 13, 2011, the Company entered into Stock Purchase Agreements with a strategic investor previously known to the Company and certain Company officers and directors providing for the issuance of a total of 1,167,340 shares of common stock for an aggregate purchase price of $875,505 at a price per share equal to $0.75 which was the closing price of the Company’s common stock on December 12, 2011.  On December 14, 2011, the Company entered into Stock Purchase Agreements with certain investors providing for the issuance of a total of 1,425,000 shares of the Company’s common stock for an aggregate purchase price of $1,011,893 at a price per share of $0.7101 which was the closing price of the Company’s common stock on December 13, 2011.  The closing for both transactions took place on December 16, 2011.  The net proceeds to the Company after deducting $84,343 of offering costs were $1,803,055.

On January 31, 2012 and February 1, 2012, the Company entered into Stock Purchase Agreements with certain investors including certain members of the Company’s Board of Directors and management providing for the issuance of a total of 4,431,603 shares of the Company’s common stock for an aggregate purchase price of $3,165,000 at a weighted average price per share of $0.71.  The closing took place on February 7, 2012.  The net proceeds to the Company, after deducting $308,049 of offering costs, were $2,856,954.

On June 19, 2012 the Company issued 31,600,000 shares of its common stock at a price to the public of $0.38 per share. The net proceeds to ZBB from this offering were approximately $10.7 million after deducting approximately $1.3 million in underwriting discounts and other offering expenses.   In connection with the offering, the Company granted the underwriter warrants to purchase 2,895,303 shares of common stock at an exercise price of $0.475 per share.  These warrants expire on June 13, 2017.  The estimated fair value of these warrants was $1,024,726, as determined using the Black-Scholes methodology (assuming estimated volatility of 100.86%, risk-free interest rate of 0.71%, expected dividend yield of 0.0%). This amount was recorded as both an increase to additional paid in capital and as a non-cash issuance cost of the financing transaction.

On July 5, 2012 the underwriter for the Company’s June 2012 underwritten public offering exercised substantially all of its over-allotment option and purchased an additional 4,591,287 shares of the Company's common stock. The net proceeds to the Company from this issuance were $1.6 million after deducting approximately $143,000 in offering expenses.

At the annual of meeting of shareholders held on November 7, 2012 the Company’s shareholders approved a series of amendments to the Company’s Articles of Incorporation to affect a reverse stock split of our common stock at a ratio of 1:5, 1:10 or 1:15, subject to further Board of Directors’ discretion whether to implement a reverse stock split and at which of the three proposed split ratios to do so.

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Condensed Consolidated Statements of Operations (Unaudited) (USD $)	3 Months Ended		6 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012	Dec. 31, 2011
Revenues
Product sales	$ 2,748,007	$ 240,921	$ 4,353,145	$ 467,028
Engineering and development		200,000	218,183	1,611,750
Total Revenues	2,748,007	440,921	4,571,328	2,078,778
Costs and Expenses
Cost of product sales	2,265,206	187,620	3,757,598	344,291
Cost of engineering and development			45,065	481,107
Advanced engineering and development	1,375,800	1,186,352	2,535,539	1,885,735
Selling, general, and administrative	1,610,422	1,421,690	3,291,974	3,099,687
Depreciation and amortization	342,830	410,595	683,462	729,776
Total Costs and Expenses	5,594,078	3,206,257	10,313,458	6,540,596
Loss from Operations	(2,846,071)	(2,765,336)	(5,742,130)	(4,461,818)
Other Income (Expense)
Equity in loss of investee company	(456,632)	(58,710)	(533,113)	(58,710)
Interest income	594	3,279	983	9,968
Interest expense	(45,647)	(58,823)	(93,210)	(118,491)
Other income		250		4,263
Total Other Income (Expense)	(501,685)	(114,004)	(625,340)	(162,970)
Loss before provision (benefit) for Income Taxes	(3,347,756)	(2,879,340)	(6,367,470)	(4,624,788)
Provision (benefit) for Income Taxes	(74,151)	(111,800)	(74,151)	(181,800)
Net Loss	(3,273,605)	(2,767,540)	(6,293,319)	(4,442,988)
Net loss attributable to noncontrolling interest	190,148	37,230	327,072	37,230
Net Loss Attributable to ZBB Energy Corporation	$ (3,083,457)	$ (2,730,310)	$ (5,966,247)	$ (4,405,758)
Net Loss per share - Basic and diluted	$ (0.04)	$ (0.08)	$ (0.08)	$ (0.14)
Weighted average shares-basic and diluted:	77,568,535	33,681,776	77,443,772	32,089,356

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5. PROPERTY, PLANT & EQUIPMENT

6 Months Ended

Dec. 31, 2012

Property, Plant and Equipment [Abstract]

PROPERTY, PLANT & EQUIPMENT

Property, plant, and equipment are comprised of the following as of December 31, 2012 and June 30, 2012:

	December 31, 2012			June 30, 2012
Land	$	217,000		$	217,000
Building and improvements		3,520,872			3,520,872
Manufacturing equipment		3,958,285			4,597,020
Office equipment		401,673			313,928
Construction in process		1,770			31,050
Total, at cost		8,099,600			8,679,870
Less, accumulated depreciation		(2,837,806	)		(3,195,325	)
Property, Plant & Equipment, Net	$	5,261,794		$	5,484,545

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4. INVENTORIES

6 Months Ended

Dec. 31, 2012

Inventory Disclosure [Abstract]

INVENTORIES

Inventories are comprised of the following as of December 31, 2012 and June 30, 2012:

	December 31, 2012		June 30, 2012
Raw materials	$	2,074,176	$	2,396,545
Work in progress		770,308		515,662
Total	$	2,844,484	$	2,912,207

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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

6 Months Ended

Dec. 31, 2012

Notes to Financial Statements

Estimated Useful Lives Used For Each Class of Depreciable Assets

	Estimated Useful Lives
Manufacturing equipment	3 - 7 years
Office equipment	3 - 7 years
Building and improvements	7 - 40 years

Schedule Of Accrued Warranty Liability

	Six Months and Year Ended
	December 31, 2012			June 30, 2012
Beginning balance	$	418,557		$	413,203
Accruals for warranties during the period		308,692			196,753
Settlements during the period		(78,337	)		(126,902	)
Adjustments relating to preexisting warranties		24,118			(64,497	)
Ending balance	$	673,030		$	418,557

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12. COMMITMENTS

6 Months Ended

Dec. 31, 2012

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS

Leasing Activities

The Company leases its Australian research and development facility from a non-related Australian company under the terms of a lease that expires October 31, 2016.  The rental rate was $75,596 per annum (A$72,431) and was subject to an annual CPI adjustment. Rent expense was $26,315 and $51,724 for the three and six months ended December 31, 2012, respectively and $23,017 and $43,210 for the three and six months ended December 31, 2011, respectively.  The Company renewed the lease on its Australian research and development facility through October 2016 at a rental rate of $95,855 per annum (A$95,000) subject to an annual CPI adjustment.  The Company also leases a building from an officer of its subsidiary, Tier Electronics LLC, who is also a shareholder and director, under a lease agreement expiring December 31, 2014.  The current year rental is $84,000 per annum and is subject to a CPI adjustment at renewal.  The rent expense for the three and six months ended December 31, 2012 and 2011 was $21,000 and $42,000 respectively.  The Company is required to pay real estate taxes and other occupancy costs related to the facility.

The future payments required under the terms of the leases for fiscal periods subsequent to December 31, 2012 are as follows:

2013 (six months)	$	93,734
2014		145,468
2015		103,468
2016		34,489
	$	377,159

Employment Contracts

The Company has entered into employment contracts with executives and management personnel. The contracts provide for salaries, bonuses and stock option grants, along with other employee benefits. The employment contracts generally have no set term and can be terminated by either party. There is a provision for payments of nine months to eighteen months of annual salary as severance if we terminate a contract without cause, along with the acceleration of certain unvested stock option grants.

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8. BANK LOANS AND NOTES PAYABLE

6 Months Ended

Dec. 31, 2012

Debt Disclosure [Abstract]

BANK LOANS AND NOTES PAYABLE

NOTE 8 - BANK LOANS AND NOTES PAYABLE

The Company's debt consisted of the following as of December 31, 2012 and June 30, 2012:

	December 31, 2012		June 30, 2012
Bank loans and notes payable-current	$	935,207	$	1,022,826
Bank loans and notes payable-long term		2,719,258		2,915,134
Total	$	3,654,465	$	3,937,960

In May 2012 the Company entered into Securities Purchase Agreements with certain investors providing for the sale of a total of $2,465,000 of Zero Coupon Convertible Subordinated Notes (the “Notes”).  The Notes, which were to mature on August 31, 2012, were issued to investors with a principal amount equal to the investor’s subscription amount times 110% and did not bear interest except in the instance of default.  The Notes were convertible into shares of common stock of the Company at an exercise price equal to $0.53, which was the closing price of the common stock on May 1, 2012 (the “Conversion Price”).  In connection with the Notes, the Company entered into a security agreement with the lenders providing for a security interest in all of the assets of the Company and certain subsidiaries of the Company.  In connection with the purchase of Notes, each investor  received a five-year warrant to purchase a number of shares of Common Stock equal to 55% times such investor’s investment in the Notes divided by the Conversion Price at an exercise price equal to the Conversion Price.  Certain directors and officers of the Company invested $330,000 in the Notes. The proceeds to the Company were $2,223,307.  The Company recorded financing costs of approximately $227,693 in connection with the issuance of the Notes as interest expense during the year ended June 30, 2012.  As of June 30, 2012 the Notes were either converted into the Company’s stock or paid in full.  Interest expense related to the Notes was $1,366,450 for the year ended June 30, 2012.

Bank loans and notes payable consisted of the following at December 31, 2012 and June 30, 2012:

	December 31, 2012		June 30, 2012
Note payable to the seller of Tier Electronics LLC payable in annual installments of   $450,000 on January 21, 2013 and January 21, 2014.  Interest accrues at a rate of   8% and is payable monthly.  The promissory note is collateralized by the Company’s   membership interest in its wholly-owned subsidiary Tier Electronics LLC.  See note   (a) below.	$	900,000	$	900,000
Note payable to Wisconsin Department of Commerce payable in monthly   installments of $22,800, including interest at 2%, with the final payment due   May 1, 2017; collateralized by equipment purchased with the loan proceeds and   substantially all assets of the Company not otherwise collateralized.  The Company   is required to maintain and increase a specified number of employees, and the   interest rate is increased in certain cases for failure to meet this requirement.		1,154,842		1,279,367
Bank loan payable in fixed monthly payments of $6,800 of principal and interest   at a rate of .25% below prime, as defined, subject to a floor of 5% as of June 30,   2012 and 2011 with any principal due at maturity on June 1, 2018; collateralized by   the building and land.		696,873		719,528
Note payable in fixed monthly installments of $6,716 of principal and interest at   a rate of 5.5% with any principal due at maturity on May 1, 2028; collateralized   by the building and land.		749,818		764,981
Bank loan payable in monthly installments of $21,000 of principal and interest at a   rate equal to prime, as defined, subject to a floor of 4.25% with any principal due   at maturity on December 1, 2013; collateralized by specific equipment.		152,932		274,084
	$	3,654,465	$	3,937,960

(a)   If the federal capital gains  tax rate exceeds 15% and or the State of Wisconsin capital gains tax rate  exceeds 5.425% at any time prior to the payment in full of the unpaid  principal balance and accrued interest on the promissory note, then the  principal amount of the promissory note shall  be retroactively increased by an amount equal to the product of (a) the aggregate amount  of federal and state capital gain realized by the Seller or Seller’s sole member,  as applicable, in connection with the acquisition, multiplied by (b) the  difference between (i) the combined federal and State of Wisconsin capital  gains tax rate as of the date of calculation, minus (ii) the combined federal and  State of Wisconsin capital gains tax rate of 20.425% as of January 21, 2011.  Any adjustment to the principal amount of the promissory note shall be effected by increasing the amount of the last payment due under the promissory note without affecting the next regularly scheduled payment(s) under the promissory note.  On January 2, 2013, the American Taxpayer Relief Act of 2012 was signed, effectively raising the top rate for capital gains to 20%.  The Company is in the process of assessing the effect of the tax law change on the note and has determined the maximum impact on the Company will be approximately $50,000 in additional principal and interest that will be recognized as a result of the aforementioned change in tax law.  The loan was amended in January 2013 and the payment of $450,000 due on January 21, 2013 was deferred to be paid in three installments of $150,000 on January 22, 2013, $75,000 at any time thereafter upon five days written notice by the holder to the Company and $225,000 on February 21, 2013.  Interest continued to accrue at a rate of 8% and is payable monthly.

Aggregate annual principal payments for fiscal periods subsequent to December 31, 2012, before the impact of the adjustment for the change in the tax law previously discussed are as follows:

2013 (six months)	$	738,830
2014		816,002
2015		346,433
2016		356,292
2017		342,826
2018 and thereafter		1,054,082
	$	3,654,465

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8. BANK LOANS AND NOTES PAYABLE (Details Narrative) (USD $)	12 Months Ended
	Jun. 30, 2012
Debt Disclosure [Abstract]
Financing costs	$ 227,693
Interest expense related to the Notes	$ 1,366,450

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6. INTANGIBLE ASSETS

6 Months Ended

Dec. 31, 2012

Goodwill and Intangible Assets Disclosure [Abstract]

INTANGIBLE ASSETS

Intangible assets are comprised of the following as of December 31, 2012 and June 30, 2012:

	December 31, 2012			June 30, 2012
Non-compete agreement	$	310,888		$	310,888
License agreement		288,087			288,087
Trade secrets		1,599,122			1,599,122
Total, at cost		2,198,097			2,198,097
Less, accumulated amortization		(1,423,996	)		(1,054,975	)
Intangible Assets, Net	$	774,101		$	1,143,122

Estimated amortization expense for fiscal periods subsequent to December 31, 2012 are as follows:

2013	$	362,992
2014		411,109
	$	774,101

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7. GOODWILL

6 Months Ended

Dec. 31, 2012

Goodwill and Intangible Assets Disclosure [Abstract]

GOODWILL

The Company acquired ZBB Technologies, Inc., a former wholly-owned subsidiary, through a series of transactions in March 1996.  ZBB Technologies Inc. was subsequently merged with and into ZBB Energy Corporation on January 1, 2012.  The goodwill amount of $1.134 million, the difference between the price paid for ZBB Technologies, Inc. and the net assets of the acquisition, amortized through fiscal 2002, resulted in the net goodwill amount of $803,079 as of December 31, 2012 and June 30, 2012.

The Company accounts for goodwill in accordance with FASB ASC Topic 350-20, “Intangibles - Goodwill and Other - Goodwill” under which goodwill and other intangible assets deemed to have indefinite lives are not amortized but are subject to annual impairment tests. The implied fair value of goodwill is the amount determined by deducting the estimated fair value of all tangible and identifiable intangible net assets of the reporting unit to which goodwill has been allocated from the estimated fair value of the reporting unit. If the recorded value of goodwill exceeds its implied value, an impairment charge is recorded for the excess.

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9. EMPLOYEE/DIRECTOR EQUITY INCENTIVE PLANS

6 Months Ended

Dec. 31, 2012

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

EMPLOYEE/DIRECTOR EQUITY INCENTIVE PLANS

NOTE 9 - EMPLOYEE/DIRECTOR EQUITY INCENTIVE PLANS

During the six months ended December 31, 2012 and December 31, 2011, the Company’s results of operations include compensation expense for stock options granted and restricted shares vested under its various equity incentive plans. The amount recognized in the financial statements related to stock-based compensation was $413,610 and $644,640, based on the amortized grant date fair value of options and vesting of restricted shares during the six months ended December 31, 2012 and December 31, 2011, respectively.

At the annual meeting of shareholders held on November 10, 2010, the Company’s shareholders approved the Company’s 2010 Omnibus Long-Term Incentive Plan (the “Omnibus Plan”). The Omnibus Plan authorizes the board of directors or a committee thereof, to grant the following types of equity awards under the Omnibus Plan:  Incentive Stock Options (“ISOs”), Non-qualified Stock Options (“NSOs”), Stock Appreciation Rights (“SARs”), Restricted Stock, Restricted Stock Units (“RSUs”), cash- or stock-based Performance awards (as defined in the Omnibus Plan) and other stock-based awards. Four million shares of common stock were initially reserved for issuance under the Omnibus Plan.  In connection with the adoption of the Omnibus Plan the Company’s Board of Directors froze the Company’s other stock option plans and no further grants may be made under those plans.

On November 10, 2010, (1) a total of 511,143 RSUs were granted to the Company’s directors in payment of directors fees through November 2011 pursuant to the Company’s Director Compensation Policy, (2) a total of 574,242 RSUs previously issued to the Company’s directors pursuant to this policy which provided for cash settlement were converted to stock settled RSUs, and (3) 115,000 RSUs were granted in total to a consultant and to the Company’s President and CEO.  On November 9, 2011, an additional 548,051 RSUs were granted to the Company’s directors in payment of directors fees through November 2012.  On May 6, 2011 the Company’s President and CEO was awarded 200,000 RSUs that vest ratably over a three year period.  On March 23, 2012, the Company’s Compensation Committee of the Company’s Board of Directors awarded 500,000 RSUs to the Company’s President and CEO which vested based on the satisfaction of certain performance targets for the six-month period ending September 30, 2012.  As of September 30, 2012, 450,000 shares had vested and the remaining shares were cancelled.

At the annual of meeting of shareholders held on November 7, 2012 the Company’s shareholders approved an amendment of the 2010 Omnibus Long-Term Incentive Plan (“Omnibus Plan”) which increased the number of shares of the Company’s common stock available for issuance pursuant to awards under the Omnibus Plan by 4,500,000 shares and the creation of the 2012 Non-employee Director Equity Compensation Plan (“2012 Director Equity Plan”), under which the Company may issue up to 3,500,000 restricted stock unit awards and other equity awards to our non-employee directors pursuant to the Company’s director compensation policy.

During the six months ended December 31, 2012 options to purchase 661,050 shares were granted to employees exercisable at prices from $0.35 to $0.38 and exercisable at various dates through December 2020 under the Omnibus Plan.  As of December 31, 2012, an additional 4,347,953 shares were available to be issued under the Omnibus Plan.

On January 21, 2011, certain members of management of Tier Electronics LLC were awarded inducement options to purchase a total of 750,000 shares of the Company’s common stock at an exercise price of $1.15.  The options vest as follows: (1) 420,000 vest in three equal annual installments beginning on December 31, 2011 based on achievement of certain performance targets, (2) 330,000 vest in three equal annual installments beginning on the one-year anniversary of the grant date.  As of December 31, 2012, 140,000 of the 420,000 shares had vested and 110,000 of the 330,000 had vested.

During 2007 the Company established the 2007 Equity Incentive Plan (the “2007 Plan”) that authorized the Board of Directors or a committee thereof to grant options to purchase up to a maximum of 1,500,000 shares to employees and directors of the Company.    In 2005, the Company established an Employee Stock Option Scheme (the “2005 Plan”) and in 2002 the Company established the 2002 Stock Option Plan (the “SOP”) which plans authorized the board of directors or a committee thereof to grant options to employees and directors of the Company. No options were issued under either the 2007 Plan, the 2005 Plan or the SOP during the six months ended December 31, 2012 as there are no options available to be issued under either the 2007 Plan, 2005 Plan or the SOP.

In January 2010 the Company’s new President and CEO was awarded two inducement option grants covering a total of 500,000 shares with an exercise price of $1.33 per share.  100,000 of these options vested in two equal installments on June 30, 2010 and December 31, 2010, based on the satisfaction of certain performance targets for each of the six-month periods then ended.   The remaining 400,000 of these options vested over three years with the first one-third vesting on January 7, 2011 and the remaining two-thirds vested in 24 equal monthly installments beginning on January 31, 2011 and ending on December 31, 2012.

In November 2011, the Company’s Chief Operating Officer was awarded two inducement option grants covering a total of 500,000 shares with an exercise price of $0.79 per share which was the closing price of the Company’s common stock on the NYSE MKT on the date of his appointment.  100,000 of these options will vest in two equal installments on September 30, 2012 and June 30, 2013 based on the achievement of certain performance targets.  The remaining 400,000 of these options will vest over three years with the first one-third vesting on November 9, 2012 and the remaining two-thirds vesting in 24 equal monthly installments beginning in on December 9, 2012 and ending November 9, 2014.  As of December 31, 2012, 124,000 of the remaining 400,000 shares had vested.

In aggregate for all plans, at December 31, 2012 the Company had a total of 4,179,914 options outstanding, 4,648,436 RSUs outstanding and 3,247,953 shares available for future grant under the Omnibus Plan.

Information with respect to stock option activity under the employee and director plans is as follows:

	Number of Options			Weighted-Average Exercise Price Per Share
Balance at June 30, 2011		3,322,303		$	1.55
Options granted		1,454,500			0.82
Options forfeited		(537,739	)		1.91
Balance at June 30, 2012		4,239,064			1.25
Options granted		661,050			0.38
Options forfeited		(720,200	)		1.10
Balance at December 31, 2012		4,179,914			1.14

The following table summarizes information relating to the stock options outstanding at December 31, 2012:

	Outstanding						Exercisable
Range of Exercise Prices	Number of Options		Average Remaining Contractual Life (in years)		Weighted Average Exercise Price		Number of Options		Average Remaining Contractual Life (in years)		Weighted Average Exercise Price
$0.34 to $0.50		728,550		7.71	$	0.38		42,332		5.41	$	0.48
$0.51 to $1.00		1,088,500		6.64		0.78		385,667		6.36		0.78
$1.01 to $1.50		2,062,864		5.46		1.24		1,315,644		5.23		1.27
3.50 to $3.82		300,000		1.89		3.59		300,000		1.89		3.59
Balance at December 31, 2012		4,179,914		5.90		1.14		2,043,643		5.00		1.50

During the six months ended December 31, 2012 options to purchase 661,050 shares were granted to employees  exercisable at prices from $0.35 to $0.38 per share based on various service and performance based vesting terms from July 2012 through December 2015 and exercisable at various dates through December 2020. During the six months ended December 31, 2011 options to purchase 654,500 shares were granted to employees exercisable at prices from $0.59 to $1.16 per share based on various service and performance based vesting terms from July 2011 through December 2014 and exercisable at various dates through December 2019.

The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing method. The Company uses historical data to estimate the expected price volatility, the expected option life and the expected forfeiture rate. The Company has not made any dividend payments nor does it have plans to pay dividends in the foreseeable future. The following assumptions were used to estimate the fair value of options granted during the six months ended December 31, 2012 and the year ended June 30, 2012 using the Black-Scholes option-pricing model:

	FY 2013	FY 2012
Expected life of option (years)	4	2.5
Risk-free interest rate	.46 - .60%	.24 - .55%
Assumed volatility	100 - 104%	103 - 107%
Expected dividend rate	0%	0%
Expected forfeiture rate	4.19 - 6.66%	4.35 - 6.80%

Time-vested and performance-based stock awards, including stock options, restricted stock and restricted stock units, are accounted for at fair value at date of grant.  Compensation expense is recognized over the requisite service and performance periods.

A summary of the status of unvested employee stock options as of December 31, 2012 and June 30, 2012 and the changes during the periods then ended is presented below:  

	Number of  Options			Weighted-Average Grant Date Fair Value Per Share
Balance at June 30, 2011		1,735,224		$	0.62
Granted		1,454,500			0.38
Vested		(722,837	)		0.81
Forfeited		(226,334	)		0.87
Balance at June 30, 2012		2,240,553			0.79
Granted		661,050			0.38
Vested		(214,665	)		0.81
Forfeited		(550,667	)		0.87
Balance at December 31, 2012		2,136,271			0.79

Total fair value of options granted in the six months ended December 31, 2012 and December 31, 2011 was $155,201 and $576,618, respectively.  At December 31, 2012 there was $288,638 in unrecognized compensation cost related to unvested stock options, which is expected to be recognized over the next three years.

The Company compensates its directors with restricted stock units (“RSUs”) and cash.  There were $165,997 in directors’ fees expense settled with RSUs for the six months ended December 31, 2012.  As of December 31, 2012 there were 2,158,332 unvested RSUs outstanding which will vest through May 6, 2014 and $615,667 in unrecognized compensation cost related to unvested RSUs which is expected to be recognized through May 6, 2014.  Shares of common stock related to vested RSUs are to be issued six months after the holder’s separation from service with the Company.

The table below summarizes the status of restricted stock unit balances:  

	Number of Restricted Stock Units			Weighted-Average Valuation Price Per Unit
Balance at June 30, 2011		1,400,385		$	0.70
RSUs granted		1,048,051			0.74
RSUs forfeited		-			-
Balance at June 30, 2012		2,448,436			0.72
RSUs granted		2,250,000			0.22
RSUs forfeited		(50,000	)		0.70
Balance at December 31, 2012		4,648,436		$	0.37

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13. RETIREMENT PLANS (Details Narrative) (USD $)	3 Months Ended		6 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012	Dec. 31, 2011
Retirement Plans Details Narrative
Retirement plan expense	$ 34,697	$ 27,324	$ 65,150	$ 42,780

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11. EQUITY (Details Narrative) (USD $)	Jun. 30, 2012	Jun. 30, 2011
Equity [Abstract]
Liquidation preference of the outstanding Series A preferred stock	$ 0	$ 3,715,470

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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details)	6 Months Ended
	Dec. 31, 2012
Minimum [Member] | ManufacturingEquipment [Member]
Estimated Useful Lives of Property, Plant and Equipment	3 years
Minimum [Member] | OfficeEquipment [Member]
Estimated Useful Lives of Property, Plant and Equipment	3 years
Minimum [Member] | BuildingAndImprovementsMember
Estimated Useful Lives of Property, Plant and Equipment	7 years
Maximum [Member] | ManufacturingEquipment [Member]
Estimated Useful Lives of Property, Plant and Equipment	7 years
Maximum [Member] | OfficeEquipment [Member]
Estimated Useful Lives of Property, Plant and Equipment	7 years
Maximum [Member] | BuildingAndImprovementsMember
Estimated Useful Lives of Property, Plant and Equipment	40 years

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12. COMMITMENTS (Details) (USD $)	Dec. 31, 2012
Commitments Details
2013 (six months)	$ 93,734
2014	145,468
2015	103,468
2016	34,489
Operating lease commitment	$ 377,159

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14. INCOME TAXES

6 Months Ended

Dec. 31, 2012

Income Tax Disclosure [Abstract]

INCOME TAXES

NOTE 14 - INCOME TAXES

The provision (benefit) for income taxes consists of the following:

	Six months ended December 31,
	2012			2011
Current	$	(74,151	)	$	(181,800	)
Deferred		-			-
Provision (benefit) for income taxes	$	(74,151	)	$	(181,800	)

The Company accounts for income taxes using an asset and liability approach which generally requires the recognition of deferred income tax assets and liabilities based on the expected future income tax consequences of events that have previously been recognized in the Company’s financial statements or tax returns. In addition, a valuation allowance is recognized if it is more likely than not that some or all of the deferred income tax assets will not be realized in the foreseeable future. Deferred income tax assets are reviewed for recoverability based on historical taxable income, the expected reversals of existing temporary differences, tax planning strategies and projections of future taxable income. As a result of this analysis, the Company has provided for a valuation allowance against its net deferred income tax assets as of December 31, 2012 and 2011.

The Company’s combined effective income tax rate differed from the U.S. federal statutory income rate as follows:

	Six months ended December 31,
	2012	2011
Income tax benefit computed at the U.S. federal statutory rate	-34%	-34%
Australia research and development credit	-1	-4
Change in valuation allowance	34	34
Total	-1%	-4%

Significant components of the Company’s net deferred income tax assets as of December 31, 2012 and June 30, 2012 were as follows:

	December 31, 2012			June 30, 2012
Federal net operating loss carryforwards	$	18,989,245		$	17,063,374
Federal - other		1,563,977			1,578,175
Wisconsin net operating loss carryforwards		2,371,369			2,080,223
Australia net operating loss carryforwards		1,557,751			1,291,699
Deferred income tax asset valuation allowance		(24,482,342	)		(22,013,471	)
Total deferred income tax assets	$	-		$	-

The Company has U.S. federal net operating loss carryforwards of approximately $56 million as of December 31, 2012, that expire at various dates between June 30, 2015 and 2033.  The Company also has $1,203,368 in other federal deferred tax assets comprised of charitable contributions carryforwards and intangible amortization.  The Company has U.S. federal research and development tax credit carryforwards of approximately $87,000 as of December 31, 2012 that expire at various dates through June 30, 2032.  As of December 31, 2012, the Company has approximately $45.5 million of Wisconsin net operating loss carryforwards that expire at various dates between June 30, 2013 and 2028.  As of June 30, 2012, the Company also has approximately $5.2 million of Australian net operating loss carryforwards available to reduce future taxable income of its Australian subsidiaries with an indefinite carryforward period.

A reconciliation of the beginning and ending balance of unrecognized income tax benefits is as follows:

	December 31, 2012		June 30, 2012
Beginning balance	$	208,593	$	219,500
Effect of foreign currency translation		6,549		(10,907	)
Ending balance	$	215,142	$	208,593

The unrecognized income tax benefits relate to the credit the Company claimed during fiscal 2011 related to a refundable Australian research and development tax credit for qualified expenditures incurred during fiscal year 2010.  If recognized, it would favorably affect the effective income tax rate.  The amount is included in accrued expenses in the accompanying consolidated balance sheets.

The Company’s issuance of additional shares of common stock has constituted ownership changes under Section 382 of the Internal Revenue Code which places an annual dollar limit on the use of net operating loss (“NOL”) carryforwards and other tax attributes that may be utilized in the future.  The calculation of the annual limitation of usage is based on a percentage of the equity value immediately after any ownership change.  The annual amount of tax attributes that may be utilized after the change in ownership is limited.  Previous issuances of additional shares of common stock also resulted in ownership changes and the annual amount of tax attributes from previous years is limited as well.  The extent of any limitations on the usage of net operating losses has not been determined.

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5. PROPERTY, PLANT & EQUIPMENT (Tables)

6 Months Ended

Dec. 31, 2012

Property, Plant and Equipment [Abstract]

Property, plant, and equipment

	December 31, 2012			June 30, 2012
Land	$	217,000		$	217,000
Building and improvements		3,520,872			3,520,872
Manufacturing equipment		3,958,285			4,597,020
Office equipment		401,673			313,928
Construction in process		1,770			31,050
Total, at cost		8,099,600			8,679,870
Less, accumulated depreciation		(2,837,806	)		(3,195,325	)
Property, Plant & Equipment, Net	$	5,261,794		$	5,484,545

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10. WARRANTS (Details)	6 Months Ended	12 Months Ended
	Dec. 31, 2012	Jun. 30, 2012
WarrantMember
Beginning Balance		1,886,031
Warrants granted	106,500	9,614,875
Warrants expired		(365,823)
Warrants exercised		(4,132,553)
Ending balance	7,109,030	7,002,530
Warrants Weighted Average Excercise Price
Beginning Balance		1.73
Warrants granted	0.59	0.53
Warrants expired		(4.54)
Warrants exercised		(0.53)
Ending balance	0.63	0.63

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8. BANK LOANS AND NOTES PAYABLE (Details) (USD $)	Dec. 31, 2012	Jun. 30, 2012
Bank Loans And Notes Payable Details
Bank loans and notes payable-current	$ 935,207	$ 1,022,826
Bank loans and notes payable-long term	2,719,258	2,915,134
Total	$ 3,654,465	$ 3,937,960

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Condensed Consolidated Statements of Comprehensive Loss (Unaudited) (USD $)	3 Months Ended		6 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012	Dec. 31, 2011
Condensed Consolidated Statements Of Comprehensive Loss
Net loss	$ (3,273,605)	$ (2,767,540)	$ (6,293,319)	$ (4,442,988)
Foreign exchange translation adjustments	(984)	10,297	(743)	(12,209)
Comprehensive loss	(3,274,589)	(2,757,243)	(6,294,062)	(4,455,197)
Net loss attributable to noncontrolling interest	190,148	37,230	327,072	37,230
Comprehensive Loss Attributable to ZBB Energy Corporation	$ (3,084,441)	$ (2,720,013)	$ (5,966,990)	$ (4,417,967)

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3. GOING CONCERN

6 Months Ended

Dec. 31, 2012

Organization, Consolidation and Presentation of Financial Statements [Abstract]

GOING CONCERN

The accompanying condensed consolidated financial statements have been prepared on the basis of a going concern which contemplates that the Company will be able to realize assets and discharge its liabilities in the normal course of business. Accordingly, they do not give effect to any adjustments that would be necessary should the Company be required to liquidate its assets. The Company incurred a net loss of $5,966,247 attributable to ZBB Energy Corporation for the six months ended December 31, 2012 and as of December 31, 2012 has an accumulated deficit of $75,020,156 and total ZBB Energy Corporation equity of $6,502,761.  The ability of the Company to settle its total liabilities of $7,946,181 and to continue as a going concern is dependent upon obtaining additional financing, closing additional sales orders and achieving profitability.  The accompanying condensed consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

 As described in detail in Notes 8 and 11, in the year ended June 30, 2012 the Company raised approximately $2.2 million in net proceeds through the issuance of Zero Coupon Convertible Subordinated Notes in May 2012 (subsequently repaid in full by June 30, 2012), approximately $2.2 million in net proceeds through the issuance of shares of Series A Preferred Stock pursuant to the Socius Agreement and approximately $15.5 million through the issuance of shares of common stock in various transactions to certain investors.

 The Company believes it has sufficient capital to pursue current operations through the third quarter of fiscal year 2013 and will require additional investment capital or other funding during the fourth quarter of fiscal 2013 to support its current business.  The Company is currently exploring various possible financing options that may be available to it, which may include a sale of securities and/or strategic partnership transactions.  The Company has no commitments to obtain any additional funds, and there can be no assurance such funds will be available on acceptable terms or at all.  If the Company is unable to obtain additional required funding, the Company’s financial condition and results of operations may be materially adversely affected and the Company may not be able to continue operations.

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3. GOING CONCERN (Details Narrative) (USD $)	3 Months Ended		6 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012	Dec. 31, 2011	Jun. 30, 2012
Going Concern Details Narrative
Net loss	$ 3,083,457	$ 2,730,310	$ 5,966,247	$ 4,405,758
Accumulated deficit	(75,020,156)		(75,020,156)		(69,053,909)
ZBB corporation equity	6,502,761		6,502,761		10,454,462
Total liabilities	$ 7,946,181		$ 7,946,181		$ 8,776,805

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6. INTANGIBLE ASSETS (Tables)

6 Months Ended

Dec. 31, 2012

Goodwill and Intangible Assets Disclosure [Abstract]

Intangible assets

	December 31, 2012			June 30, 2012
Non-compete agreement	$	310,888		$	310,888
License agreement		288,087			288,087
Trade secrets		1,599,122			1,599,122
Total, at cost		2,198,097			2,198,097
Less, accumulated amortization		(1,423,996	)		(1,054,975	)
Intangible Assets, Net	$	774,101		$	1,143,122

Estimated amortization expense

2013	$	362,992
2014		411,109
	$	774,101

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5. PROPERTY, PLANT & EQUIPMENT (Details) (USD $)	Dec. 31, 2012	Jun. 30, 2012
Property Plant Equipment Details
Land	$ 217,000	$ 217,000
Building and improvements	3,520,872	3,520,872
Manufacturing equipment	3,958,285	4,597,020
Office equipment	401,673	313,928
Construction in process	1,770	31,050
Total, at cost	8,099,600	8,679,870
Less, accumulated depreciation	(2,837,806)	(3,195,325)
Property, Plant & Equipment, Net	$ 5,261,794	$ 5,484,545

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13. RETIREMENT PLANS

6 Months Ended

Dec. 31, 2012

Compensation and Retirement Disclosure [Abstract]

RETIREMENT PLANS

All Australian based employees are entitled to varying degrees of benefits on retirement, disability, or death.  The Company contributes to an accumulation fund on behalf of the employees under an award which is legally enforceable.  For U.S. employees, the Company has a 401(k) plan.  All active participants are 100% vested immediately.  Expenses under these plans were $34,697 and $65,150 for the three and six months ended December 31, 2012, respectively and $27,324 and 42,780 for the three and six months ended December 31, 2011, respectively.