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 March 31, 2014

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.   þYes      oNo

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).   þYes      oNo

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 May 15, 2014
Common Stock, $.01 par value per share	25,257,700

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), March 31, 2014 and June 30, 2013	1
	Condensed Consolidated Statements of Operations (unaudited), Three and Nine Months Ended March 31, 2014 and 2013	2
	Condensed Consolidated Statements of Comprehensive Loss (unaudited), Three and Nine Months Ended March 31, 2014 and 2013	3
	Condensed Consolidated Statements of Changes in Equity (unaudited), Year ended June 30, 2013 and Nine Months Ended March 31, 2014	4
	Condensed Consolidated Statements of Cash Flows (unaudited), Nine Months Ended March 31, 2014 and 2013	5
	Notes to Condensed Consolidated Financial Statements (unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4.	Controls and Procedures	28
	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29
Item 3.	Defaults upon Senior Securities	29
Item 4.	Mine Safety Disclosures	29
Item 5.	Other Information	29
Item 6.	Exhibits	29
	Signatures	30

(*) All of the financial statements contained in this Quarterly Report are unaudited with the exception of the financial information at June 30, 2013, 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, 2013 and for the year then ended, and the notes thereto, can be found in our Annual Report on Form 10-K/A, which was filed with the Securities and Exchange Commission on September 30, 2013.

ZBB ENERGY CORPORATION
Condensed Consolidated Balance Sheets
	March 31, 2014
	(Unaudited)			June 30, 2013
Assets
Current assets:
Cash and cash equivalents	$	13,393,266		$	1,096,621
Restricted cash on deposit		69,713			60,000
Accounts receivable, net		583,020			446,925
Inventories		1,748,607			2,459,776
Prepaid expenses and other current assets		261,323			224,542
Refundable income tax credit		93,976			137,228
Total current assets		16,149,904			4,425,092
Long-term assets:
Property, plant and equipment, net		4,526,730			5,179,707
Investment in investee company		2,000,219			2,304,122
Intangible assets, net		-			411,073
Goodwill		803,079			803,079
Total assets	$	23,479,932		$	13,123,073
Liabilities and Equity
Current liabilities:
Bank loans and notes payable	$	348,701		$	885,786
Accounts payable		633,145			570,932
Accrued expenses		1,461,447			785,532
Customer deposits		1,202,295			2,194,262
Accrued compensation and benefits		194,048			164,437
Total current liabilities		3,839,635			4,600,949
Long-term liabilities:
Bank loans and notes payable		2,133,709			2,395,802
Total liabilities		5,973,345			6,996,751
Equity
Series B redeemable convertible preferred stock ($0.01 par value, $1,000 face value) 10,000,000 authorized,
2,750 and 0 shares issued and outstanding, preference in liquidation of $5,641,510 as of March 31, 2014		28			-
Common stock ($0.01 par value); 150,000,000 authorized, 25,257,700 and 17,707,341 shares issued and
outstanding as of March 31, 2014 and June 30, 2013 respectively		960,891			885,389
Additional paid-in capital		101,823,820			85,464,055
Accumulated deficit		(85,679,653	)		(80,932,824	)
Accumulated other comprehensive loss		(1,598,710	)		(1,594,418	)
Total ZBB Energy Corporation Equity		15,506,376			3,822,202
Noncontrolling interest		2,000,211			2,304,120
Total equity		17,506,587			6,126,322
Total liabilities and equity	$	23,479,932		$	13,123,073
See accompanying notes to condensed consolidated financial statements.

1

ZBB ENERGY CORPORATION
Condensed Consolidated Statements of Operations
	Three months ended March 31,						Nine months ended March 31,
	2014			2013			2014			2013
Revenues
Product sales	$	822,318		$	2,019,191		$	2,652,896		$	6,372,336
Engineering and development		750,000			100,000			950,000			318,183
License		3,000,000			-			3,000,000			-
Total Revenues		4,572,318			2,119,191			6,602,896			6,690,519
Costs and Expenses
Cost of product sales		546,904			1,761,762			1,698,762			5,519,360
Cost of engineering and development		65,560			62,118			109,196			107,183
Advanced engineering and development		1,095,589			1,293,147			3,400,318			3,828,686
Selling, general, and administrative		2,667,569			1,439,235			5,221,065			4,731,209
Depreciation and amortization		200,646			338,041			886,405			1,022,503
Total Costs and Expenses		4,576,267			4,895,303			11,315,744			15,208,941
Income (Loss) from Operations		(3,949	)		(2,776,112	)		(4,712,849	)		(8,518,422	)
Other Income (Expense)
Equity in loss of investee company		(55,428	)		(118,442	)		(303,910	)		(651,555	)
Interest income		1,435			913			2,944			1,896
Interest expense		(27,153	)		(40,829	)		(124,668	)		(134,039	)
Other income (expense)		-			(45,000	)		896			(45,000	)
Total Other Income (Expense)		(81,146	)		(203,358	)		(424,738	)		(828,698	)
Income (Loss) before provision (benefit) for Income Taxes		(85,096	)		(2,979,470	)		(5,137,587	)		(9,346,939	)
Provision (benefit) for Income Taxes		(38,598	)		(36,715	)		(86,848	)		(110,866	)
Net loss		(46,497	)		(2,942,755	)		(5,050,739	)		(9,236,074	)
Net loss attributable to noncontrolling interest		55,428			118,442			303,910			445,514
Net Income (Loss) Attributable to ZBB Energy Corporation		8,931			(2,824,313	)		(4,746,829	)		(8,790,560	)
Preferred Stock Dividend		(76,876	)		-			(154,375	)		-
Net Loss Attributable to Common Shareholders	$	(67,945	)	$	(2,824,313	)	$	(4,901,204	)	$	(8,790,560	)
Net Loss per share
Basic and diluted	$	(0.004	)	$	(0.18	)	$	(0.27	)	$	(0.57	)
Weighted average shares-basic and diluted		18,690,642			15,693,149			18,045,685			15,555,891
See accompanying notes to condensed consolidated financial statements.

2

ZBB ENERGY CORPORATION
Condensed Consolidated Statements of Comprehensive Loss
	Three months ended March 31,						Nine months ended March 31,
	2014			2013			2014			2013
Net loss	$	(46,497	)	$	(2,942,755	)	$	(5,050,739	)	$	(9,236,074	)
Foreign exchange translation adjustments		(973	)		676			(4,292	)		(67	)
Comprehensive loss		(47,471	)		(2,942,079	)		(5,055,031	)		(9,236,141	)
Net loss attributable to noncontrolling interest		55,428			118,442			303,910			445,514
Comprehensive Loss Attributable to ZBB Energy Corporation	$	7,957		$	(2,823,637	)	$	(4,751,121	)	$	(8,790,627	)
See accompanying notes to condensed consolidated financial statements.

3

ZBB Energy Corporation
Condensed Consolidated Statements of Changes in Equity
	Series B Preferred Stock						Common Stock				Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive (Loss)			Noncontrolling Interest
	Shares			Amount			Shares		Amount
Balance: July 1, 2012		-		$	-			14,595,120	$	729,773	$	80,363,519		$	(69,053,909	)	$	(1,584,921	)	$	2,872,348
Net loss															(11,878,915	)					(573,727	)
Net translation adjustment																		(9,497	)
Issuance of common stock, net of costs and   underwriting fees								3,112,311		155,616		4,315,276
Stock-based compensation												785,260
Issuance of subsidiary shares to noncontrolling   interest																					5,500
Balance: June 30, 2013		-			-			17,707,431		885,389		85,464,055			(80,932,824	)		(1,594,418	)		2,304,121
Net loss															(4,746,829	)					(303,910	)
Net translation adjustment																		(4,292	)
Issuance of common stock, net of costs and   underwriting fees								6,325,000		63,250		13,018,214
Stock-based compensation								45,570		456		450,340
Issuance of preferred stock, net of  costs and   underwriting fees		3,000			30							2,388,756
Conversion of preferred stock		(250	)		(3	)		276,482		2,765		(2,762	)
Issuance of warrants												498,793
Issuance of warrants to underwriter												15,455
Exercise of warrants								903,217		9,032		(9,032	)
Balance: March 31, 2014		2,750		$	28			25,257,700	$	960,891	$	101,823,820		$	(85,679,653	)	$	(1,598,710	)	$	2,000,211
See accompanying notes to condensed consolidated financial statements.

4

ZBB Energy Corporation
Condensed Consolidated Statements of Cash Flows
	Nine months ended March 31,
	2014			2013
Cash flows from operating activities
Net loss	$	(5,050,739	)	$	(9,236,074	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation of property, plant and equipment		580,379			552,079
Amortization of intangible assets		411,073			549,532
Stock-based compensation		450,796			570,604
Equity in loss of investee company		303,910			651,555
Amortization of discounts and debt issuance costs on notes payable		14,566			-
Purchase price adjustment		-			45,000
Changes in assets and liabilities
Accounts receivable		(136,095	)		(605,430	)
Inventories		823,670			(121,558	)
Prepaids and other current assets		(51,346	)		1,831
Refundable income taxes		43,253			(118,682	)
Accounts payable		62,213			48,340
Accrued compensation and benefits		29,610			(87,710	)
Accrued expenses		715,707			(417,946	)
Customer deposits		(991,967	)		(174,644	)
Net cash used in operating activities		(2,794,971	)		(8,343,103	)
Cash flows from investing activities
Expenditures for property and equipment		(39,907	)		(106,479	)
Investment in investee company		-			-
Deposits of restricted cash		(9,713	)		(60,000	)
Net cash used in investing activities		(49,620	)		(166,479	)
Cash flows from financing activities
Repayments of bank loans and notes payable		(843,262	)		(877,312	)
Proceeds from issuance of preferred stock and warrants		3,000,000			-
Preferred stock issuance costs		(96,967	)		-
Proceeds from issuance of common stock		14,231,250			4,244,689
Common stock issuance costs		(1,149,786	)		(177,606	)
Proceeds from noncontrolling interest		-			5,500
Net cash provided by financing activities		15,141,235			3,195,271
Effect of exchange rate changes on cash and cash equivalents		-			776
Net increase (decrease) in cash and cash equivalents		12,296,645			(5,313,535	)
Cash and cash equivalents - beginning of period		1,096,621			7,823,217
Cash and cash equivalents - end of period	$	13,393,266		$	2,509,683
Cash paid for interest	$	137,763		$	121,539
Cash received from foreign income tax credit		133,996			-
See accompanying notes to condensed consolidated financial statements.

5

ZBB ENERGY CORPORATION

Notes to Condensed Consolidated Financial Statements (unaudited)

March 31, 2014

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

ZBB Energy Corporation (“ZBB,” “we,” “us,” “our” or the “Company”) develops, licenses, and manufactures distributed energy storage solutions based upon the Company’s proprietary zinc bromide rechargeable electrical energy storage technology and proprietary power electronics systems.  ZBB was incorporated in Wisconsin in 1998 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 has 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, hybrid vehicle control systems, and power quality regulation solutions. Together, these platforms provide a wide range of renewable energy system solutions in global markets for utility, governmental, commercial, industrial and residential customers.

The consolidated financial statements include the accounts of the Company and those of its wholly-owned subsidy 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 a China joint venture.

Interim Financial Data

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“US 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 US 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 nine month period ended March 31, 2014 are not necessarily indicative of the results that might be expected for the year ending June 30, 2014.

The condensed consolidated balance sheet at June 30, 2013 has been derived from audited financial statements at that date, but does not include all of the information and disclosures required by US 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/A for the fiscal year ended June 30, 2013.

Basis of Presentation

The accompanying consolidated financial statements include the accounts of the Company and it’s wholly and majority-owned subsidiaries and have been prepared in accordance with US 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 $69,713 and $60,000 in restricted cash on deposit as of March 31, 2014 and June 30, 2013, respectively, as collateral for certain credit arrangements.

6

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 include no allowance for doubtful accounts as of March 31, 2014 and June 30, 2013 as management has concluded all outstanding balances are expected to be collected in full.  The composition of accounts receivable is as follows as of March 31, 2014 and June 30, 2013:

	March 31, 2014		June 30, 2013
Current	$	405,334	$	236,296
30-60 days		7,802		50,000
60-90 days		9,990		-
Over 90 days		159,894		160,629
Total	$	583,020	$	446,925

Inventories

Inventories are stated at the lower of cost or market. Cost is computed using standard cost, which approximates actual cost, on a first-in, first-out basis. The Company provides inventory write-downs based on excess and obsolete inventories determined primarily by future demand forecasts. The write-down is measured as the difference between the cost of the inventory and market based upon assumptions about future demand and charged to the provision for inventory, which is a component of cost of sales. At the point of the loss recognition, a new, lower cost basis for that inventory is established, and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis.

Property, Plant and Equipment

Land, building, equipment, computers, 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
Assets held for lease	18 months
Building and improvements	7 - 40 years

The Company completed a review of the estimated useful lives of specific assets during the quarter ended March 31, 2014 and determined that there were no changes in the estimated useful lives of assets.

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 consolidated balance sheets and 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 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 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.

7

Intangible Assets

Intangible assets generally result from business acquisitions.  The Company accounted for the acquisition of substantially all of the net assets of Tier Electronics LLC by assigning the purchase price to identifiable tangible and intangible assets and liabilities.  Assets acquired and liabilities assumed were 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.

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 March 31, 2014 and June 30, 2013.

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, 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 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 March 31, 2014 and June 30, 2013 (see Notes 5 and 6).

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 are 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 March 31, 2014 and June 30, 2013, included in the Company’s accrued expenses were $651,136 and $479,873 respectively, related to warranty obligations.  Such amounts are included in accrued expenses in the accompanying consolidated balance sheets.

8

The following is a summary of accrued warranty activity:

	Nine Months Ended  March 31, 2014			Year Ended June 30, 2013
Beginning balance	$	479,873		$	418,557
Accruals for warranties during the period		461,232			404,096
Settlements during the period		(497,000	)		(95,543	)
Adjustments relating to preexisting warranties		207,030			(247,237	)
Ending balance	$	651,136		$	479,873

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.

From time to time, we may enter into separate agreements at or near the same time with the same customer.  We evaluate such agreements to determine whether they should be accounted for individually as distinct arrangements or whether the separate agreements are, in substance, a single multiple element arrangement.  We evaluate whether the negotiations are conducted jointly as part of a single negotiation, whether the deliverables are interrelated or interdependent, whether the fees in one arrangement are tied to performance in another arrangement, and whether elements in one arrangement are essential to another arrangement.  Our evaluation involves significant judgment to determine whether a group of agreements might be so closely related that they are, in effect, part of a single arrangement.

Our collaboration agreements typically involve multiple elements or deliverables, including upfront fees, contract research and development, milestone payments, technology licenses or options to obtain technology licenses, and royalties.  For arrangements containing multiple elements, 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 $4,572,318 and $6,602,896 were recognized for the three and nine months ended March 31, 2014, respectively.  Revenues for the three months ended March 31, 2014 were comprised of one significant customer (83% of total revenues) and revenues for the nine months ended March 31, 2014 were comprised of two significant customers (84% of total revenues).  Total revenues of $2,119,191 and $6,690,519 were recognized for the three and nine months ended March 31, 2013, respectively.  Revenues for the three months ended March 31, 2013 were comprised of one significant customer (72% of total revenues) and revenues for the nine months ended March 31, 2013 were comprised of six significant customers (77% of total revenues).

9

Engineering, Development, and License Revenues

We assess whether a substantive milestone exists at the inception of our agreements.  In evaluating if a milestone is substantive we consider whether:

· Substantive uncertainty exists as to the achievement of the milestone event at the inception of the arrangement;

· The achievement of the milestone involves substantive effort and can only be achieved based in whole or in part on our performance or the occurrence of a specific outcome resulting from our performance;

· The amount of the milestone payment appears reasonable either in relation to the effort expended or the enhancement of the value of the delivered item(s);

· There is no future performance required to earn the milestone; and

· The consideration is reasonable relative to all deliverables and payment terms in the arrangement

If any of these conditions are not met, we do not consider the milestone to be substantive and we defer recognition of the milestone payment and recognize it as revenue over the estimated period of performance, if any.

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 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 nine months ended March 31, 2014 and $100,000 and $300,000 in the three and nine months ended March 31, 2013.

In April 2011, the Company entered into a Collaboration Agreement (the “Collaboration Agreement”) with Honam Petrochemical Corporation, now known as Lotte Chemical Corporation (“Lotte”), pursuant to which the Company and Lotte collaborated on the technical development of the Company’s third generation Zinc Bromide flow battery module (the “Version 3 Battery Module”) and Lotte received a fully paid-up, exclusive and royalty-free license to sell and manufacture the Version 3 Battery Module in Korea and a non-exclusive royalty-bearing license to sell the Version 3 Battery Module in Japan, Thailand, Taiwan, Malaysia, Vietnam and Singapore.

On December 16, 2013, the Company and Lotte entered into a Research and Development Agreement (the “R&D Agreement”) pursuant to which the Company has agreed to develop and provide to Lotte a Zinc Bromide chemical flow battery system, including a Zinc Bromide chemical flow battery module and related software (the “Product”), on the terms and conditions set forth in the R&D Agreement (the “Project”).    The Project is scheduled to continue until December 16, 2015, unless extended by the mutual agreement of the Company and Lotte.  Subject to the satisfaction of certain specified milestones, Lotte is required to make payments to the Company under the R&D Agreement totaling $3,000,000 over the term of the Project.  ZBB will recognize revenue based upon a Performance Based Method pursuant to the model described in ASC 980-605-25, where revenue is recognized based on the lesser of the amount of nonrefundable cash received or the amounts due based on the proportional amount of the total effort expected to be expended on the contract that has been provided to date as there does not exist substantial doubt that the milestones will be achieved.  The Company recognized $750,000 of revenue under this agreement in the three and nine months ended March 31, 2014 and $0 in the three and nine months ended March 31, 2013.

Additionally, on December 16, 2013, the Company and Lotte entered into an Amended License Agreement (the “Amended License Agreement”).  Pursuant to the Amended License Agreement, the Company granted to Lotte, (1) an exclusive and royalty-free limited license in Korea to use the Company’s Zinc Bromide flow battery module, Zinc Bromide flow battery stack and the technical information and know how related to the intellectual property arising from the Project (collectively, the “Technology”) to manufacture or sell a Zinc Bromide flow battery (the “Lotte Product”) in Korea and (2) a non-exclusive (a) royalty-free limited license for Lotte and its affiliates to use the Technology internally in all locations other than China and Korea to manufacture the Lotte Product and (b) royalty-bearing limited license to sell the Lotte Product in all locations other than China, the United States and Korea.  Lotte is required to pay the Company a total license fee of $3,000,000 under the Amended License Agreement plus up to an additional $1,000,000 if certain specific milestones are successfully achieved.  In addition, Lotte is required to make ongoing royalty payments to the Company equal to a single digit percentage of Lotte’s sales of the Lotte Product outside of Korea until December 31, 2019.  The license fees are subject to a16.5% non-refundable Korea withholding tax.  The Company recognized $3,000,000 of a one-time upfront license fee in revenue under this agreement in the three and nine months ended March 31, 2014 and $0 in the three and nine months ended March 31, 2013.

Included in engineering and development revenues were $750,000 and $950,000 for the three and nine months ended March 31, 2014 and $100,000 and $318,183 for the three and nine months ended March 31, 2013 related to collaborative agreements.  Engineering and development costs related to the collaboration agreements totaled $65,560 and $109,196 for the three and nine months ended March 31, 2014 and $62,118 and $107,183 for the three and nine months ended March 31, 2013, respectively.

As of March 31, 2013 and June 30, 2013, the Company had no unbilled amounts from engineering and development contracts in process. The Company had received $0 and $45,300 in customer payments for engineering and development contracts, representing deposits in advance of performance of the contracted work, as of March 31, 2014 and June 30, 2013, respectively.

There were $3,750,000 in payments received and $3,750,000 of revenue recognized under the Lotte agreements in the nine months ended March 31, 2014.

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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, which is 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 amortized over the vesting period of restricted stock unit awards, net of estimated forfeitures.

The Company only recognizes expense to its 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 March 31, 2014 and June 30, 2013.

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, 2013 and the Company’s Wisconsin and Australian income tax returns for the years ended June 30, 2009 through June 30, 2013 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 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 nine months ended March 31, 2014 and 2013 there were 9,474,075 and 3,308,576 shares of common stock underlying convertible preferred stock, options, restricted stock units and warrants that are excluded, respectively.

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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 March 31, 2014. 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 banking 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 equivalents, accounts receivable, and accounts payable 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 March 31, 2014 and June 30, 2013.

Use of Estimates

The preparation of financial statements in conformity with US 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;  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

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on our financial position or results of operations upon adoption.

In July 2013, the FASB issued ASU 2013-11 – Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists, which requires an unrecognized tax benefit to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, similar tax loss, or a tax credit carryforward. To the extent the tax benefit is not available at the reporting date under the governing tax law or if the entity does not intend to use the deferred tax asset for such purpose, the unrecognized tax benefit should be presented as a liability and not combined with deferred tax assets. ASU 2013-11 is effective for annual periods, and interim periods within those years, beginning after December 15, 2013. The amendments are to be applied to all unrecognized tax benefits that exist as of the effective date and may be applied retrospectively to each prior reporting period presented.  The Company expects no material impact to its financial statements as a result of adopting this pronouncement.

In April 2013, the FASB issued ASU 2013-07 – Presentation of Financial Statements (Topic 205) – Liquidation Basis of Accounting. The amendments require an entity to prepare its financial statements using the liquidation basis of accounting when liquidation is imminent. Liquidation is imminent when the likelihood is remote that the entity will return from liquidation and either (a) a plan for liquidation is approved by the person or persons with the authority to make such a plan effective and the likelihood is remote that the execution of the plan will be blocked by other parties or (b) a plan for liquidation is being imposed by other forces (for example, involuntary bankruptcy). If a plan for liquidation was specified in the entity’s governing documents from the entity’s inception (for example, limited-life entities), the entity should apply the liquidation basis of accounting only if the approved plan for liquidation differs from the plan for liquidation that was specified at the entity’s inception. The amendments require financial statements prepared using the liquidation basis of accounting to present relevant information about an entity’s expected resources in liquidation by measuring and presenting assets at the amount of the expected cash proceeds from liquidation. The entity should include in its  presentation of assets any items it had not previously recognized under US GAAP but that it expects to either sell in liquidation or use in settling liabilities (for example, trademarks). The amendments are effective for entities that determine liquidation is imminent during annual reporting periods beginning after December 15, 2013, and interim reporting periods therein. Entities should apply the requirements prospectively from the day that liquidation becomes imminent. Early adoption is permitted. The adoption is not expected to have an impact on the Company’s consolidated financial statements in its present condition.

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In March 2013, the FASB issued ASU 2013-05 – Foreign Currency Matters (Topic 830) – Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Group of Assets within a Foreign Entity or of an Investment in a Foreign Entity. These amendments provide guidance on releasing cumulative translation adjustments when a reporting entity (parent) ceases to have a controlling financial interest in a subsidiary or a group of assets that is a non-profit activity or a business within a foreign entity. In addition, these amendments provide guidance on the release of cumulative translation adjustments in partial sales of equity method investments and in step acquisitions. The amendments are effective for fiscal years and interim reporting periods within those years, beginning after December 15, 2013. The amendments should be applied prospectively to derecognition events occurring after the effective date. Prior periods should not be adjusted. Early adoption is permitted. If an entity elects to early adopt the amendments, it should apply them as of the beginning of the entity’s fiscal year of adoption.  The Company is required to adopt this standard beginning July 1, 2014. The Company does not anticipate these changes to have an impact on its consolidated financial statements.

In February 2013, the FASB issued ASU 2013-04 – Liabilities (Topic 405) – Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation is Fixed at the Reporting Date. These amendments provide guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date, except for obligations addressed within existing guidance in U.S. GAAP. Examples of obligations within this guidance are debt arrangements, other contractual obligations, and settled litigation and judicial rulings. The amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. These amendments shall be applied retrospectively to all prior periods presented for those obligations within the scope of this Subtopic that exist at the beginning of an entity’s fiscal year of adoption. Early adoption is permitted. The adoption of these amendments is not expected to have a material effect on the Company’s consolidated financial statements.

In February 2013, the FASB issued ASU No. 2013-02 – Comprehensive Income (Topic 220) — Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. The amendments do not change the current requirements for reporting net income or other comprehensive income in financial statements. However, the amendments require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under US GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under US GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under US GAAP that provide additional detail about those amounts. This guidance is effective prospectively for reporting periods beginning after December 15, 2012. The Company adopted this guidance in the third quarter of fiscal year 2013. This new guidance did not impact the Company’s presentation, financial position, and results of operations.

In September 2011, the FASB issued an update to ASC Topic 350, Intangibles – Goodwill and Other.  This ASU amended 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. The ASU did not change how goodwill is calculated or assigned to reporting units, nor did it revise the requirement to test annually for impairment. The ASU was limited to goodwill and did not amend the annual requirement for testing other indefinite-lived intangible assets for impairment. We adopted this ASU as of our 2012 goodwill impairment testing. The adoption of this ASU did not impact our consolidated financial statements.

In July 2012, the FASB issued ASC update No. 2012-02 - Intangibles – Goodwill and Other (Topic 350), Testing Indefinite-Lived Intangible Assets for Impairment (“ASC 2012-02”). Under the amendments in this update, a company has the option first to assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Topic 350. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. If after assessing the qualitative factors, a company determines it does not meet the more-likely-than-not threshold, a company is required to perform the quantitative impairment test by calculating the fair value of an indefinite-lived intangible asset and comparing the fair value with the carrying amount of the asset. The amendments in this update were effective for annual and interim impairment test performed for fiscal years beginning after September 15, 2012 (early adoption permitted). The Company adopted this guidance in the second quarter of fiscal year 2013.  The adoption of this update had no impact on its financial statements.

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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 ZBB PowerSav Holdings Limited (“Holdco”), 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 New Energy Holdings Limited (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.  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 nine months ended March 31, 2014, AHMN had a net loss of $255,994 and $1,403,610, respectively.  For the three and nine months ended March 31, 2013, AHMN had a net loss of $547,028 and $2,057,611, respectively.

The Company’s basis in the technology contributed to Holdco is $0 due to US 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 Hong Kong Holdco and Hong Kong 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.

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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 expenses incurred in providing such services.

The Company had product sales of $293,296 and $833,757 to AHMN during the three and nine months ended March 31, 2014, respectively.  The Company had product sales of $91,632 and $924,347 to AHMN during the three and nine months ended March 31, 2013, respectively.

The operating results for AHMN for the three and nine months ended March 31, 2014 and 2013 are summarized as follows:

	Three months ended March 31,						Nine months ended March 31,
	2014			2013			2014			2013
Revenues	$	141,162		$	-		$	237,345		$	-
Gross Profit (loss)		(184,029	)		-			(236,776	)		-
Income (loss) from operations		(636,420	)		(539,212	)		(1,851,480	)		(2,049,880	)
Net Income (loss)		(255,994	)		(547,028	)		(1,403,610	)		(2,057,611	)

NOTE 3 - GOING CONCERN

The accompanying 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 $4,746,829 attributable to ZBB Energy Corporation for the nine months ended March 31, 2014 and as of March 31, 2014 has an accumulated deficit of $85,679,653 and total ZBB Energy Corporation equity of $15,506,376.  The ability of the Company to settle its total liabilities of $5,973,345 and to continue as a going concern is dependent upon increasing revenues and achieving profitability.  The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

We believe that cash and cash equivalents on hand at March 31, 2014, expected collections on the Lotte R&D Agreement and other potential sources of cash, will be sufficient to fund our current operations through fiscal year 2015.  However, there can be no assurances that unforeseen circumstances will not require the Company to raise additional investment capital to fund its operations.

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 March 31, 2014 and June 30, 2013:

	March 31, 2014		June 30, 2013
Raw materials	$	763,201	$	1,181,557
Work in progress		985,406		1,278,219
Total	$	1,748,607	$	2,459,776

NOTE 5– PROPERTY, PLANT & EQUIPMENT

Property, plant, and equipment are comprised of the following as of March 31, 2014 and June 30, 2013:

	March 31, 2014			June 30, 2013
Land	$	217,000		$	217,000
Building and improvements		3,520,872			3,520,872
Manufacturing equipment		3,697,468			3,819,533
Office equipment		399,417			403,541
Assets held for lease		-			355,986
Construction in process		-			24,300
Total, at cost		7,834,757			8,341,232
Less, accumulated depreciation		(3,308,027	)		(3,161,525	)
Property, Plant & Equipment, Net	$	4,526,730		$	5,179,707

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NOTE 6– INTANGIBLE ASSETS

Intangible assets are comprised of the following as of March 31, 2014 and June 30, 2013:

	March 31, 2014			June 30,2013
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		(2,198,097	)		(1,787,024	)
Intangible Assets, Net	$	-		$	411,073

Estimated amortization expense for the fiscal period ending June 30, 2014 is $411,073.

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 March 31, 2014 and June 30, 2013.

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NOTE 8 – BANK LOANS AND NOTES PAYABLE

Bank loans and notes payable consisted of the following at March 31, 2014 and June 30, 2013:

		March 31, 2014		June 30, 2013
Bank loan payable of principal and interest at a rate equal to prime plus 1.50%, as defined, subject to a floor of 4.75% with principal due at maturity on January 1, 2014; collateralized by accounts receivable and inventory related to a specific customer contract.	$	-	$	213,750
Note payable to the seller of Tier Electronics of $495,000 payable on January 21, 2014.  Interest accrued at a rate of 8% and was  payable monthly. The promissory note  was collateralized by the Company’s membership interest in its wholly-owned subsidiary Tier Electronics, LLC; paid in full during fiscal 2014.  See note (a) below.		-		495,000
Note payable to Wisconsin Department of Commerce payable in monthly installments of $23,685, including interest at 2%, with the  final payment due May 1, 2018; 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.  See note (b) below.		1,135,235		1,136,195
Bank loan payable in fixed monthly payments of $6,800 of principal and interest  at a rate of 0.25% below prime, as defined, subject to a  floor of 5% with any principal due at maturity on June 1, 2018; collateralized by the building and land.		637,161		673,339
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.		710,014		734,228
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%; paid in full during fiscal 2014.		-		29,076
	$	2,482,410	$	3,281,588

(a) If the federal capital gains tax rate exceeded 15% and or the State of Wisconsin capital gains tax rate exceeded 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 was to 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 was to 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 recorded an additional $45,000 of principal due under this note as other expense for the year ended June 30, 2013.

(b) As of April 2013, the Wisconsin Department of Commerce granted the Company a 12 month deferral of the required installment payments of $22,800.  On March 1, 2014, fifty equal monthly installments of $23,685 commenced through April 1, 2018 with the final installment due on May 1, 2018.

Maximum aggregate annual principal payments for fiscal periods subsequent to March 31, 2014 are as follows:

2014 (three months)	$	86,227
2015		351,146
2016		361,065
2017		371,407
2018		358,389
2019 and thereafter		954,176
	$	2,482,410

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NOTE 9 – EMPLOYEE/DIRECTOR EQUITY INCENTIVE PLANS

During the nine months ended March 31, 2014 and 2013, the Company’s results of operations include compensation expense for stock options and restricted stock units (“RSUs”) granted under its various equity incentive plans. The amount recognized in the financial statements related to stock-based compensation was $979,005 and $570,604, based on the amortized grant date fair value of options and RSUs during the nine months ended March 31, 2014 and 2013, respectively.

At the annual 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 900,000 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 700,000 RSU awards and other equity awards to our non-employee directors pursuant to the Company’s director compensation policy.

In aggregate for all plans, at March 31, 2014 the Company had a total of 1,073,117 options outstanding, 2,146,813 RSUs outstanding and 401,260 shares available for future grant under the Omnibus Plan and 19,304 shares available for future grant under the 2012 Director Equity Plan.

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

	Number of Options			Weighted Average Exercise Price		Average Remaining Contractual Life (in years)
Balance at July 1, 2012		847,813		$	6.25
Options granted		142,710			1.88
Options forfeited		(205,239	)		5.05
Balance at June 30, 2013		785,284			5.75		5.34
Options granted		299,700			0.80
Options forfeited		(11,867	)		2.61
Balance at March 31, 2014		1,073,117		$	4.61		5.41

During the nine months ended March 31, 2014 options to purchase 299,700 shares were granted to employees exercisable at $0.76 to $1.90 per share based on service based vesting terms from July 2013 through March 2017 and exercisable at various dates through March 2022. During the nine months ended March 31, 2013 options to purchase 142,610 shares were granted to employees exercisable at prices from $1.75 to $1.90 per share based on various service and performance based vesting terms from July 2012 through March 2015 and exercisable at various dates through March 2020.

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 nine months ended March 31, 2014 and 2013 using the Black-Scholes option-pricing model:

	Nine months ended March 31,
	2014	2013
Expected life of option (years)	4	4
Risk-free interest rate	0.95 - 1.20%	0.46 - 0.61%
Assumed volatility	94 - 155%	96 - 104%
Expected dividend rate	0%	0%
Expected forfeiture rate	4.91 - 5.62%	4.19 - 6.66%

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

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A summary of the status of unvested employee stock options as of March 31, 2014 and June 30, 2013 and changes during the years ended is presented below:

	Number of  Options			Weighted Average Grant Date Fair Value Per Share		Average Remaining Contractual Life (in years)
Balance at July 1, 2012		449,499		$	4.70
Granted		142,710			1.88
Vested		(158,390	)		4.75
Forfeited		(171,152	)		4.21
Balance at June 30, 2013		262,668			3.44
Granted		299,700			0.80
Vested		(117,887	)		3.57
Forfeited		(3,398	)		2.04
Balance at March 31, 2014		441,083		$	1.62	7.08

Total fair value of options granted in the nine months ended March 31, 2014 and 2013 was $207,789 and $167,167, respectively.  At March 31, 2014, there was $198,391 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 RSUs and cash.  On December 20, 2013, 455,696 RSUs were granted to the Company’s directors in partial payment of directors fees through November 2014 under the 2012 Director Equity Plan.  As of March 31, 2014, 452,850 of the RSUs had vested and there were $245,502 in directors’ fees expense settled with RSUs for the period ended March 31, 2014.

On May 1, 2013, the Company’s President and CEO and Chief Operating Officer were awarded 200,000 RSUs each which would have vested on the satisfaction of certain performance targets.  The RSU’s were forfeited on December 31, 2013 resulting in a credit to selling, general and administrative expense of $406,000 during the nine months ended March 31, 2014.  On January 14, 2014, the Company’s President and CEO and Chief Operating Officer were awarded 500,000 RSUs each of which 100,000 vested immediately upon grant, and the remaining 400,000 will vest on the satisfaction of certain performance targets as of June 30, 2014.  200,000 of the 400,000 RSUs are classified as liability awards because they provide for cash settlement (although the Company has the ability to convert these RSUs to share settlement at its option).  The cash settled RSU award liability is measured at its fair value at the end of each reporting period and, therefore, will fluctuate based on the performance of the Company’s common stock.  The estimated expense for the three months ending June 30, 2014 is $1,244,000 for the January 14, 2014 RSU’s.

As of March 31, 2014 there were 1,067,846 unvested RSUs outstanding which will vest through January 15, 2016 and $1,360,663 in unrecognized compensation cost related to unvested RSUs which are expected to be recognized through January 15, 2016.  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 July 1, 2012		489,687		$	3.60
RSUs granted		970,000			1.30
RSUs forfeited		(320,000	)		1.30
Shares issued		(8,000	)		1.70
Balance at June 30, 2013		1,131,687			2.30
RSUs granted		1,460,696			0.88
RSUs forfeited		(400,000	)		1.45
Shares issued		(45,570	)		1.31
Balance at March 31, 2014		2,146,813		$	1.50

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NOTE 10 - WARRANTS

At March 31, 2014, the following warrants to purchase the Company’s common stock were outstanding and exercisable:

· 81,579 warrants exercisable at $0.95 per share and which expire in September 2016 issued as placement agent’s compensation in connection with the sale of $3 million of preferred stock on September 27, 2013 as described in Note 11.

· 1,710,526 warrants exercisable at $0.95 per share and which expire in September 2016 issued in connection with Securities Purchase Agreements entered into with certain investors providing for the sale of a total of $3 million of preferred stock on September 27, 2013 described in Note 11. On March 26, 2014, 1,447,369 warrants were exercised via a cashless exercise resulting in the issuance of 850,169 shares of common stock of the Company.

· 15,000 warrants exercisable at $2.10 per share which expire in July 2015 issued as partial payment for services.

· 306,902 warrants exercisable at $2.375 per share and which expire in June 2017 issued 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 on June 19, 2012 as described in Note 11.  On March 19, 2014, 272,159 warrants were exercised via a cashless exercise resulting in the issuance of 53,048 shares of common stock of the Company.

· 511,604 warrants exercisable at $2.65 per share and which expire in May 2017 issued 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 on May 1, 2012.

· 12,100 warrants exercisable at $5.00 per share which expire March 2015 through July 2015 issued as partial payment for services.

· 224,375 warrants exercisable at $5.20 per share and which expire in September 2015 issued to certain purchasers of Company shares in March 2010.

· 71,667 warrants exercisable at $6.65 per share and which expire in August 2015 issued to certain purchasers of Company shares in August 2009.

The table below summarizes warrant balances:

	Number of Warrants			Weighted Average Exercise Price Per Share
Balance at July 1, 2012		1,400,506			3.15
Warrants granted		21,300			2.95
Warrants expired		-			-
Warrants exercised		-			-
Balance at June 30, 2013		1,421,806		$	3.15
Warrants granted		3,239,474			0.95
Warrants expired		(8,000	)		2.80
Warrants exercised		(1,719,528	)		1.18
Balance at March 31, 2014		2,933,752		$	1.88

NOTE 11 – EQUITY

On March 19, 2014, the Company completed an underwritten public offering of its common stock at a price to the public of $2.25 per share.  The Company sold a total of 6,325,000 shares of its common stock in the offering for aggregate proceeds of approximately $14.2 million.  The Company received approximately $13.1 million of net proceeds from the offering, after deducting the underwriting discount and expenses.

On October 31, 2013, the Company effected a reverse stock split of its common stock by a ratio of 1-for-5 (the “Reverse Split”). As a result of the Reverse Split every five outstanding shares of Common Stock became one share of common stock.  No fractional shares were issued in connection with the Reverse Split. A shareholder who would otherwise have been entitled to receive a fractional share of common stock received a cash payment equal to the closing sales price of the  Company’s Common Stock on October 31, 2013 as reported on the NYSE MKT times the amount of the fractional share. The Reverse Split did not change the number of shares of common or preferred stock that the Company is authorized to issue, or the par value of the Company’s common or preferred stock.  The Reverse Split resulted in a proportionate adjustment to the per share exercise price and the number of shares of common stock issuable upon the exercise of outstanding warrants and stock options, as well as the number of shares of common stock eligible for issuance under the Omnibus Plan and the 2012 Director Equity Plan. All of the information in these financial statements has been presented to reflect the impact of the 1-for-5 Reverse Split on a retroactive basis.

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On September 26, 2013 the Company entered into a Securities Purchase Agreement with certain investors providing for the sale of 3,000 shares of Series B Convertible Preferred Stock (the “Preferred Stock”).  Certain Directors of the Company purchased 500 shares.

Shares of Preferred Stock were sold for $1,000 per share (the “Stated Value”) and accrue dividends on the Stated Value at an annual rate of 10%.  The net proceeds to the Company, after deducting $90,127 of offering costs, were $2,909,873.  During the three months ended March 31, 2014, 250 shares of Preferred Stock were converted into 276,482 shares of common stock of the Company.  At March 31, 2014, 2,750 shares of Preferred Stock were convertible into 3,041,282 shares of common stock of the Company (“Common Stock”) at a conversion price equal to $0.95.  Upon any liquidation, dissolution or winding up of the Corporation, holders of Preferred Stock are entitled to receive out of the assets of the Company an amount equal to two times the Stated Value, plus any accrued and unpaid dividends thereon.  At March 31, 2014 the liquidation preference of the Preferred Stock was $5,641,510.

In connection with the purchase of the Preferred Stock, investors received warrants to purchase a total of 3,157,895 shares of Common Stock at an exercise price of $0.95.  The warrants are exercisable at any time prior to September 27, 2016.  On March 26, 2014, 1,447,368 warrants were exercised via a cashless exercise resulting in the issuance of 850,169 shares of common stock of the Company.  In addition, the Company issued a total of 81,579 warrants to a placement agent in connection with the transaction.  These warrants expire on September 27, 2016.

On March 13, 2013, the Company entered into a common stock purchase agreement (the “Aspire Purchase Agreement”) with Aspire Capital Fund, LLC, an Illinois limited liability company, under which Aspire Capital committed over a two year period to purchase up to $10 million of ZBB Energy common stock based on prevailing market prices over a period preceding each sale, subject to certain terms and conditions.

On March 19, 2013 the Company issued 345,098 shares to Aspire Capital in consideration for Aspire Capital’s entry into the Aspire Purchase Agreement and Aspire Capital purchased 588,235 shares for $1,000,000 pursuant to the agreement at $1.70 per share.

On March 25, 2013 and March 26, 2013, Aspire Capital purchased a total of 992,720 shares pursuant to the Aspire Purchase Agreement at a price per share of $1.50 for a total purchase price of $1,500,000.

Aspire Capital purchased 100,000 shares at a per share price of $1.5175 for a total purchase price of $151,750 on April 4, 2013; 90,000 shares at a per share price of $1.6655 for a total purchase price of $149,895 on April 12, 2013; and 70,000 shares at a per share price of $1.4595 for a total purchase price of $102,165 on May 3, 2013.

Through March 31, 2014 the Company had issued a total of $2,903,190 of shares of common stock under this facility and $7,096,810 remained available.  In accordance with applicable NYSE MKT rules, shareholder approval would have been required for the Company to sell in excess of 3,104,341 shares pursuant to the Aspire Purchase Agreement.  Through March 31, 2014 the Company had issued a total of 2,186,053 shares pursuant to the Aspire Purchase and had the ability to sell up to 918,288 additional shares under the Aspire Purchase Agreement.  The Company has not made any additional sales to Aspire under the Agreement since June 30, 2013.  In light of limitations on the Company’s ability to continue to effectively use the Aspire Purchase Agreement, including NYSE MKT limitations and SEC registration requirements, the Company has no current plans to sell any additional shares under the agreement.

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 $23,340 and $69,525 for the three and nine months ended March 31, 2014, respectively and $25,907 and $77,632 for the three and six months ended December 31, 2012, respectively.  In July of 2011 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 leased a building from an officer of its subsidiary, Tier Electronics LLC, who is also a shareholder and director, under a lease agreement that was due to expire on December 31, 2014.  Subsequently a lease termination agreement was entered into on October 20, 2013, which terminated the lease effective December 31, 2013 for a fee of $21,000.  The rent expense for the three and nine months ended March 31, 2014 was $0 and $63,000, respectively and $21,000 and $63,000 for the three and nine months ended March 31, 2013.  The Company was 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 March 31, 2014 are as follows:

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2014 (three months)	$	23,217
2015		92,867
2016		30,956
	$	147,039

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 up to six months of annual salary as severance if we terminate a contract without cause, along with the acceleration of certain unvested stock option grants.

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 $29,484 and $97,629 for the three and nine months ended March 31, 2014, respectively.  Expenses under these plans were $33,307 and $98,457 for the three and nine months ended March 31, 2013, respectively.

NOTE 14— INCOME TAXES

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

	Nine months ended March 31,
	2014			2013
Current	$	(86,848	)	$	(110,866	)
Deferred		-			-
Provision (benefit) for income taxes	$	(86,848	)	$	(110,866	)

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 March 31, 2014 and June 30, 2013.

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

	Nine months ended March 31,
	2014			2013
Income tax expense/(benefit) computed at the U.S. federal statutory rate		-34	%		-34	%
Foreign tax expense/(benefit)		-2	%		-1	%
Change in valuation allowance		34	%		34	%
Total		-2	%		-1	%

Significant components of the Company’s net deferred income tax assets as of March 31, 2014 and June 30, 2013 were as follows:

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	March 31, 2014			June 30, 2013
Federal net operating loss carryforwards	$	20,924,016		$	19,777,894
Federal - other		2,455,559			2,273,021
Wisconsin net operating loss carryforwards		2,485,514			2,482,692
Australia net operating loss carryforwards		1,430,293			1,398,139
Deferred income tax asset valuation allowance		(27,295,382	)		(25,931,746	)
Total deferred income tax assets	$	-		$	-

The Company has U.S. federal net operating loss carryforwards of approximately $61.5 million as of March 31, 2014, that expire at various dates between June 30, 2016 and 2033.  The Company also has $2.4 million 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 $222,944 as of March 31, 2014 that expire at various dates through June 30, 2033.  As of March 31, 2014, the Company has approximately $52 million of Wisconsin net operating loss carryforwards that expire at various dates between June 30, 2014 and 2028.  As of March 31, 2014, the Company also has approximately $5 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:

	March 31, 2014		June 30, 2013
Beginning balance	$	193,097	$	208,593
Effect of foreign currency translation	$	-	$	(15,496	)
Ending balance	$	193,097	$	193,097

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 an ownership change 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.

NOTE 15— SUBSEQUENT EVENT

On April 9, 2014 the Company’s President and CEO was awarded 200,000 RSUs which vested immediately upon grant.  The estimated expense for the three months ended June 30, 2014 is $360,000 for the April 9, 2014 RSUs.

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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, licenses 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 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.  We have also developed hybrid vehicle control systems and power quality products. These platforms provide a wide range of renewable energy solutions in global markets for utility, governmental, commercial, industrial and residential 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 ZBB PowerSav Holdings Limited, 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 New Energy Holdings Limited (“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 expenses incurred in providing such services.

In April 2011,  we entered into a Collaboration Agreement (the “Collaboration Agreement”) with Honam Petrochemical Corporation, now known as Lotte Chemical Corporation (“Lotte”), pursuant to which the Company and Lotte collaborated on the technical development of our third generation Zinc Bromide flow battery module (the “Version 3 Battery Module”) and Lotte received a fully paid-up, exclusive and royalty-free license to sell and manufacture the Version 3 Battery Module in Korea and a non-exclusive royalty-bearing license to sell the Version 3 Battery Module in Japan, Thailand, Taiwan, Malaysia, Vietnam and Singapore.

On December 16, 2013, we entered into a Research and Development Agreement with Lotte (the “R&D Agreement”) pursuant to which we agreed to develop and provide to Lotte a Zinc Bromide chemical flow battery system, including a Zinc Bromide chemical flow battery module and related software (the “Product”), on the terms and conditions set forth in the R&D Agreement (the “Project”).    The Project is scheduled to continue until December 16, 2015, unless extended by the mutual agreement of the Company and Lotte.  Subject to the satisfaction of certain specified milestones, Lotte is required to make payments to us under the R&D Agreement totaling $3,000,000 over the term of the Project.

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Additionally, on December 16, 2013 we entered into an Amended License Agreement with Lotte (the “Amended License Agreement”).  Pursuant to the Amended License Agreement, we granted to Lotte, (1) an exclusive and royalty-free limited license in Korea to use the Company’s Zinc Bromide flow battery module, Zinc Bromide flow battery stack and the technical information and know how related to the intellectual property arising from the Project (collectively, the “Technology”) to manufacture or sell a Zinc Bromide flow battery (the “Lotte Product”) in Korea and (2) a non-exclusive (a) royalty-free limited license for Lotte and its affiliates to use the Technology internally in all locations other than China and Korea to manufacture the Lotte Product and (b) royalty-bearing limited license to sell the Lotte Product in all locations other than China, the United States and Korea.  Lotte is required to pay us a total license fee of $3,000,000 under the Amended License Agreement plus up to an additional $1,000,000 if certain specific milestones are successfully achieved.  In addition, Lotte is required to make ongoing royalty payments to the Company equal to a single digit percentage of Lotte’s sales of the Lotte Product outside of Korea until December 31, 2019.  The license fees are subject to a 16.5% non-refundable Korea withholding tax.

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/A for the fiscal year ended June 30, 2013. 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:

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

· We have incurred losses and anticipate incurring continuing losses.

· We expect that we will require additional financing.

· 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 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.

· We are currently subject to a compliance plan with NYSE MKT and if we fail to make progress consistent with such plan our common stock may be delisted from the NYSE MKT, which would cause our common stock to become less liquid.

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

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For further information concerning these risks and uncertainties see the Risk Factors sections of our Annual Report on Form 10-K/A for the year ended June 30, 2013 and in any subsequently filed Quarterly Reports on Form 10-Q.

New Accounting Pronouncements

Refer to Note 1 of the Notes to 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, asset impairments 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. 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.

Results of Operations

Three months ended March 31, 2014 compared with the three months ended March 31, 2013

Revenue:

Our revenues for the three months ended March 31, 2014 and 2013 were $4,572,318 and $2,119,191, respectively.  The increase of $2,453,127 was the result of a $1,196,873 decrease in product sales, a $650,000 increase in engineering and development revenues and a $3,000,000 increase in license revenues due to receipt of a one-time upfront license fee under our Amended License Agreement with Lotte as compared to the three months ended March 31, 2013.

Costs and Expenses:

Total costs and expenses for the three months ended March 31, 2014 and 2013 were $4,576,267 and $4,895,303, respectively.  This decrease of $319,036 in the three months ended March 31, 2014 was primarily due to the following factors:

· $1,214,858 decrease in costs of product sales principally due to decreased product sales;

· $197,558 decrease in advanced engineering and development expenses due to a decrease in activities related to product development;

· $1,228,334 increase in selling, general and administrative expenses was principally due to an increase of $764,950 in stock based compensation attributed to performance based awards and $495,000 in non-refundable Korea withholding tax related to the one-time upfront license fee under our Amended License Agreement with Lotte.

Other Expense:

Total Other Expense for the three months ended March 31, 2014 decreased by $122,212 to $81,146 from $203,358 for the three months ended March 31, 2013 primarily as a result of a $63,104 decrease in equity in loss of investee company and a $45,000 decrease in other expense.

Income Taxes (Benefit):

The benefit for income taxes during the three months ended March 31, 2014 increased by $1,883 to $38,598 from $36,715 for the three months ended March 31, 2013.

Net Loss:

Our net loss for the three months ended March 31, 2014 decreased by $2,833,244 to $8,931 of net income from the $2,824,313 net loss for the three months ended March 31, 2013.  This decrease in loss was primarily the result of the increases in revenues related to a one-time upfront license fee under the Lotte Amended License Agreement as described above.

26

Nine months ended March 31, 2014 compared with the nine months ended March 31, 2013

Revenue:

Our revenues for the nine months ended March 31, 2014 and 2013 were $6,602,896 and $6,690,519, respectively.  The decrease of $87,623 was the result of a $3,719,440 decrease in commercial product sales, a $631,817 increase in engineering and development revenues, and a $3,000,000 increase in license revenues due to receipt of a one-time upfront license fee under our Amended License Agreement with Lotte as compared to the nine months ended March 31, 2013.

Costs and Expenses:

Total costs and expenses for the nine months ended March 31, 2014 and 2013 were $11,315,744 and $15,208,941, respectively.  This decrease of $3,898,197 in the nine months ended March 31, 2014 was primarily due to the following factors:

· a $3,820,598 decrease in costs of product sales principally due to decreased product sales;

· a $428,368 decrease in advanced engineering and development due to a decrease in activities related to product development; And

· $489,856 increase in selling, general and administrative expenses was principally due to $495,000 in non-refundable Korea withholding tax related to the one-time upfront license fee under our Amended License Agreement with Lotte.

Other Expense:

Total Other Expense for the nine months ended March 31, 2014 decreased by $403,960 to $424,783 from $828,698 for the nine months ended March 31, 2013 primarily as a result of a $347,645 decrease in equity in loss of investee company and a $45,896 decrease in other expense.

Income Taxes (Benefit):

The benefit for income taxes during the nine months ended March 31, 2014 decreased by $24,017 to $86,848 from $110,866 for the nine months ended March 31, 2013.

Net Loss:

Our net loss for the nine months ended March 31, 2014 decreased by $4,043,731 to $4,796,829 from the $8,790,560 net loss for the nine months ended March 31, 2013.  This decrease in loss was primarily the result of increases in revenues related to a one-time upfront license fee under the Lotte Amended License Agreement as described above.

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 engineering, government and other research and development contracts.  Total paid in capital as of March 31, 2014 was $102,784,739.   We had a cumulative deficit of $85,679,653 as of March 31, 2014 compared to a cumulative deficit of $80,932,824 as of June 30, 2013.  At March 31, 2014 we had net working capital of $12,310,268 compared to a June 30, 2013 working capital deficit of $175,857.  Our shareholders’ equity as of March 31, 2014 and June 30, 2013 was $15,506,376 and $3,822,202, respectively.

On March 19, 2014, the Company completed an underwritten public offering of its common stock at a price to the public of $2.25 per share.  The Company sold a total of 6,325,000 shares of its common stock in the offering for aggregate proceeds of approximately $14.2 million.  The Company received approximately $13.1 million of net proceeds from the offering, after deducting the underwriting discount and expenses.

On September 26, 2013, the Company entered into a Securities Purchase Agreement with certain investors providing for the sale of 3,000 shares of Series B Convertible Preferred Stock (the “Preferred Stock”).  Shares of Preferred Stock were sold for $1,000 per share (the “Stated Value”) and accrue dividends on the Stated Value at an annual rate of 10%.  At March 31, 2014 the Preferred Stock was convertible into a total of 3,043,693 shares of common stock of the Company (“Common Stock”) at a conversion price equal to $0.95.  Upon any liquidation, dissolution or winding up of the Corporation, holders of Preferred Stock are entitled to receive out of the assets of the Company an amount equal to two times the Stated Value, plus any accrued and unpaid dividends thereon.  The net proceeds to the Company, after deducting $90,127 of offering costs, were $2,909,873.  At March 31, 2014 the liquidation preference of the Preferred Stock was $5,641,510.

27

At March 31, 2014, our principal sources of liquidity were our cash and cash equivalents which totaled $13,462,979, accounts receivable of $583,020, and expected collections on the Lotte R&D Agreement.

We believe that cash and cash equivalents on hand at March 31, 2014, expected collections on the Lotte R&D Agreement and other potential sources of cash, will be sufficient to fund our current operations through fiscal year 2015.  However, unless we are able to increase our revenues and achieve profitability we will likely require additional investment capital to fund our operations.

If we are unable to obtain additional required funding, we may not be able to:

· remain in operation;

· execute our growth plan;

· take advantage of future opportunities; or

· respond to customers and competition.

Operating Activities

Our operating activities used net cash of $2,794,971 for the nine months ended March 31, 2014.  Cash used in operations resulted from a net loss of $5,050,739 reduced by $1,760,724 in non-cash adjustments and decreased by $495,044 in net changes to working capital.  Non-cash adjustments included $450,796 of stock-based compensation expense, and $991,452 of depreciation and amortization expense.  Net decreases in working capital were primarily due to increases in accounts receivable of $136,095 and accrued expenses of $715,707, offset by a decreases in inventories of $823,670 and in customer deposits of $991,967.

Investing Activities

Our investing activities used net cash of $49,620 for the nine months ended March 31, 2014, used for the purchase of property and equipment and deposits of restricted cash.

Financing Activities

Our financing activities provided net cash of $15,141,235 for the nine months ended March 31, 2014.  Net cash provided by financing activities was comprised principally of $3,000,000 in proceeds from the issuance of preferred stock, less preferred stock issuance costs of $96,967 and $14,231,250 in proceeds from the issuance of common stock, less common stock issuance costs of $1,149,786.  Duringthe nine months ended March 31, 2014 we made repayments of $843,262 of principal on bank loans and notes payable.

Off-Balance Sheet Arrangements

We had no off-balance sheet arrangements as of March 31, 2014.

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 Vice President of Finance 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 Vice President of Finance 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.

28

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/A and in any subsequent Quarterly Reports on Form 10-Q.

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

Warrant Exercises

On March 19, 2014, 272,159 warrants issued in connection with the Underwriting Agreement entered into with MDB Capital Group, LLC in June 2012 were exercised by utilizing the cashless exercise provision contained in the warrant.  As a result of this exercise we issued to the warrant holders 53,048 shares of common stock. On March 26, 2014, certain investors issued warrants in connection with our September 2013 private placement transaction exercised 1,447,369 warrants by utilizing the cashless exercise provision contained in the warrants.  As a result of these exercises we issued to the warrant holders 850,169 shares of common stock.

Conversion of Preferred Stock

On March 26, 2014, 250 shares of Series B Preferred Stock were converted into 276, 482 shares of Common Stock.

Exemptions from Securities Act

We believe the issuances of shares on exercise of the warrants via cashless exercise and conversion of Preferred Stock were exempt from registration under the Securities Act by virtue of Section 3(a)(9) thereof in as much as such issuances involved the issuance of shares to an existing security holder in exchange for other securities where no commission or other remuneration was paid or given for soliciting such exchange.

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.

29

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
May 15, 2014	By:	/s/Eric C. Apfelbach
	Name:	Eric C. Apfelbach
	Title:	Chief Executive Officer
		(Principal Executive Officer)
May 15, 2014	By:	/s/ Dilek Wagner
	Name:	Dilek Wagner
	Title:	Vice President of Finance
		(Principal financial officer and
		Principal accounting officer)

30

EXHIBIT INDEX

Item 6 Exhibits:

Exhibit No.		Description	Incorporated by Reference to
10.1		First Amendment to License Agreement between ZBB PowerSav Holdings Ltd. and Anhui Meineng Store Energy Co. Ltd. dated December 3, 2013
10.2	Professional Services Agreement between ZBB Energy Corporation and Jeff Reichard dated February 7, 2014
10.3	Employment Agreement between ZBB Energy Corporation and Dilek Wagner dated February 2, 2014
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

31

EX-10.1

Exhibit 10.1

ANHUI MEINENG STORE ENERGY CO., LTD.

ZBB POWERSAV HOLDINGS LIMITED

FIRST AMENDMENT TO LICENSE AGREEMENT

This FIRST AMENDMENT TO LICENSE AGREEMENT (this “Amendment”) is made and entered into as of December 3, 2013, by and between ZBB POWERSAV HOLDINGS LTD., a Hong Kong limited liability company (“Hong Kong Holdco”), and ANHUI MEINENG STORE ENERGY CO., LTD., a Chinese limited liability company (the “Company”).  Hong Kong Holdco and the Company are referred to collectively herein as the “Parties” and individually as a “Party.”

STATEMENT OF PURPOSE

Hong Kong Holdco and the Company are parties to that certain License Agreement dated November 11, 2011 (the “Agreement”), pursuant to which Hong Kong Holdco licensed to the Company certain intellectual property of ZBB Energy Corporation (“ZBB”), which Hong Kong Holdco was permitted to sublicense pursuant to an agreement with ZBB Energy Corporation.

The Parties desire to amend the Agreement to reflect certain changes to the license granted thereunder and the rights of the Parties in relation thereto, all in the manner set forth herein.

NOW, THEREFORE, in consideration of the aforesaid Statement of Purpose, the mutual covenants made herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto hereby agree as follows:

1.   Defined Terms.  Capitalized terms used, but not otherwise defined herein, shall have the meanings ascribed to them in the Agreement.

2.   Amendment to Exhibit A of the Agreement.  Exhibit A to the Agreement is hereby amended by deleting the same, in its entirety, and by inserting, in lieu thereof, the document attached hereto as Exhibit A, which is hereby incorporated herein by reference.

3.   Additional Technologies.  If ZBB acquires or in-licenses from a third party any new technology that it uses to enhance the Original V3 EnerStore or any New V3 EnerStore (as such terms are defined in Exhibit A), ZBB and Hong Kong Holdco will use commercially reasonable efforts to provide the Company access to such technology for use in the Company’s products on terms similar to those upon which ZBB acquired or in-licensed such technology.

4.   Additional Products.  If ZBB develops or acquires or in-licenses from a third party or otherwise obtains access to any additional energy storage products that directly compete with the Original V3 EnerStore or any New V3 EnerStore (as such terms are defined in Exhibit A) in terms of price, performance and application (“Additional Products”), ZBB and Hong Kong Holdco will notify the Company of the same and the Company shall have the option to commence discussions with ZBB and Hong Kong Holdco concerning the Company’s obtaining a license for or otherwise securing access to such Additional Products for sale in the Company’s markets.

5.   Miscellaneous.  This Amendment supersedes all prior oral or written communications between the Parties concerning the subject matter hereof and may be executed in the manner provided in Section 11.6 of the Agreement.  Except as otherwise provided herein, all provisions, terms and conditions of the Agreement remain unchanged and are in full force and effect.

[SIGNATURES APPEAR ON NEXT PAGE]

IN WITNESS WHEREOF, the parties hereto have entered into this Amendment as of the date first written above.

“Hong Kong Holdco”	“Company”
ZBB PowerSav Holdings Ltd.	Anhui Meineng Store Energy Co., Ltd.
By: _____________________________________________	By:  _____________________________________________
Name: ____________________________________	Name:____________________________________________
Title:  _____________________________________	Title: _____________________________________________

EXHIBIT A

ANHUI MEINENG STORE ENERGY CO., LTD.

ZBB POWERSAV HOLDINGS LIMITED

LICENSE AGREEMENT

EXHIBIT A

ZBB PRODUCTS

· ZBB EnerStore® 50 kWh Version 3 Zinc Bromide Flow Battery (defined as utilizing stack designed to output 6-9 KWh), including upgrades and enhancements incorporated therein to improve performance and/or reduce cost (“Original V3 EnerStore”)

· ZBB EnerSection® (a.k.a. PECC), rated up to 250KW

· Any other Zinc Bromide Flow Battery product developed internally by ZBB utilizing only ZBB-owned intellectual property and other resources, based on the V3 EnerStore, ranging from 50kWh - 500kWh module design (“New V3 EnerStore”)

ZBB TRADEMARKS

None

EX-10.2

Exhibit 10.2

JEFFREY REICHARD

AGREEMENT FOR PROFESSIONAL SERVICES

This Agreement is made between ZBB Energy Corporation ("Client") with a principal place of business at N93 W14475 Whittaker Way, Menomonee Falls, WI 53051, and Jeffrey Reichard ("Consultant"), with a principal place of business at W353N6318 Marina Drive, Oconomowoc, WI 53066, on this 8th day of February, 2014.

1.   Services to be Performed

Consultant agrees to perform the services described in Exhibit A, which is attached to this Agreement, at such times, dates and locations as mutually agreed by the parties.  Consultant may, at any time, refuse to work on specific projects and tasks for any reason.

2.   Payment

In consideration for the services to be performed by Consultant, Client agrees to pay Consultant in accordance with the compensation schedule specified in Exhibit A.

3.   Terms of Payment

Consultant shall invoice Client on a bi-weekly basis.  Invoices shall be submitted specifying an invoice number and dates covered on the invoice.  Client shall pay Consultant's fee within 20 days after receiving Consultant's invoice.

4.   Expenses

Client shall reimburse Consultant for all reasonable travel and living expenses necessarily incurred by Consultant while away from Consultant's regular place of business to perform services under this Agreement. Expenses will be reimbursed only if approved in advance. Consultant shall submit a statement of such expenses with appropriate documentation as an attachment to invoices to Client.  Consultant will endeavor to utilize cost effective means for travel and lodging.  Booking of all travel shall be economy class or equivalent, unless approved by Client.

5.   Materials and 3rd Party Services

Consultant will furnish all ordinary and reasonable office materials, equipment and supplies used to provide the services required by this Agreement.  Client will provide a laptop computer and email account for the duration of Consultant’s services under this agreement. On Client’s request Consultant may engage 3rd party services or incur material expenses on behalf of Client as an integral part of services to be performed and such expenses will be billed to Client.  In these cases Client must pre-approve in writing any 3rd party services or material expenses not included in Exhibit A.

6.   Restrictive Covenant Agreement

The Restrictive Covenant Agreement between Client and Consultant dated January 21, 2011 shall remain in full force and effect to the extent provided in that agreement, and the length of any restrictions set forth in the Restrictive Covenant Agreement shall not be extended in any manner as a result of this Agreement.

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7.   Confidentiality Undertaking

The Consultant agrees to execute the Confidentiality Agreement attached hereto as Exhibit B, which is incorporated herein by reference.

8.   Intellectual Property Ownership

(a)Assignment.  Client will own, and Consultant hereby assigns to Client and agrees to assign to Client, all rights in all Business Ideas (defined below) which Consultant originates or develops either alone or working with others in the course of Client’s provision of services to Client under this Agreement.  All Business Ideas which are or form the basis for copyrightable works are hereby assigned to Client and/or shall be assigned to Client or shall be considered “works for hire” as that term is defined by United States copyright law.  This Paragraph 8 does not apply to any Business Ideas created by Consultant prior to the effective date of the Agreement.  This assignment provision pertains to the specific projects and tasks which the Consultant is contracted to work on under this Agreement.  Any intellectual property pertaining to electronic design which is intentionally or accidentally disclosed to Consultant by ZBB, its employees, affiliates, or board members and which is not related to projects or tasks covered by this Agreement will not be considered confidential and will not limit or restrict the Consultant’s present or future activities; provided, however, any such intentional or accidental disclosure of intellectual property pertaining to electronic design must be noted in writing by the Consultant and provided to the Company within ten (10) business days of such disclosure.

(b)Disclosure.  While engaged by Client, Consultant will promptly disclose all Business Ideas to Client.

(c)Execution of Documentation.  Consultant, at any time during or after the term of Consultant’s engagement by Client, will promptly execute all documents which Client may reasonably require to perfect its patent, copyright and other rights to such Business Ideas throughout the world.

(d)Definition.  As used herein, the term “Business Ideas” means all ideas, designs, modifications, formulations, specifications, concepts, know-how, trade secrets, discoveries, inventions, data, software, developments and copyrightable works, whether or not patentable or registrable, which Consultant originates or develops, either alone or jointly with others, in the course of Client’s provision of services to Client under this Agreement and which are (i) related to any business known to Consultant to be engaged in or contemplated by Client; (ii) originated or developed during Consultant’s working hours for Client; or (iii) originated or developed in whole or in part using materials, labor, facilities or equipment furnished by Client.

(e)License.  To the extent Consultant wishes to use certain intellectual property of Client, Client may, at its discretion, negotiate a license and/or terms of such use in a separate agreement.

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9.   Term of Agreement

This Agreement will become effective when signed by both parties and will continue until terminated as provided below.

10.   Termination

(a)Written Notice.  Except as otherwise provided herein, this Agreement may be terminated upon thirty (30) days’ prior written notice by either party to the other party of its intention to terminate this Agreement.  This Agreement may be terminated under this provision by either Consultant or the Client for any or no reason.

(b)Automatic Termination.  This Agreement and all rights granted to the parties hereunder shall be automatically and immediately terminated if either party is dissolved, deemed insolvent, or files for bankruptcy.

(c)Immediate Termination.  This Agreement and all rights granted to the parties hereunder shall be immediately terminated if Consultant or any of Consultant’s employees, agents or representatives shall, as determined solely by the Client:

(i)Commit an act of dishonesty or other misconduct involving the Client or any client, vendor or customer of the Client;

(ii)Commit any crime, the circumstances of which substantially relate to the performance of Consultant’s duties under this Agreement; or

(iii)Breach any of the provisions of this Agreement, which breach remains uncured for ten (10) calendar days after receiving written notice of said breach.

(d)Rights After Termination.  Consultant shall be entitled to full payment for services performed prior to the effective date of any termination.

11.   Independent Contractor Status

(a)Nature of Relationship.  It is expressly acknowledged by Consultant and Client that Consultant is an independent contractor.  Nothing contained herein or otherwise shall be construed in such manner as to create the relationship of employer/employee between Client and Consultant or any of Consultant’s employees, agents, representatives or subcontractors.  In acknowledging that it is an independent contractor, Consultant agrees that neither Consultant nor its employees, agents, representatives or subcontractors shall be entitled to participate in any insurance or other fringe benefits provided by Client to its employees and that Client shall not be required hereunder to withhold, nor shall Client withhold, any income, social security, unemployment or other tax or similar payments from the amounts payable to Consultant hereunder, it being agreed by Consultant that Consultant is liable for any applicable taxes, penalties or interest on the amounts earned by Consultant under this Agreement.

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(b)Other Work.  Client acknowledges that Consultant’s duties under this Agreement do not constitute the only requirement upon the time of Consultant and that Consultant will be free to exercise its discretion as to the method and means of performance of the services required under this Agreement.

(c)No Agency Created.  Because it is mutually understood and agreed that neither Consultant nor any of its employees, agents, representatives or subcontractors are employees, agents, representatives or subcontractors of Client, Consultant and Client agree that neither party shall, in general, have any authority to bind the other in any respect.

(d)Consultant’s Use of its Employees and Subcontractors.  Although free to direct their work and assign as Consultant sees fit, Consultant agrees that, if Consultant assigns its own employees, agents, representatives or subcontractors to perform work required under this Agreement, Consultant will secure, in writing and without additional consideration by Client, an agreement for the benefit of Client by any such of Consultant’s employees, agents, representatives or subcontractors:

(i)to be bound by the terms of the Confidentiality Agreement attached as Exhibit B with regard to any non-public and/or proprietary information or property

 to which such individuals have access; and

(ii)to be bound by the terms of Paragraph 8, above.

12.   Local, State and Federal Taxes

Client shall issue a Form 1099 to Consultant in accordance with applicable law.

Consultant shall pay all income taxes and FICA (Social Security and Medicare taxes) incurred while performing services under this Agreement. Client will not:

· withhold FICA from Consultant's payments or make FICA payments on Consultant's behalf;

· make state or federal unemployment compensation contributions on Consultant's behalf; or

· withhold state or federal income tax from Consultant's payments.

13.   Modifying the Agreement

Client and Consultant recognize that:

· Consultant's original cost and time estimates may be too low due to unforeseen events, or to factors unknown to Consultant when this Agreement was made;

· Client may desire a mid-project change in Consultant's services that would add time and cost to the project and possibly inconvenience Consultant; or

· Other provisions of this Agreement may be difficult to carry out due to unforeseen circumstances.

If any intended changes or any other events beyond the parties' control require adjustments to this Agreement, the parties shall make a good faith effort to agree on all necessary particulars. Such agreements shall be put in writing, signed by the parties and added to this Agreement as an amendment.

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14.   Resolving Disputes

The Parties to this Agreement agree that any dispute arising between Client and Consultant related to this Agreement shall be submitted to arbitration with the American Arbitration Association ("AAA") and the exclusive hearing forum shall be in New York City.  Both Client and Consultant agree that arbitration shall be a condition precedent to the filing of a lawsuit concerning any disputes concerning this agreement.  Any court having jurisdiction over the matter shall enter judgment pursuant to the award rendered by the arbitrators.  If any court action is necessary to enforce this Agreement, the prevailing party shall be entitled to reasonable attorney fees, costs and expenses in addition to any other relief to which he or she may be entitled.

15.   Insurance

(a)Maintenance of Insurance.  Consultant agrees to maintain in full force and effect at all times, during the term of this Agreement, such insurance as will fully protect Client and Consultant from any and all claims under any applicable worker’s compensation act or other employer liability laws, and for any other claims of whatever kind or nature for damage to property or for personal injury (including death) made by any person or entity that arise from the services performed under this Agreement.  This obligation includes, but is not limited to, the following forms of insurance:  (i) worker’s compensation insurance as required by the laws of the jurisdiction where the work is to be performed; (ii) unemployment insurance as required by the laws of the jurisdiction where the work is to be performed; (iii) insurance against general liability and/or professional and fidelity insurance; and (iv) such other insurance that Client may expressly require.

(b)Certificates of Insurance.  Consultant agrees to deliver to Client, simultaneous with the execution hereof or upon Client’s request thereafter, a certificate or certificates of insurance setting forth the terms and conditions of the coverage required under Paragraph 15(a), above.  Where allowed by applicable law, Consultant may provide Client a written notice of waiver of any such insurance.

16.   Notices

All notices and other communications in connection with this Agreement shall be in writing and shall be considered given as follows:

· when delivered to the recipient's address by registered mail as stated on this Agreement;

· when delivered via e-mail to the Client’s or Consultant’s designated e-mail address, or to an officer of the Client, provided the recipient sends a return acknowledgement;

· when sent by fax to the last fax number of the recipient known to the person giving notice.  Notice is effective upon receipt provided that a duplicate copy of the notice is promptly given by registered mail, or the recipient delivers a written confirmation of receipt.

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17.   Applicable Law

This Agreement will be governed by the laws of the State of Wisconsin.

18.   Assignment and Delegation

Consultant may not assign or delegate any of Consultant’s rights or obligations under this Agreement.  Client shall have the unrestricted right to assign this Agreement and all of Client’s rights and obligations under this Agreement, and following such assignment, this Agreement shall be binding upon and inure to the benefit of any successor or assign of Client.  For clarification purposes, upon assignment of this Agreement, all references to Client shall also refer to the entity to which this Agreement is assigned.

19.   Entire Agreement.

This Agreement and the attached Exhibits, which are incorporated by reference, constitute the entire agreement between Consultant and Client, and it supersedes all prior written and oral agreements between the parties.  This Agreement may be modified only by an amendment made in writing and signed by both Consultant and Client.

20.   Damages.

Neither party to this Agreement shall be liable for the other’s lost profits, or special, incidental or consequential damages, whether in an action in contract or tort, even if the party has been advised by the other party of the possibility of such damages.

In Witness Whereof, the parties have entered into this Agreement as of the date first set forth above.

Consultant:  Jeffrey Reichard	Client:  ZBB Energy Corporation
By:  Jeffrey Reichard _________________________________ Signature _________________________________ Title	By:  Charles Stankiewicz _______________________________ Signature _______________________________ Title:

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EXHIBIT A

Scope of Work:

Consultant shall assist Client with various tasks related to the following:

1.   As Chief Technology Officer you will continue to assist the company with the development and application of new technologies related to power electronics

2.   In addition you will work to complete current power electronic design and prototypes.

Board Service:

Consultant shall retain his position as a member of the Board of Directors of Client.  Consultant shall resign his position as a member of the Board of Directors of Client upon the earlier to occur of: (1) the request of Client’s Board of Directors to resign as a member of Client’s Board of Directors; or (2) the termination, for whatever reason, of this Agreement.  Such resignation shall be effective as of the date of such earlier occurrence, pursuant to the signed resignation attached hereto as Exhibit C.

During such time that Consultant remains a member of the Board of Directors of Client, Client shall, at its expense, continue to provide Consultant with Directors & Officers Insurance and other comparable insurance that it provides to other Board Members.

Compensation Schedule:

1.   The base rate is USD $140.00 per hour worked by Consultant.  Under no circumstances shall Consultant work more than 160 hours per month, unless written approval is granted in advance by the Client.

2.   To the extent Consultant is required to make any necessary visits to the ZBB facility, Client shall make every effort to provide consultant with at least thirty-six (36) business hours’ advance notice.  On any day on which Consultant is required to perform services at the ZBB facility, the Consultant will be guaranteed at least four (4) hours of work.

3.   Telephone expenses related to Consultant’s performance of this Agreement above Consultant’s current monthly telephone expense baseline of $120/monthly will be billed to Client.

Continued Vesting of Equity Awards:

Client acknowledges and agrees that so long as Consultant shall continue to provide services under this Agreement, Consultant shall be deemed to be a “Service Provider” as such term is defined in the ZBB Energy Corporation 2010 Long-Term Incentive Plan as a result of which during such period all equity awards granted to Consultant shall continue to vest and be exercisable in accordance with the terms of such stock options.

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Stock Option:

Upon execution of this Agreement Consultant shall receive 50,000 stock options, pursuant to the stock option award agreement in the form hereto as Exhibit D.

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EX-10.3

Exhibit 10.3

ZBB ENERGY CORPORATION

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (“Agreement”) is entered into on _________ ___, 2014, by and between Dilek Wagner (“you”) and ZBB Energy Corporation (“ZBB” or the “Company”).

RECITALS

WHEREAS, you are currently working in a consulting capacity for the Company, pursuant to the Agreement for Professional Services between you and the Company dated November 23, 2013 (the “Consulting Agreement”);

WHEREAS, the Company now desires to employ you in the position of Vice President of Finance; and

WHEREAS, you and the Company now desire to set forth the terms and conditions of your agreements and understandings in this Agreement, which shall replace and supersede all terms and conditions contained within the Consulting Agreement effective as of the date first written above.

NOW, THEREFORE, in consideration of the foregoing premises and the respective agreements of you and the Company set forth below, you and the Company, intending to be legally bound, agree as follows:

1.Position.

(a)You will serve as the Company’s Vice President of Finance, reporting to the Company’s President and Chief Executive Officer (“CEO”).  It is the Company’s intent to provide a path to the CFO position.  The path will be defined within 60 days of the start date. Your services shall be performed primarily in Menomonee Falls, Wisconsin.  You acknowledge and agree, however, that you may be required to travel in connection with the performance of your job duties.

(b)Nothing in this Agreement will be construed as conferring upon you any right to remain employed by the Company or any of its subsidiaries or affiliates, or affect the right of the Company or any of its affiliates to terminate your employment at any time, for any reason or no reason, subject to the obligations contained in this Agreement.

2.Salary.

(a)You will be entitled to an annual salary of $160,000, payable in accordance with ZBB’s normal salaried payroll practices.  The CEO will review, at least annually, your overall compensation with a view to increasing it if, in the sole judgment of the CEO, the performance of ZBB or your services merit such an increase.

1

(b)ZBB shall be entitled to withhold from amounts to be paid to you hereunder any federal, state or local withholding or other taxes or charges which it is required to withhold under applicable law.

3.Term.  This agreement shall remain in effect until terminated, by either party, at any time and for any reason, upon the provision of written notice to the other party, subject to the terms and conditions set forth in Section 8, below.

4.Options.  Effective as of the date of your full-time appointment, you will receive option awards. You will be granted an option to purchase 40,000 shares with an exercise price equal to the closing price of ZBB’s common stock on the NYSE Amex on the date of your full-time appointment as per the terms outlined in the 2010 Omnibus Long-Term Incentive Plan.

5.Incentive Compensation.  You shall be eligible to participate in various performance-based stock option and cash bonus plans offered by the Company, the terms of conditions of which shall be solely determined by the Company and approved by the Company’s compensation committee.

6.Commuting and Other Expenses.

(a)Expenses for other Company travel will be reimbursed in accordance with ZBB’s Employee Travel and Expense Policy.

7.Benefits.

(a)During the term of your employment by ZBB, ZBB will provide you with, and you will be eligible for, all benefits of employment generally made available to the senior executives of ZBB (collectively, the “Benefit Plans”), subject to and on a basis consistent with the terms, conditions and overall administration of such Benefit Plans.  You will be considered for participation in Benefit Plans which by the terms thereof are discretionary in nature (such as stock option plans) on the same basis as other executive personnel of ZBB of similar rank.  Notwithstanding the foregoing, you may elect either to participate in ZBB’s health Benefit Plan or obtain other health insurance.

(b)The Company will offer you four (4) weeks of personal time off per calendar year, in accordance with Company policy in effect from time to time.

8.Benefits Upon Termination.

(a)You will be entitled to a severance payment in an amount equal to four (4) monthsof your annual base salary as then in effect (“Severance Payments”) in the event (i) ZBB terminates your employment for any reason other than “Cause” or “Disability,” or (ii) you terminate your employment with ZBB for “Good Reason.”  You acknowledge and agree that the payment of the Severance Payments is contingent upon you executing a general release of claims for the benefit of ZBB (in a form satisfactory to ZBB), which must be executed by you (and any applicable revocation period must expire) in accordance with the terms of the general release of claims but in no event later than sixty (60) calendar days following the effective date of your termination.  The Severance Payments shall be payable in accordance with ZBB’s normal salaried payroll practices then in effect, and the first payment (which shall include any accrued payments that would have otherwise been made beginning on the date of your termination of employment) shall be made to you on the first normal payroll date that occurs at least five (5) business days after the expiration of the applicable revocation period for the general release of claims.

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You will also be entitled to all accrued and unpaid benefits under any Benefit Plans in which you participate through the date of termination.

(b)In the event your employment with ZBB is terminated due to “Disability,” you will be entitled to severance in an amount equal to three (3) months of your base salary as then in effect (“Disability Severance”), paid in accordance with ZBB’s normal salaried payroll practices, provided that you execute a general release of claims for the benefit of ZBB (in a form satisfactory to ZBB), which must be executed by you (and any applicable revocation period must expire) in accordance with the terms of the general release of claims but in no event later than sixty (60) calendar days following the effective date of your termination.  Your first Disability Severance payment (which shall include any accrued payments that would have otherwise been made beginning on the date of your termination of employment) shall be made to you on the first normal payroll date that occurs at least five (5) business days after the expiration of the applicable revocation period for the general release of claims.

You will also be entitled to all accrued and unpaid benefits under any Benefit Plans in which you participate through the date of termination.

(c)If (i) you terminate your employment with ZBB for “Good Reason” or if the Company terminates your employment without “Cause”; (ii) you are a participant in ZBB’s health Benefit Plan on the date your employment terminates; and (iii) if you elect to continue your health insurance coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”) following such termination, then ZBB shall pay your monthly premium under COBRA until the earlier of:  (A) the last day of the six (6) month period following such termination or (B) the date on which you are offered or obtain health insurance coverage in connection with new employment or self-employment.

(d)If you terminate your employment with ZBB other than for “Good Reason” or ZBB terminates your employment for “Cause,” you will be entitled to the payment of any accrued but unpaid base salary through the date of termination, plus all accrued and unpaid benefits under any Benefit Plans in which you participate through the date of termination.  In either case, you will not be entitled to any Severance Payments, Disability Severance or payment of COBRA premiums.

(e)As a condition of your employment, you will be required to execute the Restrictive Covenant Agreement which is attached to this Agreement as Attachment A and incorporated herein.

(f)For purposes of this Agreement, “Cause” shall mean, as determined by the Company, termination of your employment with ZBB due to (i) any failure by you to substantially perform your duties with ZBB (other than by reason of illness) which occurs after ZBB has delivered to you a demand for performance which specifically identifies the manner in which ZBB believes you have failed to perform your duties, and you fail to resume performance of your duties on a continuous basis within fourteen (14) days after receiving such demand; (ii) your commission of a material violation of any law or regulation applicable to ZBB or any of its subsidiaries or your activities in respect of ZBB or any of its subsidiaries; (iii) your commission of any material act of dishonesty or disloyalty involving ZBB or any of its subsidiaries; (iv) any violation by you of a ZBB policy of material import; (v) any act by you of moral turpitude which is likely to result in discredit to or loss of business, reputation or goodwill of ZBB; (vi) your chronic absence from work other than by reason of a serious health condition; (vii) your commission of a crime which substantially relates to the circumstances of your position with ZBB or any of its subsidiaries or which has material adverse effect on ZBB or any of its subsidiaries; or (viii) the willful engaging by you in conduct which is demonstrably and materially injurious to ZBB or any of its subsidiaries.

3

(g)For purposes of this Agreement, “Disability” shall mean (i) you are unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months or (ii) you have been, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than three (3) months under any accident, disability or health plan.

(h)For purposes of this Agreement, “Good Reason” shall mean your termination of your employment with ZBB within thirty (30) days after any of the following:  (i) a change in your position with ZBB which materially reduces your level of responsibility or a material reduction in your base salary (except to the extent the base salary of substantially all of the executive officers of ZBB is reduced proportionately); (ii) a notification by ZBB to you that your principal place of employment will be relocated to an office or location that is more than 50 miles from the office or location at which you were principally employed as of the date of this Agreement and that is no closer to your principal residence; or (iii) ]a material breach by ZBB of any term of this Agreement following written notice thereof and the failure of ZBB to cure such breach within ten (10) days of such written notice.  Notwithstanding the above to the contrary, Good Reason does not exist unless (A) you object to any change, reduction, notification, or breach described above by written notice to ZBB within ten (10) business days after such change, reduction, notification, or breach occurs and (B) ZBB fails to cure such change, reduction or breach within ten (10) business days after such notice is given.

(i)Any Severance Payments payable to you under this Agreement are intended to be exempt from Section 409A of the Code under the separation pay exemption pursuant to Treasury Regulation §1.409A-1(b)(9)(iii) and for such purpose, each Severance Payment to you under this under this Agreement shall be considered a separate payment.

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9.Timing; Miscellaneous Provisions.

(a)This Agreement and all your rights and obligations hereunder are personal to you and may not be transferred or assigned by you at any time.  ZBB can assign its rights under this Agreement to any entity that assumes ZBB’s obligations hereunder and this Agreement shall be binding upon any successor (whether direct or indirect and whether by purchase, lease, merger, consolidation, liquidation, or otherwise) to all or substantially all of ZBB’s business and/or assets.  For all purposes of this Agreement, the term “ZBB” shall include any successor to ZBB’s business and/or assets which becomes bound by this Agreement.

(b)This Agreement and all of your rights hereunder shall inure to the benefit of, and be enforceable by, your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees, and legatees.

(c)Notices and all other communications contemplated by this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by overnight courier or U.S. registered or certified mail, return receipt requested and postage prepaid.  In the case of notices to you, notices shall be addressed to you at the home address which you most recently communicated to ZBB in writing.  In the case of notices to ZBB, notices shall be addressed to its corporate headquarters, and all notices shall be directed to the attention of its Secretary.

(d)No provision of this Agreement shall be modified, waived or discharged unless the modification, waiver or discharge is agreed to in writing and signed by you and by an authorized officer of ZBB (other than you).  No waiver by either party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time.

(e)This Agreement and the other agreements, representations and understandings expressly set forth or referenced herein contain the entire understanding of the parties with respect to the subject matter hereof.  With the exception of the terms and conditions of the Consulting Agreement, which shall be superseded and replaced by this Agreement, all other agreements between you and the Company shall remain in full force and effect.

(f)Any termination of this Agreement shall not release either ZBB or you from our respective obligations to the date of termination nor from the provisions of this Agreement which, by necessary or reasonable implication, are intended to apply after termination of this Agreement.

(g)The validity, interpretation, construction, and performance of this Agreement shall be governed by the laws of the State of Wisconsin (other than provisions governing the choice of law).

(h)The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision hereof, which shall remain in full force and effect.

5

(i)You acknowledge and agree that this Agreement is contingent upon your submission to and successful completion of a screening process which may include a background check, drug testing, and employment eligibility verification.  In the event that you do not successfully complete the screening process to the Company’s satisfaction, you acknowledge and agree that this Agreement shall be null and void, and that the Company shall have no further obligations under this Agreement.

IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed, on one or more counterparts hereof, all of which counterparts shall be deemed as but one and the same document, as of the date first written above.

    __________________________________________________ Dilek Wagner ZBB ENERGY CORPORATION   By:    ___________________________________ Eric Apfelbach President & Chief Executive Officer

Attachment – Restrictive Covenant Agreement

6

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.

May 15, 2014                                                                           /s/ Eric C. Apfelbach                                                      

  Eric C. Apfelbach

  (Principal Executive Officer)

EX-31.2

CERTIFICATION  Exhibit 31.2

I, Dilek Wagner, Vice President of Finance 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.

May 15, 2014                                                                             /s/ Dilek Wagner                                                      

Dilek Wagner

(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 March 31, 2014 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.

May 15, 2014                                                                           /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 March 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Dilek Wagner, Vice President of Finance 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 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.

May 15, 2014                                                                             /s/ Dilek Wagner                                                                

Dilek Wagner

(Principal Financial Officer)

XML

2. CHINA JOINT VENTURE (Details Narrative) (USD $)	3 Months Ended		9 Months Ended
	Mar. 31, 2014	Mar. 31, 2013	Mar. 31, 2014	Mar. 31, 2013
China Joint Venture Details Narrative
Net loss	$ 255,994	$ 547,028	$ 1,403,610	$ 2,057,611
Product sales	$ 293,296	$ 91,632	$ 833,757	$ 924,347

XML

11. EQUITY (Details Narrative) (USD $)	9 Months Ended
	Mar. 31, 2014
Liquidation preference of the outstanding preferred stock	$ 5,641,510
Preferred stock convertible into common stock shares	3,041,282
Preferred stock convertible into common stock conversion price	$ 0.95
Common stock issued under facility	2,903,190
Common stock issued under facility remained available	$ 7,096,190
Shares issued pursuant to Aspire Purchase	2,186,053
Additional shares under Aspire Purchase Agreement	918,288
Covertible Preferred Stock [Member]
Preferred stock converted into common stock shares	250
Common stock shares issued upon conversion	276,482

XML

9. EMPLOYEE/DIRECTOR EQUITY INCENTIVE PLANS (Details) (Employee and Director Plans, USD $)	9 Months Ended	12 Months Ended
	Mar. 31, 2014	Jun. 30, 2013
Employee and Director Plans
Outstanding Number of Options, Beginning balance	785,284	847,813
Options granted	299,700	142,710
Options forfeited	(11,867)	(205,239)
Outstanding Number of Options, Ending balance	1,073,117	785,284
Outstanding Weighted Average Exercise Price, Beginning balance	$ 5.75	$ 6.25
Options granted	$ 0.80	$ 1.88
Options forfeited	$ 2.61	$ 5.05
Outstanding Number of Options Weighted Average Exercise Price, Ending balance	$ 4.61	$ 5.75
Average Remaining Contractual Life of Outstanding Options	5 years 4 months 28 days	5 years 4 months 2 days

XML

12. COMMITMENTS (Details) (USD $)	Mar. 31, 2014
Commitments Details
2014 (three months)	$ 23,217
2015	92,867
2016	30,956
Operating lease commitment	$ 147,039

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8. BANK LOANS AND NOTES PAYABLE (Details) (USD $)	Mar. 31, 2014	Jun. 30, 2013
Bank Loans And Notes Payable Details
Bank loan payable of principal and interest at a rate equal to prime plus 1.50%, as defined, subject to a floor of 4.75% with principal due at maturity on January 1, 2014; collateralized by accounts receivable and inventory related to a specific customer contract		$ 213,750
Note payable to the seller of Tier Electronics of $495,000 payable on January 21, 2014. Interest accrued at a rate of 8% and was payable monthly. The promissory note was collateralized by the Company’s membership interest in its wholly-owned subsidiary Tier Electronics, LLC; paid in full during fiscal 2014. See note (a) below.		495,000
Note payable to Wisconsin Department of Commerce payable in monthly installments of $23,685, including interest at 2%, with the final payment due May 1, 2018; 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. See note (b) below.	1,135,235	1,136,195
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% with any principal due at maturity on June 1, 2018; collateralized by the building and land	637,161	673,339
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	710,014	734,228
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%; paid in full during fiscal 2014		29,076
Total	$ 2,482,410	$ 3,281,588

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14. INCOME TAXES (Tables)

9 Months Ended

Mar. 31, 2014

Income Taxes Tables

Provision (benefit) for income taxes

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

	Nine months ended March 31,
	2014			2013
Current	$	(86,848	)	$	(110,866	)
Deferred		-			-
Provision (benefit) for income taxes	$	(86,848	)	$	(110,866	)

Effective income tax rate reconciliation

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

	Nine months ended March 31,
	2014			2013
Income tax expense/(benefit) computed at the U.S. federal statutory rate		-34	%		-34	%
Foreign tax expense/(benefit)		-2	%		-1	%
Change in valuation allowance		34	%		34	%
Total		-2	%		-1	%

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

Significant components of the Company’s net deferred income tax assets as of March 31, 2014 and June 30, 2013 were as follows:

	March 31, 2014			June 30, 2013
Federal net operating loss carryforwards	$	20,924,016		$	19,777,894
Federal - other		2,455,559			2,273,021
Wisconsin net operating loss carryforwards		2,485,514			2,482,692
Australia net operating loss carryforwards		1,430,293			1,398,139
Deferred income tax asset valuation allowance		(27,295,382	)		(25,931,746	)
Total deferred income tax assets	$	-		$	-

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

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

	March 31, 2014		June 30, 2013
Beginning balance	$	193,097	$	208,593
Effect of foreign currency translation	$	-	$	(15,496	)
Ending balance	$	193,097	$	193,097

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13. RETIREMENT PLANS (Details Narrative) (USD $)	3 Months Ended		9 Months Ended
	Mar. 31, 2014	Mar. 31, 2013	Mar. 31, 2014	Mar. 31, 2013
Retirement Plans Details Narrative
Retirement plan expense	$ 29,484	$ 33,307	$ 97,629	$ 98,457

XML

2. CHINA JOINT VENTURE (Tables)

9 Months Ended

Mar. 31, 2014

China Joint Venture Tables

Operating results for AHMN

The operating results for AHMN for the three and nine months ended March 31, 2014 and 2013 are summarized as follows:

	Three months ended March 31,						Nine months ended March 31,
	2014			2013			2014			2013
Revenues	$	141,162		$	-		$	237,345		$	-
Gross Profit (loss)		(184,029	)		-			(236,776	)		-
Income (loss) from operations		(636,420	)		(539,212	)		(1,851,480	)		(2,049,880	)
Net Income (loss)		(255,994	)		(547,028	)		(1,403,610	)		(2,057,611	)

XML

9. EMPLOYEE/DIRECTOR EQUITY INCENTIVE PLANS (Details 2) (USD $)	9 Months Ended	12 Months Ended
	Mar. 31, 2014	Jun. 30, 2013
Number of Options
Beginning Balance, Number of Options	262,668	449,499
Granted	299,700	142,710
Vested	(117,887)	(158,390)
Forfeited	(3,398)	(171,152)
Ending Balance, number of options	441,083	262,668
Weighted - Average Grant Date Fair Value Per Share
Beginning Balance, grant date fair value	$ 3.44	$ 4.70
Granted	$ 0.80	$ 1.88
Vested	$ 3.57	$ 4.75
Forfeited	$ 2.04	$ 4.21
Ending Balance, grant date fair value	$ 1.62	$ 3.44
Average Remaining Contractual Life	7 years 29 days

XML

5. PROPERTY, PLANT & EQUIPMENT (Details) (USD $)	Mar. 31, 2014	Jun. 30, 2013
Property Plant Equipment Details
Land	$ 217,000	$ 217,000
Building and improvements	3,520,872	3,520,872
Manufacturing equipment	3,697,468	3,819,533
Office equipment	399,417	403,541
Assets held for lease		355,986
Construction in process		24,300
Total, at cost	7,834,757	8,341,232
Less, accumulated depreciation	(3,308,027)	(3,161,525)
Property, Plant & Equipment, Net	$ 4,526,730	$ 5,179,707

XML

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) (USD $)	3 Months Ended		9 Months Ended
	Mar. 31, 2014 Customer	Mar. 31, 2013 Customer	Mar. 31, 2014 Customer	Mar. 31, 2013 Customer	Jun. 30, 2013
Restricted cash on deposit	$ 69,713		$ 69,713		$ 60,000
Revenue recognized during period	4,572,318	2,119,191	6,602,896	6,690,519
Revenue from significant customers	83.00%	72.00%	84.00%	77.00%
Number of significant customers	1	1	2	6
Revenue recognized under joint development agreement	0	100,000	200,000	300,000
Revenue Recognized Under Research and Development Agreement	750,000	0	750,000	0
Engineering and development costs related to collaboration agreements	65,560	62,118	109,196	107,183
Customer payments received for engineering and development contracts	0		0		45,300
Potential dilutive shares			9,474,075	3,308,576
Lotte agreements [Member]
Revenue recognized during period			$ 3,750,000

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9. EMPLOYEE/DIRECTOR EQUITY INCENTIVE PLANS (Details Narrative) (USD $)	9 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Stock-based compensation recognized amount	$ 979,005	$ 570,604
Restricted stock units outstanding	2,146,813
Options to purchase shares granted to employee	299,700	142,610
Options to purchase shares granted to employee exercisable price	$0.76 to $1.90	$1.75 to $1.90
Options to purchase shares granted to employee vesting terms	From July 2013 through March 2017	From July 2012 through March 2015
Fair value of options granted	207,789	167,167
Unrecognized compensation cost related to unvested stock options	198,391
Unrecognized compensation cost recognition period	3 years
Restricted stock units vested	452,850
Directors' fees expense settled with RSU	245,502
Selling, general and administrative expense related to RSU	406,000
Unvested RSUs outstanding	1,067,846
Unvested RSUs outstanding vesting period	Through January 15, 2016
Unrecognized compensation cost related to unvested RSUs	$ 1,360,663
Omnibus Plan [Member]
Shares available for future grant	401,260
2012 Director Equity Plan [Member]
Shares available for future grant	19,304

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14. INCOME TAXES (Details 3) (USD $)	9 Months Ended	12 Months Ended
	Mar. 31, 2014	Jun. 30, 2013
Income Taxes Details 3
Beginning balance	$ 193,097	$ 208,593
Effect of foreign currency translation		(15,496)
Ending balance	$ 193,097	$ 193,097

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8. BANK LOANS AND NOTES PAYABLE (Details 1) (USD $)	Mar. 31, 2014	Jun. 30, 2013
Bank Loans And Notes Payable Details 1
2014 (three months)	$ 86,227
2015	351,146
2016	361,065
2017	371,407
2018	358,389
2019 and thereafter	954,176
Total	$ 2,482,410	$ 3,281,588

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2. CHINA JOINT VENTURE

9 Months Ended

Mar. 31, 2014

Notes to Financial Statements

CHINA JOINT VENTURE

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 ZBB PowerSav Holdings Limited (“Holdco”), 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 New Energy Holdings Limited (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.  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 nine months ended March 31, 2014, AHMN had a net loss of $255,994 and $1,403,610, respectively.  For the three and nine months ended March 31, 2013, AHMN had a net loss of $547,028 and $2,057,611, respectively.

The Company’s basis in the technology contributed to Holdco is $0 due to US 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 Hong Kong Holdco and Hong Kong 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 expenses incurred in providing such services.

The Company had product sales of $293,296 and $833,757 to AHMN during the three and nine months ended March 31, 2014, respectively.  The Company had product sales of $91,632 and $924,347 to AHMN during the three and nine months ended March 31, 2013, respectively.

The operating results for AHMN for the three and nine months ended March 31, 2014 and 2013 are summarized as follows:

	Three months ended March 31,						Nine months ended March 31,
	2014			2013			2014			2013
Revenues	$	141,162		$	-		$	237,345		$	-
Gross Profit (loss)		(184,029	)		-			(236,776	)		-
Income (loss) from operations		(636,420	)		(539,212	)		(1,851,480	)		(2,049,880	)
Net Income (loss)		(255,994	)		(547,028	)		(1,403,610	)		(2,057,611	)

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14. INCOME TAXES (Details Narrative) (USD $)	9 Months Ended
	Mar. 31, 2014
Operating loss carryforwards	$ 61,500,000
U.S. federal net operating loss carryforwards expiration dates	expire at various dates between June 30, 2016 and 2033
Other federal deferred tax asset	2,400,000
Federal research and development tax credit carryforwards	222,944
Federal research and development tax credit carryforwards expiration dates	expire at various dates through June 30, 2033
Wisconsin [Member]
Operating loss carryforwards	52,000,000
U.S. federal net operating loss carryforwards expiration dates	expire at various dates between June 30, 2014 and 2028
Australia [Member]
Operating loss carryforwards	$ 5,000,000

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6. INTANGIBLE ASSETS (Details) (USD $)	Mar. 31, 2014	Jun. 30, 2013
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	(2,198,097)	(1,787,024)
Intangible Assets, Net		$ 411,073

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8. BANK LOANS AND NOTES PAYABLE (Tables)

9 Months Ended

Mar. 31, 2014

Bank Loans And Notes Payable Tables

Bank loans and notes payable

		March 31, 2014		June 30, 2013
Bank loan payable of principal and interest at a rate equal to prime plus 1.50%, as defined, subject to a floor of 4.75% with principal due at maturity on January 1, 2014; collateralized by accounts receivable and inventory related to a specific customer contract.	$	-	$	213,750
Note payable to the seller of Tier Electronics of $495,000 payable on January 21, 2014.  Interest accrued at a rate of 8% and was  payable monthly. The promissory note  was collateralized by the Company’s membership interest in its wholly-owned subsidiary Tier Electronics, LLC; paid in full during fiscal 2014.  See note (a) below.		-		495,000
Note payable to Wisconsin Department of Commerce payable in monthly installments of $23,685, including interest at 2%, with the  final payment due May 1, 2018; 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.  See note (b) below.		1,135,235		1,136,195
Bank loan payable in fixed monthly payments of $6,800 of principal and interest  at a rate of 0.25% below prime, as defined, subject to a  floor of 5% with any principal due at maturity on June 1, 2018; collateralized by the building and land.		637,161		673,339
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.		710,014		734,228
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%; paid in full during fiscal 2014.		-		29,076
	$	2,482,410	$	3,281,588

Maximum aggregate annual principal payments for fiscal periods

Maximum aggregate annual principal payments for fiscal periods subsequent to March 31, 2014 are as follows:

2014 (three months)	$	86,227
2015		351,146
2016		361,065
2017		371,407
2018		358,389
2019 and thereafter		954,176
	$	2,482,410

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6. INTANGIBLE ASSETS (Tables)

9 Months Ended

Mar. 31, 2014

Intangible Assets Tables

Intangible assets

Intangible assets are comprised of the following as of March 31, 2014 and June 30, 2013:

	March 31, 2014			June 30,2013
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		(2,198,097	)		(1,787,024	)
Intangible Assets, Net	$	-		$	411,073

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12. COMMITMENTS (Details Narrative) (USD $)	3 Months Ended		9 Months Ended
	Mar. 31, 2014	Mar. 31, 2013	Mar. 31, 2014	Mar. 31, 2013	Dec. 31, 2013
Commitments Details Narrative
Rent expense related to Australian research and development facility	$ 23,340	$ 25,907	$ 69,525	$ 77,632
Rent expense related to Tier Electronics LLC	0	21,000	63,000	63,000
Fee on termination of lease					$ 21,000

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6. INTANGIBLE ASSETS (Details Narrative) (USD $)	Mar. 31, 2014
Intangible Assets Details Narrative
Estimated amortization expense for the fiscal period ending June 30, 2014	$ 411,073

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9. EMPLOYEE/DIRECTOR EQUITY INCENTIVE PLANS (Tables)

9 Months Ended

Mar. 31, 2014

Employeedirector Equity Incentive Plans Tables

Stock option activity under the employee and director plans

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

	Number of Options			Weighted Average Exercise Price		Average Remaining Contractual Life (in years)
Balance at July 1, 2012		847,813		$	6.25
Options granted		142,710			1.88
Options forfeited		(205,239	)		5.05
Balance at June 30, 2013		785,284			5.75		5.34
Options granted		299,700			0.80
Options forfeited		(11,867	)		2.61
Balance at March 31, 2014		1,073,117		$	4.61		5.41

Assumptions were used to estimate the fair value of options

The following assumptions were used to estimate the fair value of options granted during the nine months ended March 31, 2014 and 2013 using the Black-Scholes option-pricing model:

	Nine months ended March 31,
	2014	2013
Expected life of option (years)	4	4
Risk-free interest rate	0.95 - 1.20%	0.46 - 0.61%
Assumed volatility	94 - 155%	96 - 104%
Expected dividend rate	0%	0%
Expected forfeiture rate	4.91 - 5.62%	4.19 - 6.66%

Summary of the status of unvested employee stock options

A summary of the status of unvested employee stock options as of March 31, 2014 and June 30, 2013 and changes during the years ended is presented below:

	Number of  Options			Weighted Average Grant Date Fair Value Per Share		Average Remaining Contractual Life (in years)
Balance at July 1, 2012		449,499		$	4.70
Granted		142,710			1.88
Vested		(158,390	)		4.75
Forfeited		(171,152	)		4.21
Balance at June 30, 2013		262,668			3.44
Granted		299,700			0.80
Vested		(117,887	)		3.57
Forfeited		(3,398	)		2.04
Balance at March 31, 2014		441,083		$	1.62	7.08

Status of restricted stock unit balances

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

	Number of Restricted Stock Units			Weighted Average Valuation Price Per Unit
Balance at July 1, 2012		489,687		$	3.60
RSUs granted		970,000			1.30
RSUs forfeited		(320,000	)		1.30
Shares issued		(8,000	)		1.70
Balance at June 30, 2013		1,131,687			2.30
RSUs granted		1,460,696			0.88
RSUs forfeited		(400,000	)		1.45
Shares issued		(45,570	)		1.31
Balance at March 31, 2014		2,146,813		$	1.50

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10. WARRANTS (Tables)

9 Months Ended

Mar. 31, 2014

Warrants Tables

Warrant balances

The table below summarizes warrant balances:

	Number of Warrants			Weighted Average Exercise Price Per Share
Balance at July 1, 2012		1,400,506			3.15
Warrants granted		21,300			2.95
Warrants expired		-			-
Warrants exercised		-			-
Balance at June 30, 2013		1,421,806		$	3.15
Warrants granted		3,239,474			0.95
Warrants expired		(8,000	)		2.80
Warrants exercised		(1,719,528	)		1.18
Balance at March 31, 2014		2,933,752		$	1.88

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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Mar. 31, 2014

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, licenses, and manufactures distributed energy storage solutions based upon the Company’s proprietary zinc bromide rechargeable electrical energy storage technology and proprietary power electronics systems.  ZBB was incorporated in Wisconsin in 1998 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 has 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, hybrid vehicle control systems, and power quality regulation solutions. Together, these platforms provide a wide range of renewable energy system solutions in global markets for utility, governmental, commercial, industrial and residential customers.

The consolidated financial statements include the accounts of the Company and those of its wholly-owned subsidy 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 a China joint venture.

Interim Financial Data

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“US 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 US 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 nine month period ended March 31, 2014 are not necessarily indicative of the results that might be expected for the year ending June 30, 2014.

The condensed consolidated balance sheet at June 30, 2013 has been derived from audited financial statements at that date, but does not include all of the information and disclosures required by US 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/A for the fiscal year ended June 30, 2013.

Basis of Presentation

The accompanying consolidated financial statements include the accounts of the Company and it’s wholly and majority-owned subsidiaries and have been prepared in accordance with US 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 $69,713 and $60,000 in restricted cash on deposit as of March 31, 2014 and June 30, 2013, respectively, as collateral for certain credit arrangements.

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 include no allowance for doubtful accounts as of March 31, 2014 and June 30, 2013 as management has concluded all outstanding balances are expected to be collected in full.  The composition of accounts receivable is as follows as of March 31, 2014 and June 30, 2013:

	March 31, 2014		June 30, 2013
Current	$	405,334	$	236,296
30-60 days		7,802		50,000
60-90 days		9,990		-
Over 90 days		159,894		160,629
Total	$	583,020	$	446,925

Inventories

Inventories are stated at the lower of cost or market. Cost is computed using standard cost, which approximates actual cost, on a first-in, first-out basis. The Company provides inventory write-downs based on excess and obsolete inventories determined primarily by future demand forecasts. The write-down is measured as the difference between the cost of the inventory and market based upon assumptions about future demand and charged to the provision for inventory, which is a component of cost of sales. At the point of the loss recognition, a new, lower cost basis for that inventory is established, and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis.

Property, Plant and Equipment

Land, building, equipment, computers, 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
Assets held for lease	18 months
Building and improvements	7 - 40 years

The Company completed a review of the estimated useful lives of specific assets during the quarter ended March 31, 2014 and determined that there were no changes in the estimated useful lives of assets.

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 consolidated balance sheets and 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 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 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.  The Company accounted for the acquisition of substantially all of the net assets of Tier Electronics LLC by assigning the purchase price to identifiable tangible and intangible assets and liabilities.  Assets acquired and liabilities assumed were 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.

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 March 31, 2014 and June 30, 2013.

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, 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 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 March 31, 2014 and June 30, 2013 (see Notes 5 and 6).

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 are 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 March 31, 2014 and June 30, 2013, included in the Company’s accrued expenses were $651,136 and $479,873 respectively, related to warranty obligations. Such amounts are included in accrued expenses in the accompanying consolidated balance sheets.

The following is a summary of accrued warranty activity:

	Nine Months Ended  March 31, 2014			Year Ended June 30, 2013
Beginning balance	$	479,873		$	418,557
Accruals for warranties during the period		461,232			404,096
Settlements during the period		(497,000	)		(95,543	)
Adjustments relating to preexisting warranties		207,030			(247,237	)
Ending balance	$	651,136		$	479,873

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.

From time to time, we may enter into separate agreements at or near the same time with the same customer.  We evaluate such agreements to determine whether they should be accounted for individually as distinct arrangements or whether the separate agreements are, in substance, a single multiple element arrangement.  We evaluate whether the negotiations are conducted jointly as part of a single negotiation, whether the deliverables are interrelated or interdependent, whether the fees in one arrangement are tied to performance in another arrangement, and whether elements in one arrangement are essential to another arrangement.  Our evaluation involves significant judgment to determine whether a group of agreements might be so closely related that they are, in effect, part of a single arrangement.

Our collaboration agreements typically involve multiple elements or deliverables, including upfront fees, contract research and development, milestone payments, technology licenses or options to obtain technology licenses, and royalties.  For arrangements containing multiple elements, 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 $4,572,318 and $6,602,896 were recognized for the three and nine months ended March 31, 2014, respectively.  Revenues for the three months ended March 31, 2014 were comprised of one significant customer (83% of total revenues) and revenues for the nine months ended March 31, 2014 were comprised of two significant customers (84% of total revenues).  Total revenues of $2,119,191 and $6,690,519 were recognized for the three and nine months ended March 31, 2013, respectively.  Revenues for the three months ended March 31, 2013 were comprised of one significant customer (72% of total revenues) and revenues for the nine months ended March 31, 2013 were comprised of six significant customers (77% of total revenues).

Engineering, Development, and License Revenues

We assess whether a substantive milestone exists at the inception of our agreements.  In evaluating if a milestone is substantive we consider whether:

• Substantive uncertainty exists as to the achievement of the milestone event at the inception of the arrangement;

• The achievement of the milestone involves substantive effort and can only be achieved based in whole or in part on our performance or the occurrence of a specific outcome resulting from our performance;

• The amount of the milestone payment appears reasonable either in relation to the effort expended or the enhancement of the value of the delivered item(s);

• There is no future performance required to earn the milestone; and

• The consideration is reasonable relative to all deliverables and payment terms in the arrangement

If any of these conditions are not met, we do not consider the milestone to be substantive and we defer recognition of the milestone payment and recognize it as revenue over the estimated period of performance, if any.

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 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 nine months ended March 31, 2014 and $100,000 and $300,000 in the three and nine months ended March 31, 2013.

In April 2011, the Company entered into a Collaboration Agreement (the “Collaboration Agreement”) with Honam Petrochemical Corporation, now known as Lotte Chemical Corporation (“Lotte”), pursuant to which the Company and Lotte collaborated on the technical development of the Company’s third generation Zinc Bromide flow battery module (the “Version 3 Battery Module”) and Lotte received a fully paid-up, exclusive and royalty-free license to sell and manufacture the Version 3 Battery Module in Korea and a non-exclusive royalty-bearing license to sell the Version 3 Battery Module in Japan, Thailand, Taiwan, Malaysia, Vietnam and Singapore.

On December 16, 2013, the Company and Lotte entered into a Research and Development Agreement (the “R&D Agreement”) pursuant to which the Company has agreed to develop and provide to Lotte a Zinc Bromide chemical flow battery system, including a Zinc Bromide chemical flow battery module and related software (the “Product”), on the terms and conditions set forth in the R&D Agreement (the “Project”).    The Project is scheduled to continue until December 16, 2015, unless extended by the mutual agreement of the Company and Lotte.  Subject to the satisfaction of certain specified milestones, Lotte is required to make payments to the Company under the R&D Agreement totaling $3,000,000 over the term of the Project.  ZBB will recognize revenue based upon a Performance Based Method pursuant to the model described in ASC 980-605-25, where revenue is recognized based on the lesser of the amount of nonrefundable cash received or the amounts due based on the proportional amount of the total effort expected to be expended on the contract that has been provided to date as there does not exist substantial doubt that the milestones will be achieved.  The Company recognized $750,000 of revenue under this agreement in the three and nine months ended March 31, 2014 and $0 in the three and nine months ended March 31, 2013.

Additionally, on December 16, 2013, the Company and Lotte entered into an Amended License Agreement (the “Amended License Agreement”).  Pursuant to the Amended License Agreement, the Company granted to Lotte, (1) an exclusive and royalty-free limited license in Korea to use the Company’s Zinc Bromide flow battery module, Zinc Bromide flow battery stack and the technical information and know how related to the intellectual property arising from the Project (collectively, the “Technology”) to manufacture or sell a Zinc Bromide flow battery (the “Lotte Product”) in Korea and (2) a non-exclusive (a) royalty-free limited license for Lotte and its affiliates to use the Technology internally in all locations other than China and Korea to manufacture the Lotte Product and (b) royalty-bearing limited license to sell the Lotte Product in all locations other than China, the United States and Korea.  Lotte is required to pay the Company a total license fee of $3,000,000 under the Amended License Agreement plus up to an additional $1,000,000 if certain specific milestones are successfully achieved.  In addition, Lotte is required to make ongoing royalty payments to the Company equal to a single digit percentage of Lotte’s sales of the Lotte Product outside of Korea until December 31, 2019.  The license fees are subject to a16.5% non-refundable Korea withholding tax.  The Company recognized $3,000,000 of a one-time upfront license fee in revenue under this agreement in the three and nine months ended March 31, 2014 and $0 in the three and nine months ended March 31, 2013.

Included in engineering and development revenues were $750,000 and $950,000 for the three and nine months ended March 31, 2014 and $100,000 and $318,183 for the three and nine months ended March 31, 2013 related to collaborative agreements.  Engineering and development costs related to the collaboration agreements totaled $65,560 and $109,196 for the three and nine months ended March 31, 2014 and $62,118 and $107,183 for the three and nine months ended March 31, 2013, respectively.

As of March 31, 2013 and June 30, 2013, the Company had no unbilled amounts from engineering and development contracts in process. The Company had received $0 and $45,300 in customer payments for engineering and development contracts, representing deposits in advance of performance of the contracted work, as of March 31, 2014 and June 30, 2013, respectively.

There were $3,750,000 in payments received and $3,750,000 of revenue recognized under the Lotte agreements in the nine months ended March 31, 2014.

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, which is 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 amortized over the vesting period of restricted stock unit awards, net of estimated forfeitures.

The Company only recognizes expense to its 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 March 31, 2014 and June 30, 2013.

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, 2013 and the Company’s Wisconsin and Australian income tax returns for the years ended June 30, 2009 through June 30, 2013 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 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 nine months ended March 31, 2014 and 2013 there were 9,474,075 and 3,308,576 shares of common stock underlying convertible preferred stock, 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 March 31, 2014. 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 banking 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 equivalents, accounts receivable, and accounts payable 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 March 31, 2014 and June 30, 2013.

Use of Estimates

The preparation of financial statements in conformity with US 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;  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

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on our financial position or results of operations upon adoption.

In July 2013, the FASB issued ASU 2013-11 – Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists, which requires an unrecognized tax benefit to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, similar tax loss, or a tax credit carryforward. To the extent the tax benefit is not available at the reporting date under the governing tax law or if the entity does not intend to use the deferred tax asset for such purpose, the unrecognized tax benefit should be presented as a liability and not combined with deferred tax assets. ASU 2013-11 is effective for annual periods, and interim periods within those years, beginning after December 15, 2013. The amendments are to be applied to all unrecognized tax benefits that exist as of the effective date and may be applied retrospectively to each prior reporting period presented.  The Company expects no material impact to its financial statements as a result of adopting this pronouncement.

In April 2013, the FASB issued ASU 2013-07 – Presentation of Financial Statements (Topic 205) – Liquidation Basis of Accounting. The amendments require an entity to prepare its financial statements using the liquidation basis of accounting when liquidation is imminent. Liquidation is imminent when the likelihood is remote that the entity will return from liquidation and either (a) a plan for liquidation is approved by the person or persons with the authority to make such a plan effective and the likelihood is remote that the execution of the plan will be blocked by other parties or (b) a plan for liquidation is being imposed by other forces (for example, involuntary bankruptcy). If a plan for liquidation was specified in the entity’s governing documents from the entity’s inception (for example, limited-life entities), the entity should apply the liquidation basis of accounting only if the approved plan for liquidation differs from the plan for liquidation that was specified at the entity’s inception. The amendments require financial statements prepared using the liquidation basis of accounting to present relevant information about an entity’s expected resources in liquidation by measuring and presenting assets at the amount of the expected cash proceeds from liquidation. The entity should include in its  presentation of assets any items it had not previously recognized under US GAAP but that it expects to either sell in liquidation or use in settling liabilities (for example, trademarks). The amendments are effective for entities that determine liquidation is imminent during annual reporting periods beginning after December 15, 2013, and interim reporting periods therein. Entities should apply the requirements prospectively from the day that liquidation becomes imminent. Early adoption is permitted. The adoption is not expected to have an impact on the Company’s consolidated financial statements in its present condition.

In March 2013, the FASB issued ASU 2013-05 – Foreign Currency Matters (Topic 830) – Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Group of Assets within a Foreign Entity or of an Investment in a Foreign Entity. These amendments provide guidance on releasing cumulative translation adjustments when a reporting entity (parent) ceases to have a controlling financial interest in a subsidiary or a group of assets that is a non-profit activity or a business within a foreign entity. In addition, these amendments provide guidance on the release of cumulative translation adjustments in partial sales of equity method investments and in step acquisitions. The amendments are effective for fiscal years and interim reporting periods within those years, beginning after December 15, 2013. The amendments should be applied prospectively to derecognition events occurring after the effective date. Prior periods should not be adjusted. Early adoption is permitted. If an entity elects to early adopt the amendments, it should apply them as of the beginning of the entity’s fiscal year of adoption.  The Company is required to adopt this standard beginning July 1, 2014. The Company does not anticipate these changes to have an impact on its consolidated financial statements.

In February 2013, the FASB issued ASU 2013-04 – Liabilities (Topic 405) – Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation is Fixed at the Reporting Date. These amendments provide guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date, except for obligations addressed within existing guidance in U.S. GAAP. Examples of obligations within this guidance are debt arrangements, other contractual obligations, and settled litigation and judicial rulings. The amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. These amendments shall be applied retrospectively to all prior periods presented for those obligations within the scope of this Subtopic that exist at the beginning of an entity’s fiscal year of adoption. Early adoption is permitted. The adoption of these amendments is not expected to have a material effect on the Company’s consolidated financial statements.

In February 2013, the FASB issued ASU No. 2013-02 – Comprehensive Income (Topic 220) — Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. The amendments do not change the current requirements for reporting net income or other comprehensive income in financial statements. However, the amendments require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under US GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under US GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under US GAAP that provide additional detail about those amounts. This guidance is effective prospectively for reporting periods beginning after December 15, 2012. The Company adopted this guidance in the third quarter of fiscal year 2013. This new guidance did not impact the Company’s presentation, financial position, and results of operations.

In September 2011, the FASB issued an update to ASC Topic 350, Intangibles – Goodwill and Other.  This ASU amended 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. The ASU did not change how goodwill is calculated or assigned to reporting units, nor did it revise the requirement to test annually for impairment. The ASU was limited to goodwill and did not amend the annual requirement for testing other indefinite-lived intangible assets for impairment. We adopted this ASU as of our 2012 goodwill impairment testing. The adoption of this ASU did not impact our consolidated financial statements.

In July 2012, the FASB issued ASC update No. 2012-02 - Intangibles – Goodwill and Other (Topic 350), Testing Indefinite-Lived Intangible Assets for Impairment (“ASC 2012-02”). Under the amendments in this update, a company has the option first to assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Topic 350. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. If after assessing the qualitative factors, a company determines it does not meet the more-likely-than-not threshold, a company is required to perform the quantitative impairment test by calculating the fair value of an indefinite-lived intangible asset and comparing the fair value with the carrying amount of the asset. The amendments in this update were effective for annual and interim impairment test performed for fiscal years beginning after September 15, 2012 (early adoption permitted). The Company adopted this guidance in the second quarter of fiscal year 2013.  The adoption of this update had no impact on its financial statements.

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12. COMMITMENTS (Tables)

9 Months Ended

Mar. 31, 2014

Commitments Tables

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

The future payments required under the terms of the leases for fiscal periods subsequent to March 31, 2014 are as follows:

2014 (three months)	$	23,217
2015		92,867
2016		30,956
	$	147,039

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3. GOING CONCERN (Details Narrative) (USD $)	3 Months Ended		9 Months Ended
	Mar. 31, 2014	Mar. 31, 2013	Mar. 31, 2014	Mar. 31, 2013	Jun. 30, 2013
Going Concern Details Narrative
Net loss	$ (8,931)	$ 2,824,313	$ 4,746,829	$ 8,790,560
Accumulated deficit	(85,679,653)		(85,679,653)		(80,932,824)
ZBB corporation equity	15,506,376		15,506,376		3,822,202
Total liabilities	$ 5,973,345		$ 5,973,345		$ 6,996,751

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10. WARRANTS (Details)	9 Months Ended	12 Months Ended
	Mar. 31, 2014	Jun. 30, 2013
WarrantMember
Beginning Balance	1,421,806	1,400,506
Warrants granted	3,239,474	21,300
Warrants expired	(8,000)
Warrants exercised	(1,719,528)
Ending balance	2,933,752	1,421,806
Warrants Weighted Average Excercise Price Member
Beginning Balance	3.15	3.15
Warrants granted	0.95	2.95
Warrants expired	2.80
Warrants exercised	1.18
Ending balance	1.88	3.15

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Condensed Consolidated Balance Sheets (USD $)	Mar. 31, 2014	Jun. 30, 2013
Current assets:
Cash and cash equivalents	$ 13,393,266	$ 1,096,621
Restricted cash on deposit	69,713	60,000
Accounts receivable, net	583,020	446,925
Inventories	1,748,607	2,459,776
Prepaid expenses and other current assets	261,323	224,542
Refundable income tax credit	93,976	137,228
Total current assets	16,149,904	4,425,092
Long-term assets:
Property, plant and equipment, net	4,526,730	5,179,707
Investment in investee company	2,000,219	2,304,122
Intangible assets, net		411,073
Goodwill	803,079	803,079
Total assets	23,479,932	13,123,073
Current liabilities:
Bank loans and notes payable	348,701	885,786
Accounts payable	633,145	570,932
Accrued expenses	1,461,447	785,532
Customer deposits	1,202,295	2,194,262
Accrued compensation and benefits	194,048	164,437
Total current liabilities	3,839,635	4,600,949
Long-term liabilities:
Bank loans and notes payable	2,133,709	2,395,802
Total liabilities	5,973,345	6,996,751
Equity
Series B redeemable convertible preferred stock ($0.01 par value, $1,000 face value) 10,000,000 authorized, 2,750 and 0 shares issued and outstanding, preference in liquidation of $5,641,510 as of March 31, 2014	28
Common stock ($0.01 par value); 150,000,000 authorized, 25,257,700 and 17,707,341 shares issued and outstanding as of March 31, 2014 and June 30, 2013 respectively	960,891	885,389
Additional paid-in capital	101,823,820	85,464,055
Accumulated deficit	(85,679,653)	(80,932,824)
Accumulated other comprehensive loss	(1,598,710)	(1,594,418)
Total ZBB Energy Corporation Equity	15,506,376	3,822,202
Noncontrolling interest	2,000,211	2,304,120
Total equity	17,506,587	6,126,322
Total liabilities and equity	$ 23,479,932	$ 13,123,073

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7. GOODWILL (Details Narrative) (USD $)	Mar. 31, 2014	Jun. 30, 2013
Goodwill Details Narrative
Net goodwill amount	$ 803,079	$ 803,079

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Condensed Consolidated Statements of Changes in Equity (Unaudited) (USD $)	Series B Preferred Stock	Common Stock	Additional Paid-In Capital	Accumulated Deficit	Accumulated Other Comprehensive Income (Loss)	Noncontrolling Interest
Beginning Balance Amount at Jun. 30, 2012		$ 729,773	$ 80,363,519	$ (69,053,909)	$ (1,584,921)	$ 2,872,348
Beginning Balance Shares at Jun. 30, 2012		14,595,120
Net loss				(11,878,915)		(573,727)
Net translation adjustment					(9,497)
Issuance of common stock, net of costs and underwriting fees, Shares		3,112,311
Issuance of common stock, net of costs and underwriting fees, Amount		155,616	4,315,276
Stock-based compensation, Amount			785,260
Issuance of subsidiary shares to noncontrolling interest						5,500
Ending Balance Amount at Jun. 30, 2013		885,389	85,464,055	(80,932,824)	(1,594,418)	2,304,121
Ending Balance Shares at Jun. 30, 2013		17,707,431
Net loss				(4,746,829)		(303,910)
Issuance of warrants			498,793
Issuance of common stock, net of costs and underwriting fees, Shares		6,325,000
Issuance of common stock, net of costs and underwriting fees, Amount		63,250	13,018,214
Issuance of preferred stock, net of costs and underwriting fees, Shares	3,000
Issuance of preferred stock, net of costs and underwriting fees, Amount	30		2,388,756
Issuance of warrants to underwriter			15,455
Stock-based compensation, Shares		45,570
Stock-based compensation, Amount		456	450,340
Conversion of preferred stock, Shares	(250)	276,482
Conversion of preferred stock, Amount	(3)	2,765	(2,762)
Exercise of warrants, Shares	903,217
Exercise of warrants, Amount	9,032		(9,032)
Ending Balance Amount at Mar. 31, 2014	$ 28	$ 960,891	$ 101,823,820	$ (85,679,653)	$ (1,598,710)	$ 2,000,211
Ending Balance Shares at Mar. 31, 2014	2,750	25,257,700

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14. INCOME TAXES (Details 1)	9 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Income Taxes Details 1
Income tax benefit computed at the U.S. federal statutory rate	(34.00%)	(34.00%)
Foreign tax expense/(benefit)	(2.00%)	(1.00%)
Change in valuation allowance	34.00%	34.00%
Total	(2.00%)	(1.00%)

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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 1)	9 Months Ended
	Mar. 31, 2014
Assets held for lease
Estimated Useful Lives of Property, Plant and Equipment	18 months
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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15. SUBSEQUENT EVENT

9 Months Ended

Mar. 31, 2014

Subsequent Event

SUBSEQUENT EVENT

NOTE 15— SUBSEQUENT EVENT

On April 9, 2014 the Company’s President and CEO was awarded 200,000 RSUs which vested immediately upon grant.  The estimated expense for the three months ended June 30, 2014 is $360,000 for the April 9, 2014 RSUs.

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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 2) (USD $)	9 Months Ended	12 Months Ended
	Mar. 31, 2014	Jun. 30, 2013
Summary Of Significant Accounting Policies Details 2
Beginning balance	$ 479,873	$ 418,557
Accruals for warranties during the period	461,232	404,096
Settlements during the perioid	(497,000)	(95,543)
Adjustments relating to preexisting warranties	207,030	(247,237)
Ending balance	$ 651,136	$ 479,873

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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

9 Months Ended

Mar. 31, 2014

Summary Of Significant Accounting Policies Tables

Schedule of Accounts Receivable

The composition of accounts receivable is as follows as of March 31, 2014 and June 30, 2013:

	March 31, 2014		June 30, 2013
Current	$	405,334	$	236,296
30-60 days		7,802		50,000
60-90 days		9,990		-
Over 90 days		159,894		160,629
Total	$	583,020	$	446,925

Estimated Useful Lives Used For Each Class of Depreciable 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
Assets held for lease	18 months
Building and improvements	7 - 40 years

Schedule Of Accrued Warranty Liability

The following is a summary of accrued warranty activity:

	Nine Months Ended  March 31, 2014			Year Ended June 30, 2013
Beginning balance	$	479,873		$	418,557
Accruals for warranties during the period		461,232			404,096
Settlements during the period		(497,000	)		(95,543	)
Adjustments relating to preexisting warranties		207,030			(247,237	)
Ending balance	$	651,136		$	479,873

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Condensed Consolidated Statements of Cash Flows (USD $)	9 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Cash flows from operating activities
Net loss	$ (5,050,739)	$ (9,236,074)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation of property, plant and equipment	580,379	552,079
Amortization of intangible assets	411,073	549,532
Stock-based compensation	450,796	570,604
Equity in loss of investee company	303,910	651,555
Amortization of discounts and debt issuance costs on notes payable	14,566
Purchase price adjustment		45,000
Changes in assets and liabilities
Accounts receivable	(136,095)	(605,430)
Inventories	823,670	(121,558)
Prepaids and other current assets	(51,346)	1,831
Refundable income taxes	43,253	(118,682)
Accounts payable	62,213	48,340
Accrued compensation and benefits	29,610	(87,710)
Accrued expenses	715,707	(417,946)
Customer deposits	(991,967)	(174,644)
Net cash used in operating activities	(2,794,971)	(8,343,103)
Cash flows from investing activities
Expenditures for property and equipment	(39,907)	(106,479)
Investment in investee company
Deposits of restricted cash	(9,713)	(60,000)
Net cash used in investing activities	(49,620)	(166,479)
Cash flows from financing activities
Repayments of bank loans and notes payable	(843,262)	(877,312)
Proceeds from issuance of preferred stock and warrants	3,000,000
Preferred stock issuance costs	(96,967)
Proceeds from issuance of Common Stock	14,231,250	4,244,689
Common stock issuance costs	(1,149,786)	(177,606)
Proceeds from noncontrolling interest		5,500
Net cash provided by financing activities	15,141,235	3,195,271
Effect of exchange rate changes on cash and cash equivalents		776
Net increase (decrease) in cash and cash equivalents	12,296,645	(5,313,535)
Cash and cash equivalents - beginning of period	1,096,621	7,823,217
Cash and cash equivalents - end of period	13,393,266	2,509,683
Cash paid for interest	137,763	121,539
Cash received from foreign income tax credit	$ 133,996

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Condensed Consolidated Balance Sheets (Parenthetical) (USD $)	Mar. 31, 2014	Jun. 30, 2013
Statement of Financial Position [Abstract]
Preferred stock, par value	$ 0.01
Preferred stock, authorized shares	10,000,000
Preferred stock, issued shares	2,750	0
Preferred stock, outstanding shares	2,750	0
Preferred stock, face value	1,000
Liquidation	$ 5,641,510
Common stock, par value	$ 0.01
Common stock, Authorized	150,000,000
Common stock, Issued	25,257,700	17,707,341
Common stock, outstanding	25,257,700	17,707,341

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10. WARRANTS

9 Months Ended

Mar. 31, 2014

Notes to Financial Statements

WARRANTS

NOTE 10 - WARRANTS

At March 31, 2014, the following warrants to purchase the Company’s common stock were outstanding and exercisable:

· 81,579 warrants exercisable at $0.95 per share and which expire in September 2016 issued as placement agent’s compensation in connection with the sale of $3 million of preferred stock on September 27, 2013 as described in Note 11.

· 1,710,526 warrants exercisable at $0.95 per share and which expire in September 2016 issued in connection with Securities Purchase Agreements entered into with certain investors providing for the sale of a total of $3 million of preferred stock on September 27, 2013 described in Note 11. On March 26, 2014, 1,447,369 warrants were exercised via a cashless exercise resulting in the issuance of 850,169 shares of common stock of the Company.

· 15,000 warrants exercisable at $2.10 per share which expire in July 2015 issued as partial payment for services.

· 306,902 warrants exercisable at $2.375 per share and which expire in June 2017 issued 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 on June 19, 2012 as described in Note 11.  On March 19, 2014, 272,159 warrants were exercised via a cashless exercise resulting in the issuance of 53,048 shares of common stock of the Company.

· 511,604 warrants exercisable at $2.65 per share and which expire in May 2017 issued 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 on May 1, 2012.

· 12,100 warrants exercisable at $5.00 per share which expire March 2015 through July 2015 issued as partial payment for services.

· 224,375 warrants exercisable at $5.20 per share and which expire in September 2015 issued to certain purchasers of Company shares in March 2010.

· 71,667 warrants exercisable at $6.65 per share and which expire in August 2015 issued to certain purchasers of Company shares in August 2009.

The table below summarizes warrant balances:

	Number of Warrants			Weighted Average Exercise Price Per Share
Balance at July 1, 2012		1,400,506			3.15
Warrants granted		21,300			2.95
Warrants expired		-			-
Warrants exercised		-			-
Balance at June 30, 2013		1,421,806		$	3.15
Warrants granted		3,239,474			0.95
Warrants expired		(8,000	)		2.80
Warrants exercised		(1,719,528	)		1.18
Balance at March 31, 2014		2,933,752		$	1.88

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Document and Entity Information	9 Months Ended
	Mar. 31, 2014	May 15, 2014
Document And Entity Information
Entity Registrant Name	ZBB ENERGY CORP
Entity Central Index Key	0001140310
Document Type	10-Q
Document Period End Date	Mar. 31, 2014
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		25,257,700
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2014

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11. EQUITY

9 Months Ended

Mar. 31, 2014

Notes to Financial Statements

EQUITY

NOTE 11 – EQUITY

On March 19, 2014, the Company completed an underwritten public offering of its common stock at a price to the public of $2.25 per share.  The Company sold a total of 6,325,000 shares of its common stock in the offering for aggregate proceeds of approximately $14.2 million.  The Company received approximately $13.1 million of net proceeds from the offering, after deducting the underwriting discount and expenses.

On October 31, 2013, the Company effected a reverse stock split of its common stock by a ratio of 1-for-5 (the “Reverse Split”). As a result of the Reverse Split every five outstanding shares of Common Stock became one share of common stock.  No fractional shares were issued in connection with the Reverse Split. A shareholder who would otherwise have been entitled to receive a fractional share of common stock received a cash payment equal to the closing sales price of the  Company’s Common Stock on October 31, 2013 as reported on the NYSE MKT times the amount of the fractional share. The Reverse Split did not change the number of shares of common or preferred stock that the Company is authorized to issue, or the par value of the Company’s common or preferred stock.  The Reverse Split resulted in a proportionate adjustment to the per share exercise price and the number of shares of common stock issuable upon the exercise of outstanding warrants and stock options, as well as the number of shares of common stock eligible for issuance under the Omnibus Plan and the 2012 Director Equity Plan. All of the information in these financial statements has been presented to reflect the impact of the 1-for-5 Reverse Split on a retroactive basis.

On September 26, 2013 the Company entered into a Securities Purchase Agreement with certain investors providing for the sale of 3,000 shares of Series B Convertible Preferred Stock (the “Preferred Stock”).  Certain Directors of the Company purchased 500 shares.

Shares of Preferred Stock were sold for $1,000 per share (the “Stated Value”) and accrue dividends on the Stated Value at an annual rate of 10%.  The net proceeds to the Company, after deducting $90,127 of offering costs, were $2,909,873.  During the three months ended March 31, 2014, 250 shares of Preferred Stock were converted into 276,482 shares of common stock of the Company.  At March 31, 2014, 2,750 shares of Preferred Stock were convertible into 3,041,282 shares of common stock of the Company (“Common Stock”) at a conversion price equal to $0.95.  Upon any liquidation, dissolution or winding up of the Corporation, holders of Preferred Stock are entitled to receive out of the assets of the Company an amount equal to two times the Stated Value, plus any accrued and unpaid dividends thereon.  At March 31, 2014 the liquidation preference of the Preferred Stock was $5,641,510.

In connection with the purchase of the Preferred Stock, investors received warrants to purchase a total of 3,157,895 shares of Common Stock at an exercise price of $0.95.  The warrants are exercisable at any time prior to September 27, 2016.  On March 26, 2014, 1,447,368 warrants were exercised via a cashless exercise resulting in the issuance of 850,169 shares of common stock of the Company.  In addition, the Company issued a total of 81,579 warrants to a placement agent in connection with the transaction.  These warrants expire on September 27, 2016.

On March 13, 2013, the Company entered into a common stock purchase agreement (the “Aspire Purchase Agreement”) with Aspire Capital Fund, LLC, an Illinois limited liability company, under which Aspire Capital committed over a two year period to purchase up to $10 million of ZBB Energy common stock based on prevailing market prices over a period preceding each sale, subject to certain terms and conditions.

On March 19, 2013 the Company issued 345,098 shares to Aspire Capital in consideration for Aspire Capital’s entry into the Aspire Purchase Agreement and Aspire Capital purchased 588,235 shares for $1,000,000 pursuant to the agreement at $1.70 per share.

On March 25, 2013 and March 26, 2013, Aspire Capital purchased a total of 992,720 shares pursuant to the Aspire Purchase Agreement at a price per share of $1.50 for a total purchase price of $1,500,000.

Aspire Capital purchased 100,000 shares at a per share price of $1.5175 for a total purchase price of $151,750 on April 4, 2013; 90,000 shares at a per share price of $1.6655 for a total purchase price of $149,895 on April 12, 2013; and 70,000 shares at a per share price of $1.4595 for a total purchase price of $102,165 on May 3, 2013.

Through March 31, 2014 the Company had issued a total of $2,903,190 of shares of common stock under this facility and $7,096,810 remained available.  In accordance with applicable NYSE MKT rules, shareholder approval would have been required for the Company to sell in excess of 3,104,341 shares pursuant to the Aspire Purchase Agreement.  Through March 31, 2014 the Company had issued a total of 2,186,053 shares pursuant to the Aspire Purchase and had the ability to sell up to 918,288 additional shares under the Aspire Purchase Agreement.  The Company has not made any additional sales to Aspire under the Agreement since June 30, 2013.  In light of limitations on the Company’s ability to continue to effectively use the Aspire Purchase Agreement, including NYSE MKT limitations and SEC registration requirements, the Company has no current plans to sell any additional shares under the agreement.

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Condensed Consolidated Statements of Operations (Unaudited) (USD $)	3 Months Ended		9 Months Ended
	Mar. 31, 2014	Mar. 31, 2013	Mar. 31, 2014	Mar. 31, 2013
Revenues
Product sales	$ 822,318	$ 2,019,191	$ 2,652,896	$ 6,372,336
Engineering and development	750,000	100,000	950,000	318,183
License	3,000,000		3,000,000
Total Revenues	4,572,318	2,119,191	6,602,896	6,690,519
Costs and Expenses
Cost of product sales	546,904	1,761,762	1,698,762	5,519,360
Cost of engineering and development	65,560	62,118	109,196	107,183
Advanced engineering and development	1,095,589	1,293,147	3,400,318	3,828,686
Selling, general, and administrative	2,667,569	1,439,235	5,221,065	4,731,209
Depreciation and amortization	200,646	338,041	886,405	1,022,503
Total Costs and Expenses	4,576,267	4,895,303	11,315,744	15,208,941
Income (Loss) from Operations	(3,949)	(2,776,112)	(4,712,849)	(8,518,422)
Other Income (Expense)
Equity in loss of investee company	(55,428)	(118,442)	(303,910)	(651,555)
Interest income	1,435	913	2,944	1,896
Interest expense	(27,153)	(40,829)	(124,668)	(134,039)
Other income (expense)		(45,000)	896	(45,000)
Total Other Income (Expense)	(81,146)	(203,358)	(424,738)	(828,698)
Income (Loss) before provision (benefit) for Income Taxes	(85,096)	(2,979,470)	(5,137,587)	(9,346,939)
Provision (benefit) for Income Taxes	(38,598)	(36,715)	(86,848)	(110,866)
Net Loss	(46,497)	(2,942,755)	(5,050,739)	(9,236,074)
Net loss attributable to noncontrolling interest	55,428	118,442	303,910	445,514
Net Income (Loss) Attributable to ZBB Energy Corporation	8,931	(2,824,313)	(4,746,829)	(8,790,560)
Preferred Stock Dividend	(76,876)		(154,375)
Net Loss Attributable to Common Shareholders	$ (67,945)	$ (2,824,313)	$ (4,901,204)	$ (8,790,560)
Net Loss per share - Basic and diluted	$ (0.004)	$ (0.18)	$ (0.27)	$ (0.57)
Weighted average shares-basic and diluted:	18,690,642	15,693,149	18,045,685	15,555,891

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5. PROPERTY, PLANT & EQUIPMENT

9 Months Ended

Mar. 31, 2014

Notes to Financial Statements

PROPERTY, PLANT & EQUIPMENT

NOTE 5– PROPERTY, PLANT & EQUIPMENT

Property, plant, and equipment are comprised of the following as of March 31, 2014 and June 30, 2013:

	March 31, 2014			June 30, 2013
Land	$	217,000		$	217,000
Building and improvements		3,520,872			3,520,872
Manufacturing equipment		3,697,468			3,819,533
Office equipment		399,417			403,541
Assets held for lease		-			355,986
Construction in process		-			24,300
Total, at cost		7,834,757			8,341,232
Less, accumulated depreciation		(3,308,027	)		(3,161,525	)
Property, Plant & Equipment, Net	$	4,526,730		$	5,179,707

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4. INVENTORIES

9 Months Ended

Mar. 31, 2014

Notes to Financial Statements

INVENTORIES

NOTE 4 – INVENTORIES

Inventories are comprised of the following as of March 31, 2014 and June 30, 2013:

	March 31, 2014		June 30, 2013
Raw materials	$	763,201	$	1,181,557
Work in progress		985,406		1,278,219
Total	$	1,748,607	$	2,459,776

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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

9 Months Ended

Mar. 31, 2014

Summary Of Significant Accounting Policies Policies

Description of Business

ZBB Energy Corporation (“ZBB,” “we,” “us,” “our” or the “Company”) develops, licenses, and manufactures distributed energy storage solutions based upon the Company’s proprietary zinc bromide rechargeable electrical energy storage technology and proprietary power electronics systems.  ZBB was incorporated in Wisconsin in 1998 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 has 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, hybrid vehicle control systems, and power quality regulation solutions. Together, these platforms provide a wide range of renewable energy system solutions in global markets for utility, governmental, commercial, industrial and residential customers.

The consolidated financial statements include the accounts of the Company and those of its wholly-owned subsidy 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 a China joint venture.

Interim Financial Data

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“US 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 US 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 nine month period ended March 31, 2014 are not necessarily indicative of the results that might be expected for the year ending June 30, 2014.

The condensed consolidated balance sheet at June 30, 2013 has been derived from audited financial statements at that date, but does not include all of the information and disclosures required by US 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/A for the fiscal year ended June 30, 2013.

Basis of Presentation

The accompanying consolidated financial statements include the accounts of the Company and it’s wholly and majority-owned subsidiaries and have been prepared in accordance with US 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 $69,713 and $60,000 in restricted cash on deposit as of March 31, 2014 and June 30, 2013, respectively, as collateral for certain credit arrangements.

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 include no allowance for doubtful accounts as of March 31, 2014 and June 30, 2013 as management has concluded all outstanding balances are expected to be collected in full.  The composition of accounts receivable is as follows as of March 31, 2014 and June 30, 2013:

	March 31, 2014		June 30, 2013
Current	$	405,334	$	236,296
30-60 days		7,802		50,000
60-90 days		9,990		-
Over 90 days		159,894		160,629
Total	$	583,020	$	446,925

Inventories

Inventories are stated at the lower of cost or market. Cost is computed using standard cost, which approximates actual cost, on a first-in, first-out basis. The Company provides inventory write-downs based on excess and obsolete inventories determined primarily by future demand forecasts. The write-down is measured as the difference between the cost of the inventory and market based upon assumptions about future demand and charged to the provision for inventory, which is a component of cost of sales. At the point of the loss recognition, a new, lower cost basis for that inventory is established, and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis.

Property, Plant and Equipment

Land, building, equipment, computers, 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
Assets held for lease	18 months
Building and improvements	7 - 40 years

The Company completed a review of the estimated useful lives of specific assets during the quarter ended March 31, 2014 and determined that there were no changes in the estimated useful lives of assets.

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 consolidated balance sheets and 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 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 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.  The Company accounted for the acquisition of substantially all of the net assets of Tier Electronics LLC by assigning the purchase price to identifiable tangible and intangible assets and liabilities.  Assets acquired and liabilities assumed were 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.

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 March 31, 2014 and June 30, 2013.

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, 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 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 March 31, 2014 and June 30, 2013 (see Notes 5 and 6).

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 are 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 March 31, 2014 and June 30, 2013, included in the Company’s accrued expenses were $651,136 and $479,873 respectively, related to warranty obligations.  Such amounts are included in accrued expenses in the accompanying consolidated balance sheets.

The following is a summary of accrued warranty activity:

	Nine Months Ended  March 31, 2014			Year Ended June 30, 2013
Beginning balance	$	479,873		$	418,557
Accruals for warranties during the period		461,232			404,096
Settlements during the period		(497,000	)		(95,543	)
Adjustments relating to preexisting warranties		207,030			(247,237	)
Ending balance	$	651,136		$	479,873

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.

From time to time, we may enter into separate agreements at or near the same time with the same customer.  We evaluate such agreements to determine whether they should be accounted for individually as distinct arrangements or whether the separate agreements are, in substance, a single multiple element arrangement.  We evaluate whether the negotiations are conducted jointly as part of a single negotiation, whether the deliverables are interrelated or interdependent, whether the fees in one arrangement are tied to performance in another arrangement, and whether elements in one arrangement are essential to another arrangement.  Our evaluation involves significant judgment to determine whether a group of agreements might be so closely related that they are, in effect, part of a single arrangement.

Our collaboration agreements typically involve multiple elements or deliverables, including upfront fees, contract research and development, milestone payments, technology licenses or options to obtain technology licenses, and royalties.  For arrangements containing multiple elements, 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 $4,572,318 and $6,602,896 were recognized for the three and nine months ended March 31, 2014, respectively.  Revenues for the three months ended March 31, 2014 were comprised of one significant customer (83% of total revenues) and revenues for the nine months ended March 31, 2014 were comprised of two significant customers (84% of total revenues).  Total revenues of $2,119,191 and $6,690,519 were recognized for the three and nine months ended March 31, 2013, respectively.  Revenues for the three months ended March 31, 2013 were comprised of one significant customer (72% of total revenues) and revenues for the nine months ended March 31, 2013 were comprised of six significant customers (77% of total revenues).

Engineering, Development, and License Revenues

We assess whether a substantive milestone exists at the inception of our agreements.  In evaluating if a milestone is substantive we consider whether:

· Substantive uncertainty exists as to the achievement of the milestone event at the inception of the arrangement;

· The achievement of the milestone involves substantive effort and can only be achieved based in whole or in part on our performance or the occurrence of a specific outcome resulting from our performance;

· The amount of the milestone payment appears reasonable either in relation to the effort expended or the enhancement of the value of the delivered item(s);

· There is no future performance required to earn the milestone; and

· The consideration is reasonable relative to all deliverables and payment terms in the arrangement

If any of these conditions are not met, we do not consider the milestone to be substantive and we defer recognition of the milestone payment and recognize it as revenue over the estimated period of performance, if any.

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 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 nine months ended March 31, 2014 and $100,000 and $300,000 in the three and nine months ended March 31, 2013.

In April 2011, the Company entered into a Collaboration Agreement (the “Collaboration Agreement”) with Honam Petrochemical Corporation, now known as Lotte Chemical Corporation (“Lotte”), pursuant to which the Company and Lotte collaborated on the technical development of the Company’s third generation Zinc Bromide flow battery module (the “Version 3 Battery Module”) and Lotte received a fully paid-up, exclusive and royalty-free license to sell and manufacture the Version 3 Battery Module in Korea and a non-exclusive royalty-bearing license to sell the Version 3 Battery Module in Japan, Thailand, Taiwan, Malaysia, Vietnam and Singapore.

On December 16, 2013, the Company and Lotte entered into a Research and Development Agreement (the “R&D Agreement”) pursuant to which the Company has agreed to develop and provide to Lotte a Zinc Bromide chemical flow battery system, including a Zinc Bromide chemical flow battery module and related software (the “Product”), on the terms and conditions set forth in the R&D Agreement (the “Project”).    The Project is scheduled to continue until December 16, 2015, unless extended by the mutual agreement of the Company and Lotte.  Subject to the satisfaction of certain specified milestones, Lotte is required to make payments to the Company under the R&D Agreement totaling $3,000,000 over the term of the Project.  ZBB will recognize revenue based upon a Performance Based Method pursuant to the model described in ASC 980-605-25, where revenue is recognized based on the lesser of the amount of nonrefundable cash received or the amounts due based on the proportional amount of the total effort expected to be expended on the contract that has been provided to date as there does not exist substantial doubt that the milestones will be achieved.  The Company recognized $750,000 of revenue under this agreement in the three and nine months ended March 31, 2014 and $0 in the three and nine months ended March 31, 2013.

Additionally, on December 16, 2013, the Company and Lotte entered into an Amended License Agreement (the “Amended License Agreement”).  Pursuant to the Amended License Agreement, the Company granted to Lotte, (1) an exclusive and royalty-free limited license in Korea to use the Company’s Zinc Bromide flow battery module, Zinc Bromide flow battery stack and the technical information and know how related to the intellectual property arising from the Project (collectively, the “Technology”) to manufacture or sell a Zinc Bromide flow battery (the “Lotte Product”) in Korea and (2) a non-exclusive (a) royalty-free limited license for Lotte and its affiliates to use the Technology internally in all locations other than China and Korea to manufacture the Lotte Product and (b) royalty-bearing limited license to sell the Lotte Product in all locations other than China, the United States and Korea.  Lotte is required to pay the Company a total license fee of $3,000,000 under the Amended License Agreement plus up to an additional $1,000,000 if certain specific milestones are successfully achieved.  In addition, Lotte is required to make ongoing royalty payments to the Company equal to a single digit percentage of Lotte’s sales of the Lotte Product outside of Korea until December 31, 2019.  The license fees are subject to a16.5% non-refundable Korea withholding tax.  The Company recognized $3,000,000 of a one-time upfront license fee in revenue under this agreement in the three and nine months ended March 31, 2014 and $0 in the three and nine months ended March 31, 2013.

Included in engineering and development revenues were $750,000 and $950,000 for the three and nine months ended March 31, 2014 and $100,000 and $318,183 for the three and nine months ended March 31, 2013 related to collaborative agreements.  Engineering and development costs related to the collaboration agreements totaled $65,560 and $109,196 for the three and nine months ended March 31, 2014 and $62,118 and $107,183 for the three and nine months ended March 31, 2013, respectively.

As of March 31, 2013 and June 30, 2013, the Company had no unbilled amounts from engineering and development contracts in process. The Company had received $0 and $45,300 in customer payments for engineering and development contracts, representing deposits in advance of performance of the contracted work, as of March 31, 2014 and June 30, 2013, respectively.

There were $3,750,000 in payments received and $3,750,000 of revenue recognized under the Lotte agreements in the nine months ended March 31, 2014.

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, which is 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 amortized over the vesting period of restricted stock unit awards, net of estimated forfeitures.

The Company only recognizes expense to its 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 March 31, 2014 and June 30, 2013.

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, 2013 and the Company’s Wisconsin and Australian income tax returns for the years ended June 30, 2009 through June 30, 2013 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 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 nine months ended March 31, 2014 and 2013 there were 9,474,075 and 3,308,576 shares of common stock underlying convertible preferred stock, 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 March 31, 2014. 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 banking 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 equivalents, accounts receivable, and accounts payable 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 March 31, 2014 and June 30, 2013.

Use of Estimates

The preparation of financial statements in conformity with US 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;  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

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on our financial position or results of operations upon adoption.

In July 2013, the FASB issued ASU 2013-11 – Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists, which requires an unrecognized tax benefit to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, similar tax loss, or a tax credit carryforward. To the extent the tax benefit is not available at the reporting date under the governing tax law or if the entity does not intend to use the deferred tax asset for such purpose, the unrecognized tax benefit should be presented as a liability and not combined with deferred tax assets. ASU 2013-11 is effective for annual periods, and interim periods within those years, beginning after December 15, 2013. The amendments are to be applied to all unrecognized tax benefits that exist as of the effective date and may be applied retrospectively to each prior reporting period presented.  The Company expects no material impact to its financial statements as a result of adopting this pronouncement.

In April 2013, the FASB issued ASU 2013-07 – Presentation of Financial Statements (Topic 205) – Liquidation Basis of Accounting. The amendments require an entity to prepare its financial statements using the liquidation basis of accounting when liquidation is imminent. Liquidation is imminent when the likelihood is remote that the entity will return from liquidation and either (a) a plan for liquidation is approved by the person or persons with the authority to make such a plan effective and the likelihood is remote that the execution of the plan will be blocked by other parties or (b) a plan for liquidation is being imposed by other forces (for example, involuntary bankruptcy). If a plan for liquidation was specified in the entity’s governing documents from the entity’s inception (for example, limited-life entities), the entity should apply the liquidation basis of accounting only if the approved plan for liquidation differs from the plan for liquidation that was specified at the entity’s inception. The amendments require financial statements prepared using the liquidation basis of accounting to present relevant information about an entity’s expected resources in liquidation by measuring and presenting assets at the amount of the expected cash proceeds from liquidation. The entity should include in its  presentation of assets any items it had not previously recognized under US GAAP but that it expects to either sell in liquidation or use in settling liabilities (for example, trademarks). The amendments are effective for entities that determine liquidation is imminent during annual reporting periods beginning after December 15, 2013, and interim reporting periods therein. Entities should apply the requirements prospectively from the day that liquidation becomes imminent. Early adoption is permitted. The adoption is not expected to have an impact on the Company’s consolidated financial statements in its present condition.

In March 2013, the FASB issued ASU 2013-05 – Foreign Currency Matters (Topic 830) – Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Group of Assets within a Foreign Entity or of an Investment in a Foreign Entity. These amendments provide guidance on releasing cumulative translation adjustments when a reporting entity (parent) ceases to have a controlling financial interest in a subsidiary or a group of assets that is a non-profit activity or a business within a foreign entity. In addition, these amendments provide guidance on the release of cumulative translation adjustments in partial sales of equity method investments and in step acquisitions. The amendments are effective for fiscal years and interim reporting periods within those years, beginning after December 15, 2013. The amendments should be applied prospectively to derecognition events occurring after the effective date. Prior periods should not be adjusted. Early adoption is permitted. If an entity elects to early adopt the amendments, it should apply them as of the beginning of the entity’s fiscal year of adoption.  The Company is required to adopt this standard beginning July 1, 2014. The Company does not anticipate these changes to have an impact on its consolidated financial statements.

In February 2013, the FASB issued ASU 2013-04 – Liabilities (Topic 405) – Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation is Fixed at the Reporting Date. These amendments provide guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date, except for obligations addressed within existing guidance in U.S. GAAP. Examples of obligations within this guidance are debt arrangements, other contractual obligations, and settled litigation and judicial rulings. The amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. These amendments shall be applied retrospectively to all prior periods presented for those obligations within the scope of this Subtopic that exist at the beginning of an entity’s fiscal year of adoption. Early adoption is permitted. The adoption of these amendments is not expected to have a material effect on the Company’s consolidated financial statements.

In February 2013, the FASB issued ASU No. 2013-02 – Comprehensive Income (Topic 220) — Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. The amendments do not change the current requirements for reporting net income or other comprehensive income in financial statements. However, the amendments require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under US GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under US GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under US GAAP that provide additional detail about those amounts. This guidance is effective prospectively for reporting periods beginning after December 15, 2012. The Company adopted this guidance in the third quarter of fiscal year 2013. This new guidance did not impact the Company’s presentation, financial position, and results of operations.

In September 2011, the FASB issued an update to ASC Topic 350, Intangibles – Goodwill and Other.  This ASU amended 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. The ASU did not change how goodwill is calculated or assigned to reporting units, nor did it revise the requirement to test annually for impairment. The ASU was limited to goodwill and did not amend the annual requirement for testing other indefinite-lived intangible assets for impairment. We adopted this ASU as of our 2012 goodwill impairment testing. The adoption of this ASU did not impact our consolidated financial statements.

In July 2012, the FASB issued ASC update No. 2012-02 - Intangibles – Goodwill and Other (Topic 350), Testing Indefinite-Lived Intangible Assets for Impairment (“ASC 2012-02”). Under the amendments in this update, a company has the option first to assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Topic 350. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. If after assessing the qualitative factors, a company determines it does not meet the more-likely-than-not threshold, a company is required to perform the quantitative impairment test by calculating the fair value of an indefinite-lived intangible asset and comparing the fair value with the carrying amount of the asset. The amendments in this update were effective for annual and interim impairment test performed for fiscal years beginning after September 15, 2012 (early adoption permitted). The Company adopted this guidance in the second quarter of fiscal year 2013.  The adoption of this update had no impact on its financial statements.

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12. COMMITMENTS

9 Months Ended

Mar. 31, 2014

Notes to Financial Statements

COMMITMENTS

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 $23,340 and $69,525 for the three and nine months ended March 31, 2014, respectively and $25,907 and $77,632 for the three and six months ended December 31, 2012, respectively.  In July of 2011 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 leased a building from an officer of its subsidiary, Tier Electronics LLC, who is also a shareholder and director, under a lease agreement that was due to expire on December 31, 2014.  Subsequently a lease termination agreement was entered into on October 20, 2013, which terminated the lease effective December 31, 2013 for a fee of $21,000.  The rent expense for the three and nine months ended March 31, 2014 was $0 and $63,000, respectively and $21,000 and $63,000 for the three and nine months ended March 31, 2013.  The Company was 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 March 31, 2014 are as follows:

2014 (three months)	$	23,217
2015		92,867
2016		30,956
	$	147,039

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 up to six 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

9 Months Ended

Mar. 31, 2014

Notes to Financial Statements

BANK LOANS AND NOTES PAYABLE

NOTE 8 – BANK LOANS AND NOTES PAYABLE

Bank loans and notes payable consisted of the following at March 31, 2014 and June 30, 2013:

		March 31, 2014		June 30, 2013
Bank loan payable of principal and interest at a rate equal to prime plus 1.50%, as defined, subject to a floor of 4.75% with principal due at maturity on January 1, 2014; collateralized by accounts receivable and inventory related to a specific customer contract.	$	-	$	213,750
Note payable to the seller of Tier Electronics of $495,000 payable on January 21, 2014.  Interest accrued at a rate of 8% and was  payable monthly. The promissory note  was collateralized by the Company’s membership interest in its wholly-owned subsidiary Tier Electronics, LLC; paid in full during fiscal 2014.  See note (a) below.		-		495,000
Note payable to Wisconsin Department of Commerce payable in monthly installments of $23,685, including interest at 2%, with the  final payment due May 1, 2018; 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.  See note (b) below.		1,135,235		1,136,195
Bank loan payable in fixed monthly payments of $6,800 of principal and interest  at a rate of 0.25% below prime, as defined, subject to a  floor of 5% with any principal due at maturity on June 1, 2018; collateralized by the building and land.		637,161		673,339
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.		710,014		734,228
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%; paid in full during fiscal 2014.		-		29,076
	$	2,482,410	$	3,281,588

(a) If the federal capital gains tax rate exceeded 15% and or the State of Wisconsin capital gains tax rate exceeded 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 was to 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 was to 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 recorded an additional $45,000 of principal due under this note as other expense for the year ended June 30, 2013.

(b) As of April 2013, the Wisconsin Department of Commerce granted the Company a 12 month deferral of the required installment payments of $22,800.  On March 1, 2014, fifty equal monthly installments of $23,685 commenced through April 1, 2018 with the final installment due on May 1, 2018.

Maximum aggregate annual principal payments for fiscal periods subsequent to March 31, 2014 are as follows:

2014 (three months)	$	86,227
2015		351,146
2016		361,065
2017		371,407
2018		358,389
2019 and thereafter		954,176
	$	2,482,410

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14. INCOME TAXES (Details 2) (USD $)	Mar. 31, 2014	Jun. 30, 2013
Income Taxes Details 2
Federal net operating loss carryforwards	$ 20,924,016	$ 19,777,894
Federal - other	2,455,559	2,273,021
Wisconsin net operating loss carryforwards	2,485,514	2,482,692
Australia net operating loss carryforwards	1,430,293	1,398,139
Deferred income tax asset valuation allowance	(27,295,382)	(25,931,746)
Total deferred income tax assets

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6. INTANGIBLE ASSETS

9 Months Ended

Mar. 31, 2014

Notes to Financial Statements

INTANGIBLE ASSETS

NOTE 6– INTANGIBLE ASSETS

Intangible assets are comprised of the following as of March 31, 2014 and June 30, 2013:

	March 31, 2014			June 30,2013
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		(2,198,097	)		(1,787,024	)
Intangible Assets, Net	$	-		$	411,073

Estimated amortization expense for the fiscal period ending June 30, 2014 is $411,073.

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7. GOODWILL

9 Months Ended

Mar. 31, 2014

Notes to Financial Statements

GOODWILL

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 March 31, 2014 and June 30, 2013.

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9. EMPLOYEE/DIRECTOR EQUITY INCENTIVE PLANS

9 Months Ended

Mar. 31, 2014

Notes to Financial Statements

EMPLOYEE/DIRECTOR EQUITY INCENTIVE PLANS

NOTE 9 – EMPLOYEE/DIRECTOR EQUITY INCENTIVE PLANS

During the nine months ended March 31, 2014 and 2013, the Company’s results of operations include compensation expense for stock options and restricted stock units (“RSUs”) granted under its various equity incentive plans. The amount recognized in the financial statements related to stock-based compensation was $979,005 and $570,604, based on the amortized grant date fair value of options and RSUs during the nine months ended March 31, 2014 and 2013, respectively.

At the annual 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 900,000 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 700,000 RSU awards and other equity awards to our non-employee directors pursuant to the Company’s director compensation policy.

In aggregate for all plans, at March 31, 2014 the Company had a total of 1,073,117 options outstanding, 2,146,813 RSUs outstanding and 401,260 shares available for future grant under the Omnibus Plan and 19,304 shares available for future grant under the 2012 Director Equity Plan.

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

	Number of Options			Weighted Average Exercise Price		Average Remaining Contractual Life (in years)
Balance at July 1, 2012		847,813		$	6.25
Options granted		142,710			1.88
Options forfeited		(205,239	)		5.05
Balance at June 30, 2013		785,284			5.75		5.34
Options granted		299,700			0.80
Options forfeited		(11,867	)		2.61
Balance at March 31, 2014		1,073,117		$	4.61		5.41

During the nine months ended March 31, 2014 options to purchase 299,700 shares were granted to employees exercisable at $0.76 to $1.90 per share based on service based vesting terms from July 2013 through March 2017 and exercisable at various dates through March 2022. During the nine months ended March 31, 2013 options to purchase 142,610 shares were granted to employees exercisable at prices from $1.75 to $1.90 per share based on various service and performance based vesting terms from July 2012 through March 2015 and exercisable at various dates through March 2020.

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 nine months ended March 31, 2014 and 2013 using the Black-Scholes option-pricing model:

	Nine months ended March 31,
	2014	2013
Expected life of option (years)	4	4
Risk-free interest rate	0.95 - 1.20%	0.46 - 0.61%
Assumed volatility	94 - 155%	96 - 104%
Expected dividend rate	0%	0%
Expected forfeiture rate	4.91 - 5.62%	4.19 - 6.66%

Time-vested and performance-based stock awards, including stock options and RSUs 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 March 31, 2014 and June 30, 2013 and changes during the years ended is presented below:

	Number of  Options			Weighted Average Grant Date Fair Value Per Share		Average Remaining Contractual Life (in years)
Balance at July 1, 2012		449,499		$	4.70
Granted		142,710			1.88
Vested		(158,390	)		4.75
Forfeited		(171,152	)		4.21
Balance at June 30, 2013		262,668			3.44
Granted		299,700			0.80
Vested		(117,887	)		3.57
Forfeited		(3,398	)		2.04
Balance at March 31, 2014		441,083		$	1.62	7.08

Total fair value of options granted in the nine months ended March 31, 2014 and 2013 was $207,789 and $167,167, respectively.  At March 31, 2014, there was $198,391 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 RSUs and cash.  On December 20, 2013, 455,696 RSUs were granted to the Company’s directors in partial payment of directors fees through November 2014 under the 2012 Director Equity Plan.  As of March 31, 2014, 452,850 of the RSUs had vested and there were $245,502 in directors’ fees expense settled with RSUs for the period ended March 31, 2014.

On May 1, 2013, the Company’s President and CEO and Chief Operating Officer were awarded 200,000 RSUs each which would have vested on the satisfaction of certain performance targets.  The RSU’s were forfeited on December 31, 2013 resulting in a credit to selling, general and administrative expense of $406,000 during the nine months ended March 31, 2014.  On January 14, 2014, the Company’s President and CEO and Chief Operating Officer were awarded 500,000 RSUs each of which 100,000 vested immediately upon grant, and the remaining 400,000 will vest on the satisfaction of certain performance targets as of June 30, 2014.  200,000 of the 400,000 RSUs are classified as liability awards because they provide for cash settlement (although the Company has the ability to convert these RSUs to share settlement at its option).  The cash settled RSU award liability is measured at its fair value at the end of each reporting period and, therefore, will fluctuate based on the performance of the Company’s common stock.  The estimated expense for the three months ending June 30, 2014 is $1,244,000 for the January 14, 2014 RSU’s.

As of March 31, 2014 there were 1,067,846 unvested RSUs outstanding which will vest through January 15, 2016 and $1,360,663 in unrecognized compensation cost related to unvested RSUs which are expected to be recognized through January 15, 2016.  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 July 1, 2012		489,687		$	3.60
RSUs granted		970,000			1.30
RSUs forfeited		(320,000	)		1.30
Shares issued		(8,000	)		1.70
Balance at June 30, 2013		1,131,687			2.30
RSUs granted		1,460,696			0.88
RSUs forfeited		(400,000	)		1.45
Shares issued		(45,570	)		1.31
Balance at March 31, 2014		2,146,813		$	1.50

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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) (USD $)	Mar. 31, 2014	Jun. 30, 2013
Summary Of Significant Accounting Policies Details
Current	$ 405,334	$ 236,296
30-60 days	7,802	50,000
60-90 days	9,990
Over 90 days	159,894	160,629
Total	$ 583,020	$ 446,925

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9. EMPLOYEE/DIRECTOR EQUITY INCENTIVE PLANS (Details 3) (Number of Restricted Stock Units, USD $)	9 Months Ended	12 Months Ended
	Mar. 31, 2014	Jun. 30, 2013
Number of Restricted Stock Units
Outstanding Number of Options, Beginning balance	1,131,687	489,687
Granted	1,460,696	970,000
Forfeited	(400,000)	(320,000)
Shares issued	(45,570)	(8,000)
Outstanding Number of Options, Ending balance	2,146,813	1,131,687
Outstanding Weighted Average Exercise Price, Beginning balance	$ 2.30	$ 3.60
Granted	$ 0.88	$ 1.30
Forfeited	$ 1.45	$ 1.30
Shares issued	$ 1.31	$ 1.70
Outstanding Number of Options Weighted Average Exercise Price, Ending balance	$ 1.50	$ 2.30

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14. INCOME TAXES

9 Months Ended

Mar. 31, 2014

Notes to Financial Statements

INCOME TAXES

NOTE 14— INCOME TAXES

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

	Nine months ended March 31,
	2014			2013
Current	$	(86,848	)	$	(110,866	)
Deferred		-			-
Provision (benefit) for income taxes	$	(86,848	)	$	(110,866	)

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 March 31, 2014 and June 30, 2013.

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

	Nine months ended March 31,
	2014			2013
Income tax expense/(benefit) computed at the U.S. federal statutory rate		-34	%		-34	%
Foreign tax expense/(benefit)		-2	%		-1	%
Change in valuation allowance		34	%		34	%
Total		-2	%		-1	%

Significant components of the Company’s net deferred income tax assets as of March 31, 2014 and June 30, 2013 were as follows:

	March 31, 2014			June 30, 2013
Federal net operating loss carryforwards	$	20,924,016		$	19,777,894
Federal - other		2,455,559			2,273,021
Wisconsin net operating loss carryforwards		2,485,514			2,482,692
Australia net operating loss carryforwards		1,430,293			1,398,139
Deferred income tax asset valuation allowance		(27,295,382	)		(25,931,746	)
Total deferred income tax assets	$	-		$	-

The Company has U.S. federal net operating loss carryforwards of approximately $61.5 million as of March 31, 2014, that expire at various dates between June 30, 2016 and 2033.  The Company also has $2.4 million 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 $222,944 as of March 31, 2014 that expire at various dates through June 30, 2033.  As of March 31, 2014, the Company has approximately $52 million of Wisconsin net operating loss carryforwards that expire at various dates between June 30, 2014 and 2028.  As of March 31, 2014, the Company also has approximately $5 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:

	March 31, 2014		June 30, 2013
Beginning balance	$	193,097	$	208,593
Effect of foreign currency translation	$	-	$	(15,496	)
Ending balance	$	193,097	$	193,097

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 an ownership change 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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4. INVENTORIES (Tables)

9 Months Ended

Mar. 31, 2014

Inventories Tables

Inventories

Inventories are comprised of the following as of March 31, 2014 and June 30, 2013:

	March 31, 2014		June 30, 2013
Raw materials	$	763,201	$	1,181,557
Work in progress		985,406		1,278,219
Total	$	1,748,607	$	2,459,776

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9. EMPLOYEE/DIRECTOR EQUITY INCENTIVE PLANS (Details 1)	Mar. 31, 2014	Jun. 30, 2013
Employeedirector Equity Incentive Plans Details 1
Expected life of option (years)	4	4
Risk-free interest rate	0.95 - 1.20%	0.46 - 0.61%
Assumed volatility	94 - 155%	96 - 104%
Expected dividend rate	0%	0%
Expected forfeiture rate	4.91 - 5.62%	4.19 - 6.66%

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4. INVENTORIES (Details) (USD $)	Mar. 31, 2014	Jun. 30, 2013
Inventories Details
Raw materials	$ 763,201	$ 1,181,557
Work in progress	985,406	1,278,219
Total	$ 1,748,607	$ 2,459,776

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Condensed Consolidated Statements of Comprehensive Loss (Unaudited) (USD $)	3 Months Ended		9 Months Ended
	Mar. 31, 2014	Mar. 31, 2013	Mar. 31, 2014	Mar. 31, 2013
Condensed Consolidated Statements Of Comprehensive Loss
Net loss	$ (46,497)	$ (2,942,755)	$ (5,050,739)	$ (9,236,074)
Foreign exchange translation adjustments	(973)	676	(4,292)	(67)
Comprehensive loss	(47,471)	(2,942,079)	(5,055,031)	(9,236,141)
Net loss attributable to noncontrolling interest	55,428	118,442	303,910	445,514
Comprehensive Loss Attributable to ZBB Energy Corporation	$ 7,957	$ (2,823,637)	$ (4,751,121)	$ (8,790,627)

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3. GOING CONCERN

9 Months Ended

Mar. 31, 2014

Notes to Financial Statements

GOING CONCERN

NOTE 3 - GOING CONCERN

The accompanying 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 $4,746,829 attributable to ZBB Energy Corporation for the nine months ended March 31, 2014 and as of March 31, 2014 has an accumulated deficit of $85,679,653 and total ZBB Energy Corporation equity of $15,506,376.  The ability of the Company to settle its total liabilities of $5,973,345 and to continue as a going concern is dependent upon increasing revenues and achieving profitability.  The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

We believe that cash and cash equivalents on hand at March 31, 2014, expected collections on the Lotte R&D Agreement and other potential sources of cash, will be sufficient to fund our current operations through fiscal year 2015.  However, there can be no assurances that unforeseen circumstances will not require the Company to raise additional investment capital to fund its operations.

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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14. INCOME TAXES (Details) (USD $)	3 Months Ended		9 Months Ended
	Mar. 31, 2014	Mar. 31, 2013	Mar. 31, 2014	Mar. 31, 2013
Income Taxes Details
Current			$ (86,848)	$ (110,866)
Deferred
Provision (benefit) for income taxes	$ (38,598)	$ (36,715)	$ (86,848)	$ (110,866)

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5. PROPERTY, PLANT & EQUIPMENT (Tables)

9 Months Ended

Mar. 31, 2014

Property Plant Equipment Tables

Property, plant, and equipment

Property, plant, and equipment are comprised of the following as of March 31, 2014 and June 30, 2013:

	March 31, 2014			June 30, 2013
Land	$	217,000		$	217,000
Building and improvements		3,520,872			3,520,872
Manufacturing equipment		3,697,468			3,819,533
Office equipment		399,417			403,541
Assets held for lease		-			355,986
Construction in process		-			24,300
Total, at cost		7,834,757			8,341,232
Less, accumulated depreciation		(3,308,027	)		(3,161,525	)
Property, Plant & Equipment, Net	$	4,526,730		$	5,179,707

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2. CHINA JOINT VENTURE (Details) (USD $)	3 Months Ended		9 Months Ended
	Mar. 31, 2014	Mar. 31, 2013	Mar. 31, 2014	Mar. 31, 2013
China Joint Venture Details
Revenues	$ 141,162		$ 237,345
Gross Profit (loss)	(184,029)		(236,776)
Income (loss) from operations	(636,420)	(539,212)	(1,851,480)	(2,049,880)
Net Income (loss)	$ (255,994)	$ (547,028)	$ (1,403,610)	$ (2,057,611)

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13. RETIREMENT PLANS

9 Months Ended

Mar. 31, 2014

Notes to Financial Statements

RETIREMENT PLANS

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 $29,484 and $97,629 for the three and nine months ended March 31, 2014, respectively.  Expenses under these plans were $33,307 and $98,457 for the three and nine months ended March 31, 2013, respectively.