**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**FORM
      10-QSB**




**x
      QUARTERLY REPORT
      PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**


**For
      the quarterly period ended September 30, 2007**




or




**o
      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****000-19644******




**ZBB
      ENERGY CORPORATION**


(Exact
      name of small business issuer 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**


(Issuer’s
      telephone number)




Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Securities Exchange Act of 1934 during the past 12months (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.




Yes
x            
      No o




As
      of
      November 14, 2007 there were 10,512,283 shares of common stock, $0.01 par value,
      of the registrant issued and outstanding.




Transitional
      Small Business




Check
      whether the issuer is a shell company (as defined in Rule 12b-2 of the Exchange
      Act. Yes o        
No x




Transitional
      Small Business Disclosure Format (Check one): Yes o        
No x














ZBB
      Energy Corporation




Form
      10-QSB




TABLE
      OF
      CONTENTS




PART
                I. FINANCIAL INFORMATION (*)Item
                1.
            Financial
                Statements
            1Consolidated
                Balance Sheet
            1Statement
                of Operations
            2Statement
                of Changes in Shareholders’ Equity
            3Statement
                of Cash Flows
            4Notes
                to Financial Statements
            5Item
                2.
            Management’s
                Discussion and Analysis and Results of Operations
            14Item
                3.
            Controls
                and Procedures
            18PART
                II. OTHER INFORMATIONItem
                1.
            Legal
                Proceedings
            19Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            19Item
                3.
            Defaults
                upon Senior Securities
            19Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            19Item
                5.
            Other
                Information
            19Item
                6.
            Exhibits
            19Signatures
            20





(*)
      All
      of the financial statements contained in this Quarterly Report are unaudited
      with the exception of the financial information at June 30, 2007, 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, 2007
      and
      for the year then ended, and the notes thereto, can be found in our Annual
      Report on Form 10-KSB), which was filed with the Securities and Exchange
      Commission on October 10, 2007.









**PART
      I. FINANCIAL INFORMATION**




**Item
      1.**  **FINANCIAL STATEMENTS**




The
      accompanying unaudited balance sheet of ZBB Energy Corporation at September
      30,
      2007 and the related unaudited statements of operations, changes in
      shareholder’s equity and cash flows for the three months ended September 30,
      2007 and 2006 have been prepared by management in conformity with accounting
      principles generally accepted in the United States. In the opinion of
      management, all adjustments considered necessary for a fair presentation of
      the
      results of operations and financial position have been included and all such
      adjustments are of a normal recurring nature. Operating results for the period
      ended September 30, 2007 are not necessarily indicative of the results that
      can
      be expected for the fiscal year ending June 30, 2008 or any other subsequent
      period.





***ZBB
      ENERGY CORPORATION***


Consolidated
      Balance Sheets as of September 30, 2007 and June 30, 2007




**Sept 30, 2007**
              
              **June 30, 2007***(unaudited*)****Assets**Current
                  assets:Cash
                  and cash equivalents
              
              $
              12,098,277
              
              $
              17,823,022Accounts
                  receivable
              
              
              152,360
              
              
              192,768Other
                  receivables
              
              
              73,466
              
              
              36,602Inventories
              
              
              1,459,585
              
              
              1,272,568Prepaids
                  and other current assets
              
              
              154,541
              
              
              319,790**Total
                  current assets**
              
              
              **13,938,229**
              
              
              **19,644,750**Long-term
                  assets:Property,
                  plant and equipment, net
              
              
              3,938,128
              
              
              3,570,386Investment
                  in joint venture
              
              
              221,550
              
              
              213,025Goodwill
              
              
              803,079
              
              
              803,079**Total
                  assets**
              
              **$**
              **18,900,986**
              
              **$**
              **24,231,240****Liabilities
                  and Shareholders' Equity**Current
                  liabilities:Bank
                  loans
              
              
              1,890,379
              
              
              1,890,379Accounts
                  payable
              
              
              428,054
              
              
              836,183Accrued
                  loss on contracts
              
              
              268,000
              
              
              357,250Deferred
                  revenues
              
              
              233,368
              
              
              336,305Accrued
                  compensation and benefits
              
              
              81,825
              
              
              84,148Notes
                  payable
              
              
              -
              
              
              4,523,060**Total
                  current liabilites**
              
              
              **2,901,626**
              
              
              **8,027,325**Long-term
                  liabilities:Bank
                  loans
              
              
              263,065
              
              
              285,712**Total
                  liabilities**
              
              **$**
              **3,164,691**
              
              **$**
              **8,313,037**Shareholders'
                  equityCommon
                    stock *($0.01 par value); 150,000,000 authorized**10,512,283
                    shares issued and outstanding*
              
              
              105,123
              
              
              100,871Additional
                  paid-in capital
              
              
              45,365,318
              
              
              44,994,333Note
                  receivable from shareholders
              
              
              (758,333
              )
              
              (808,333
              )Accumulated
                  other comprehensive (loss)
              
              
              (1,497,375
              )
              
              (1,546,537
              )Accumulated
                  (deficit)
              
              
              (27,478,438
              )
              
              (26,822,131
              )**Total
                  shareholders' equity**
              
              **$**
              **15,736,295**
              
              **$**
              **15,918,203****Total
                  liabilities and shareholders' equity**
              
              **$**
              **18,900,986**
              
              **$**
              **24,231,240**




*See
      accompanying notes to consolidated financial statements*




-1-


***ZBB
      ENERGY CORPORATION***


Consolidated
      Statements of Operations for the


Three
      Months ended September 30, 2007 and 2006





*Three
                months ended September 30,***2007**
            
            **2006**unaudited
            
            unaudited**Revenues**Product
                sales and revenues
            
            $
            108,937
            
            $
            210,280Engineering
                and development contracts
            
            
            277,485
            
            
            -**Total
                Revenues**
            
            
            **386,422**
            
            
            **210,280****Cost
                and Expenses**Cost
                of product sales
            
            
            89,413
            
            
            193,490Cost
                of engineering and development contracts
            
            
            175,678
            
            
            -Selling,
                general, and administrative
            
            
            615,362
            
            
            597,511Research
                and development
            
            
            177,104
            
            
            189,820Depreciation
                and amortization
            
            
            70,927
            
            
            64,171**Total
                Costs and Expenses**
            
            
            **1,128,484**
            
            
            **1,044,992****Loss
                from Operations**
            
            
            (742,062
            )
            
            (834,712
            )**Other
                Income (Expense)**Interest
                income
            
            
            178,862
            
            
            3Interest
                expense
            
            
            (52,822
            )
            
            (167,147
            )Finance
                costs
            
            
            (52,785
            )
            
            (77,693
            )Amortization
                of debt discounts
            
            
            -
            
            
            (223,274
            )Rental
                income
            
            
            12,500
            
            
            6,167**Total
                Other Income (Expense)**
            
            
            **85,755**
            
            
            **(461,944**
            **)**Loss
                before provision for Income Taxes
            
            
            (656,307
            )
            
            (1,296,656
            )Provision
                for Income Taxes
            
            
            -
            
            
            -**Net
                Loss**
            
            **$**
            **(656,307**
            **)**
            **$**
            **(1,296,656**
            **)****Net
                Loss per share-**Basic
                and diluted
            
            **$**
            **(0.06**
            **)**
            **$**
            **(0.26**
            **)****Weighted
                average shares-basic and diluted:**Basic
            
            
            10,317,467
            
            
            5,084,121Diluted
            
            
            10,317,467
            
            
            5,084,121




*See
      accompanying notes to consolidated financial statements.*




-2-


**ZBB
      Energy Corporation**


**Consolidated
      Statements of Changes in Shareholders' Equity (unaudited)**




Note
            
            AccumulatedReceivable
            
            Other
            
            
            
            **TOTAL**Number of
            
            Common
            
            Add'l Paid-in
            
            from
            
            Comprehensive
            
            Accumulated
            
            **Shareholders'**
            
            ComprehensiveShares
            
            Stock
            
            Capital
            
            Shareholders
            
            (Loss)
            
            Deficit
            
            **Equity**
            
            (Loss)**Balance:
                June 30, 2007**
            
            
            **10,087,090**
            
            **$**
            **100,871**
            
            **$**
            **44,994,333**
            
            **$**
            **(808,333**
            **)**
            **$**
            **(1,546,537**
            **)**
            **$**
            **(26,822,131**
            **)**
            **$**
            **15,918,203**Issuance
                of common stock pursuant to note conversions
            
            
            159,256
            
            
            1,593
            
            
            473,644
            
            
            
            
            
            
            
            
            
            
            
            475,237Issuance
                of common stock Montgomery warrants
            
            
            265,937
            
            
            2,659
            
            
            (2,659
            )Reduction
                of note receivable from stockholder
            
            
            
            
            
            
            
            50,000
            
            
            
            
            
            
            
            
            50,000Public
                offering costs
            
            
            
            
            
            
            
            
            (100,000
            )
            
            
            
            
            
            
            
            
            
            
            (100,000
            )Net
                Loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (656,307
            )
            
            (656,307
            )
            $
            (656,307
            )Net
                Translation Adjustment
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            49,162
            
            
            
            
            
            49,162
            
            
            49,162**Balance:
                September 30, 2007**
            
            
            **10,512,283**
            
            **$**
            **105,123**
            
            **$**
            **45,365,318**
            
            **$**
            **(758,333**
            **)**
            **$**
            **(1,497,375**
            **)**
            **$**
            **(27,478,438**
            **)**
            **$**
            **15,736,295**
            
            **$**
            **(607,145**
            **)**




*See
      accompanying notes to consolidated financial statements.*




-3-




**ZBB
      Energy Corporation**


Consolidated
      Statements of Cash Flows (unaudited)




Three months ended September 30,**2007**
            
            **2006****Cash
                flows from operating activities:**Net
                loss
            
            **$**
            **(656,307**
            **)**
            **$**
            **(1,296,655**
            **)**Adjustments
                to reconcile net loss to net cash used in operating activities:Depreciation
            
            
            70,927
            
            
            64,171Accrued
                interest on notes payable
            
            
            -
            
            
            125,150Payments
                applied to note receivable for consulting fees
            
            
            50,000
            
            
            -Amortization
                of note discounts and options
            
            
            -
            
            
            223,274Amortization
                of deferred finance fees
            
            
            -
            
            
            77,693(Increase)
                decrease in operating assets:Accounts
                receivable
            
            
            40,408
            
            
            86,872Inventory
            
            
            (187,016
            )
            
            (74,890
            )Prepaids
                and other current assets
            
            
            (110,614
            )
            
            3,344Increase
                (decrease) in operating liabilities:Accounts
                payable
            
            
            (408,129
            )
            
            101,948Accrued
                expenses
            
            
            (2,324
            )
            
            47,314Accrued
                loss on contracts
            
            
            (89,250
            )
            
            -Deferred
                revenues
            
            
            (102,937
            )
            
            (208,600
            )Net
                cash used in operating activities
            
            
            **(1,395,243**
            **)**
            
            **(850,379**
            **)****Cash
                flows from investing activities**Capital
                expenditures
            
            
            (89,669
            )
            
            (5,918
            )Net
                cash (used) in investing activities
            
            
            **(89,669**
            **)**
            
            **(5,918**
            **)****Cash
                flows from financing activities**Bank
                loans and other borrowings
            
            
            (22,647
            )
            
            (18,753
            )Repayments
                of notes payable
            
            
            (4,047,822
            )
            
            -Proceeds
                from issue of notes payable
            
            
            -
            
            
            687,500Additional
                public offering costs
            
            
            (100,000
            )
            
            -Deferred
                finance fees
            
            
            -
            
            
            (99,980
            )Net
                cash used by financing activities
            
            
            **(4,170,470**
            **)**
            
            **568,766**Effect
                of exchange rate changes on cash
            
            
            (69,363
            )
            
            (337
            )**Net
                decrease in cash and cash equivalents**
            
            
            (5,724,745
            )
            
            (287,867
            )Cash
                and cash equivalents - beginning of year
            
            
            17,823,022
            
            
            794,606**Cash
                and cash equivalents - end of year**
            
            **$**
            **12,098,277**
            
            **$**
            **506,739**Cash
                paid for interest
            
            $
            104,928
            
            $
            80,069Supplemental
                schedule of non-cash investing and financing activities:Issuance
                of common stock pursuant to conversion of convertible notes
            
            
            475,237
            
            
            60,000




*See
      accompanying notes to consolidated financial statements.*




-4-


**ZBB
      ENERGY CORPORATION**


**Notes
      to Unaudited Consolidated Financial Statements**


**September
      30, 2007**





**NOTE
      1 - Basis of Presentation**




The
      accompanying unaudited consolidated financial statements have been prepared
      in
      accordance with generally accepted accounting principles for interim financial
      statements and with the instructions to Form 10-QSB. Accordingly, they do not
      include all of the information and disclosures required for annual financial
      statements. These financial statements should be read in conjunction with the
      financial statements and related footnotes for the year ended June 30,
      2007.




In
      the opinion of the Company’s management, all adjustments (consisting of normal
      recurring accruals) necessary to make the Company’s financial position as of
      September 30, 2007 and the results of operations and statements of cash flows
      for the periods shown not misleading, have been included.




The
      accompanying consolidated financial statements include the accounts of the
      Company and its wholly-owned subsidiaries and have been prepared in accordance
      with accounting principles generally accepted in the United States of America
      (GAAP). All significant intercompany accounts and transactions have been
      eliminated upon consolidation. The Company accounts for its 49% investment
      in
      ZBB China Pty Ltd, a joint venture company, under the “equity” method of
      accounting.





**NOTE
      2 - Nature of Organization**




The
      Company develops and manufactures distributed energy storage solutions based
      upon the Company’s proprietary zinc-bromine rechargeable electrical energy
      storage technology. The Company was incorporated under the laws of Wisconsin
      in
      1998.




The
      Company develops, manufactures and markets energy storage systems with electric
      utility applications as its initial market. This scalable, mobile system is
      ideally suited for a number of market applications including:




— Load
      management for generation, transmission and distribution utilities, energy
      service companies and large industrial customers allowing peak shaving and
      deferral of capital expenditures that otherwise would be required to alleviate
      utility system constraints.




— Uninterruptible
      power supply (“UPS”) providing power and quality protection for voltage, current
      or frequency deviations.




— Storage
      of renewable wind and solar energy production in both grid connected and grid
      independent environments.




The
      consolidated financial statements include the accounts of the Company and those
      of its wholly owned subsidiaries, ZBB Technologies, Inc. (ZBBT, Inc.) its
      manufacturing facility in Milwaukee, Wisconsin, and ZBB Technologies, Ltd.,
      its
      Perth, Australia based research and development facility and a 49% interest
      in a
      joint venture company called ZBB China Pty Ltd.





**NOTE
      3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**




**Stock
      Split**




The
      Company completed a 1-for-17 reverse stock split immediately prior to the
      Company completing its public offering on June 20, 2007. All share and per
      share
      information included in these financial statements has been restated for this
      reverse stock split.




**Foreign
      Currency**




The
      Company uses the United States dollar as its reporting currency, while the
      Australian dollar is the functional currency of two of its operating units.
      Assets and liabilities of the Company’s international operations are translated
      into United States dollars at exchange rates that are in effect as 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
      Shareholders’ Equity in the consolidated balance sheet. No gain or loss on
      translation is included in the net loss.




-5-




**Use
      of Estimates**




The
      preparation of financial statements and related disclosures in conformity with
      accounting principles generally accepted in the United States of America
      requires management to make estimates and assumptions that affect the reported
      amounts of assets and liabilities and disclosure of contingent assets and
      liabilities at the date of the consolidated financial statements and revenues
      and expenses during the period reported on. Actual results could differ from
      those estimates. Estimates are used in accounting for, amongst other things,
      revenue and losses recognized under the percentage of completion method for
      sales, impairment of assets, depreciation, and ending valuations of equity
      and
      debt instruments. Estimates and assumptions are reviewed periodically and the
      effects of any revisions are reflected in the consolidated financial statements
      in the period they are determined to be necessary.




**Income
      Tax**




Provisions
      for income taxes are based on taxes payable or refundable for the current year
      and deferred tax assets and liabilities are included in the financial statements
      at currently enacted income tax rates applicable to the period in which the
      deferred tax assets and liabilities are expected to be realized or settled
      as
      prescribed in FASB Statement No. 109, "Accounting for Income Taxes". As changes
      in tax laws or rates are enacted, deferred tax assets and liabilities are
      adjusted through the provision for income taxes.




Deferred
      tax assets, if any, are recorded at the likely realizable amounts as at the
      balance sheet dates.




**Property,
      Plant and Equipment**




Land,
      building, equipment, computers and furniture and fixtures are recorded at cost.
      Maintenance, repairs and betterments are charged to expense.




Finished
      goods normally held for sale to customers may sometimes be used in demonstration
      and testing by customers. During the periods that the units are transferred
      from
      Inventory to Plant and Equipment they are depreciated over the period in use.
      Since the intent is for these units to be eventually sold they are returned
      to
      Inventory upon the completion of customer demonstration and testing at their
      written down value.




**Depreciation**





Depreciation
      is provided for all Property, Plant and Equipment (excluding land) on a straight
      line basis over estimated useful lives of the assets.





The
      depreciation rate used for each class of depreciable asset is:





Depreciation
                RateManufacturing
                Equipment
            3 –
                15 yearsOffice
                Equipment
            3 –
                8 yearsBuilding
            40
                years





**Impairment
      of Long-Lived Assets**





In
      accordance with Statement of Financial Accounting Standards ("SFAS") No. 144,
      "Accounting for the Impairment or Disposal Of Long-Lived Assets," the Company
      assesses potential impairments to its long-lived assets including property,
      plant and equipment 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, being the higher
      of
      the asset’s fair value less costs to sell and value in use, is compared to the
      asset’s carrying value. Any excess of the asset’s carrying value over its
      recoverable amount is expensed to 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.





**Goodwill**





Goodwill
      represents the cost of acquisition of a group of assets in excess of the net
      fair value of the identifiable assets.





Following
      initial recognition, goodwill is measured at cost less any accumulated
      impairment losses. Goodwill is not amortized but reviewed for impairment
      annually or more frequently if events or changes in circumstances indicate
      that
      its carrying value may be impaired.




-6-




**Cash
      and Cash Equivalents**





The
      Company considers all highly liquid investments with maturities of 90 days
      or
      less to be cash equivalents.




The
      Company maintains its cash deposits with a few high credit quality financial
      institutions predominately in the United States. At times such balances may
      exceed federally insurable limits. The Company has not experienced any losses
      in
      such accounts and believes it is not exposed to any significant
      risk.




**Inventories**





Inventories
      are stated at the lower of cost (first-in, first-out method) or market and
      consist of raw materials, work in progress and finished goods held for
      resale.





Costs
      incurred in bringing each product to its present location and conditions are
      accounted for as follows:




·
            Raw
                materials – purchased cost of direct
                material


·
            Finished
                goods and work-in-progress – purchase cost of direct material plus
                direct labor plus a proportion of manufacturing overheads.




**Revenue
      Recognition**





The
      Company currently contracts with its customers to develop, manufacture, install
      and service its energy storage systems under long-term contracts. These
      contracts have resulted in two distinct arrangements and revenue recognition
      policies. The first being a contract that is based on revenues based on the
      production, delivery and installation of energy storage systems. The second
      type
      of agreement includes the funding of product engineering and development
      activities. Where agreements become more complex and contain features of both
      products and services, the Company will attempt to separate the features into
      multiple accounting units in which each unit would contain an allocation of
      the
      relative fair value of the contract and be recognized over the respective
      reporting period. Such determinations require the Company to make certain
      assumptions, estimates and judgments.





Revenue
      recognition on long-term energy storage system contracts utilizes the
      percentage-of-completion method which recognizes revenue proportionally as
      costs
      are incurred and compared to the estimated total costs for each contract. The
      amount of revenue deferred under this method as of September 30, 2007 is
      $233,368 calculated on the $1,905,956 billed under the terms of the current
      contracts, less $1,672,588 recognized as revenue to date. Included in the
      deferred revenue is $160,000 received from ZBB China Pty Ltd, a 49% owned joint
      venture company (see Note 14 - Related Party Transactions). During the three
      months ended September 30, 2007 and 2006, $108,937 and $211,999 respectively
      was
      recognized as revenue on a long-term contract with the California Energy
      Commission.





Engineering
      and development contracts are typically collaborative agreements to further
      develop renewable energy technologies and are often sponsored and cost-shared
      in
      various amounts between government agencies and the Company. Such multi-year
      agreements may contain several elements and provide for varying consideration
      based on allowable costs, milestones and similar payment provisions and may
      provide for future licensing and royalties beyond the term of the arrangement.
      Revenue associated with performance milestones is recognized based on
      expenditures or achievements as defined in the respective
      agreements.





In
      July
      2007 the Company commenced engineering and product development activities
      pursuant to a collaborative project (Advanced Electricity Storage Technologies
      project) with an Australian government agency through July 2010 which terms
      include the receipt of funding of A$3.1M (approximately US$2.6M) toward future
      development costs which include the production and delivery of one 500kWh energy
      storage system. During the three months ended September 30, 2007 $277,485 was
      recognized as revenue based on the first of nine performances of the
      contract.





As
      the
      Company’s energy storage systems are still being developed and integrated into
      commercial production actual costs incurred could differ materially from those
      previously estimated. Once the Company has established that its costs can be
      reasonably estimated, costs to complete an individual contract in excess of
      revenue will be accrued upon identification. As of September 30, 2007 provisions
      of $268,000 have been identified and accrued on existing contracts.





For
      the
      period ended September 30, 2007 substantially all of the Company’s revenues were
      from the two multi-year contracts discussed above.





-7-




**Loss
      per Share**





The
      Company adopted Statement of Financial Accounting Standards No. 128 which
      requires 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 FASB 128, any anti-dilutive effects on
      net
      income (loss) per share are excluded.




**Convertible
      Notes**





The
      Company accounts for convertible notes deemed conventional and conversion
      options embedded in non-convertible notes which qualify as equity under EITF
      00-19, in accordance with the provisions of Emerging Issues Task Force Issue
      ("EITF") 98-5 "Accounting for Convertible Securities with Beneficial Conversion
      Features," and EITF 00-27 "Application of EITF 98-5 to Certain Convertible
      Instruments." Accordingly, the Company records as a discount to convertible
      notes, the intrinsic value of such conversion options based upon the differences
      between the fair value of the underlying common stock at the commitment date
      of
      the note transaction and the effective conversion price embedded in the note.
      Debt discounts under these arrangements are amortized over the term of the
      related debt to their earliest date of redemption.





**Stock-Based
      Compensation**





In
      December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS
      No.
      123, "Share-Based Payment" ("SFAS No. 123(R)"), which is a revision of SFAS
      No.
      123. SFAS 123(R) supersedes APB 25 and amends SFAS No. 95, "Statement of Cash
      Flows." Generally, the approach in SFAS No. 123(R) is similar to the approach
      described in SFAS No. 123. However, SFAS No. 123(R) requires all share-based
      payments to employees, including grants of employee stock options, to be
      recognized in the income statement based on their fair values. Pro forma
      disclosure is no longer an alternative. The provisions of this statement are
      effective for the Company as of July 1, 2006.




**Research
      and Development**





The
      Company expenses research and development costs as incurred. These costs consist
      primarily of labor, overhead, and materials to build prototype units, materials
      for testing, consulting fees and other costs. Intellectual property, including
      internally generated patents and know-how is carried at no value. To the extent
      these cost are allowable costs and funded by research and development type
      agreements with outside parties, typically government agencies, they will be
      shown separately on the statement of operations as a cost to these projects.
      See
      the Revenue Recognition accounting policy note above for additional information
      on these type of agreements.





**Comprehensive
      income (loss)**





The
      Company reports its comprehensive income (loss) in accordance with SFAS 130,
      Reporting Comprehensive Income, which requires presentation of the components
      of
      comprehensive earnings. Comprehensive income (loss) consists of net income
      (loss) for the period plus or minus any net translation adjustments applicable
      for the periods ended September 30, 2007 and 2006





**NOTE
      4 - INVENTORIES**





Inventory
      balances are comprised of the following amounts as of September 30,
      2007:





Raw
                materials
            
            $
            510,717Work
                in progress
            
            
            468,783Finished
                goods
            
            
            480,085**TOTAL**
            
            **$**
            **1,459,585**




-8-




**NOTE
      5– PROPERTY, PLANT & EQUIPMENT**





Office
                equipment
            
            $
            105,882Manufacturing
                equipment
            
            
            3,124,743Test
                units
            
            
            471,969Building
            
            
            1,996,134Land
            
            
            217,000**5,915,728**Less,
                accumulated depreciation
            
            
            (1,977,600
            )Net
                Property, Plant & Equipment
            
            **$**
            **3,938,128**





**NOTE
      6 – INVESTMENT IN JOINT VENTURE**




In
      March
      2005, the Company acquired a 49% interest in ZBB China Pty Ltd for a cost of
      $221,5505 (adjusted for current period foreign exchange rates). The joint
      venture company is licensed to distribute ZBB energy storage systems into the
      Chinese market.





During
      the periods ended September 30, 2007 and 2006 there was no significant activity
      in the joint venture company.





**NOTE
      7 – GOODWILL**




The
      Company through a series of transactions in March 1996 acquired ZBB
      Technologies, Inc., a wholly-owned subsidiary.





Goodwill
      is the excess of the purchase price paid over the fair value of the identifiable
      net assets acquired in purchase business combinations. The Company accounts
      for
      goodwill in accordance with Statement of Financial Accounting Standards
      No. 142, Goodwill and Other Intangible Assets (“Statement 142”). Under
      Statement 142, goodwill and other intangible assets deemed to have indefinite
      lives are not amortized but are subject to annual impairment tests. Impairment
      is the condition that exists when the carrying amount of goodwill exceeds its
      implied fair value. The implied fair value of goodwill is the amount determined
      by deducting the estimated fair value of all tangible and identifiable
      intangible net assets of the reporting unit to which goodwill has been allocated
      from the estimated fair value of the reporting unit. If the recorded value
      of
      goodwill exceeds its implied value, an impairment charge is recorded for the
      excess.





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, results in the net goodwill amount of $803,079 as of September
      30,
      2007.





**NOTE
      8 – NOTE RECEIVABLE-SHAREHOLDER**





In
      July
      2006, the Company agreed to a stock sale agreement with 41 Broadway Associates,
      LLC. Under the terms of the agreement the Company sold to 41 Broadway Associates
      a total of 294,118 shares (5,000,000 pre-split) in consideration for a 4%
      $1,000,000 promissory note from 41 Broadway Associates payable in installments
      over 5 years.





As
      of
      September 30, 2007 the Company is owed $758,333 on the note, which is reflected
      as a reduction to Shareholders’ equity (deficit), and $47,079 in accrued
      interest.




**NOTE
      9 – NOTES PAYABLE AND CONVERTIBLE DEBT**




***$1,000,000
      Montgomery Capital Partners LP Convertible Debt
      Facility***





On
      February 28, 2006 the Company borrowed $1,000,000 from Montgomery Capital
      Partners L.P., and entered into a convertible loan and warrant agreement (the
      “Montgomery Notes”). Interest on this facility accrued at 10% per annum
      compounded monthly and became payable in full on the earliest to occur of the
      consummation by the Company of any major financing, a default, or February
      28,
      2008.





-9-




On
      July
      11, 2007, subsequent to the Company’s public offering the Company repaid
      Montgomery Capital Partners L.P. an aggregate of $1,295,239 representing
      $890,000 of the outstanding principal amount of the Montgomery Loan, $124,918
      in
      accrued interest, $178,000 as the contractual prepayment premium, and $102,321
      in certain loan deferral fees all of which were accrued and expensed during
      the
      year ended June 30, 2007. Under the terms of the Montgomery Loan the Company
      was
      also required to issue to Montgomery shares of common stock equal to 50% of
      the
      amount required to be repaid under the Montgomery Loan, divided by the
      conversion price then in effect. Based on the application of above formula
      Montgomery was issued an aggregate of 202,674 shares of common stock.





The
      Montgomery Loan also provided that Montgomery would receive up to 117,647
      warrants to purchase common stock, the exercise price of which was to set at
      the
      time subscription notice is given with respect to such warrants. On July 11,
      2007, the Company issued an aggregate of 63,263 shares of common stock in
      respect of the cashless exercise of Montgomery’s warrants on July 5,
      2007.





***$2,226,667
      Bushido Loan***





On
      June
      14, 2006 the Company entered into a Note Purchase Agreement with Bushido Capital
      Master Fund, L.P.; ABS SOS-Plus Partners, Ltd; and Pierce Diversified Strategy
      Master Fund, (the “Bushido Lenders”) pursuant to which the Company issued an
      aggregate of $2,226,667 face amount of secured promissory notes at a 25%
      original issue discount and warrants to purchase the Company’s common stock (the
“Bushido Warrants”). Interest on the Bushido Loan accrued at 8%, payable
      quarterly on 75% of the face amount of the notes. The Bushido loan was due
      in
      full on July 14, 2008.





In
      June
      of 2007, all of the warrants were exercised resulting in the issuance of 110,628
      shares to each of Bushido and Pierce and 436,600 shares to ABS-SOS. ABS-SOS
      paid
      an aggregate of $1,113,300 for their shares with Bushido and Pierce exercising
      via cashless exercise.





On
      August
      7, 2007, the Company after discussions with the Bushido Lenders agreed to the
      following re-payment terms, all of which have been satisfied:





—The
      Company paid the full $2,226,667 due under the Bushido Loan to Bushido, Pierce
      and ABS-SOS Partners, plus $20,000 in reimbursement of their legal fees on
      August 8, 2007 in full satisfaction of all obligations under the note purchase
      agreement. Such payment resulted in a release of all liens of ZBB assets
      including a pledge of the shares of our subsidiaries.





—The
      Company agreed to file with the SEC a resale registration statement, registering
      an aggregate of 436,600 shares of common stock for ABS-SOS, as a selling
      shareholder;





—The
      resale registration statement was required to be declared effective by the
      SEC
      by October 31, 2007 discharging the Company of all of its obligations under
      the
      new registration rights agreement, and the prior exercise by ABS-SOS of their
      warrants for $1,113,300 in cash and the issuance of our 436,600 shares shall
      not
      be affected.





The
      Company satisfied all of the foregoing requirements.




***$3,260,000
      Convertible Promissory Notes***





Between
      April 2006 and May of 2007 the Company issued $3,260,000 of convertible
      promissory notes various accredited investors in a series of private placement
      transactions. The Notes accrued interest at 15% per annum and were due on June
      30, 2007. Each lender had the right to receive payment in full along with a
      warrant to purchase such number of shares of common stock equal to 50% of the
      principal amount of the Note at an exercise price equal to 120% of the offering
      price in the Company’s June 2007 public offering. Alternatively, each lender
      could choose to convert the principal and interest owed into the Company’s
      common stock at a conversion price equal to 50% of the $6.00 per share offering
      price in the Company’s United States public offering. On issuance of the
      convertible notes, there was deemed to be an embedded conversion benefit feature
      available to the note holders to convert the notes into shares at a discount
      to
      market value. This “embedded conversion benefit discount” resulted in additional
      paid-in capital recorded at the time the notes were issued of $1,630,000 being
      amortized over the term of the notes.





As
      of
      September 30, 2007 all of the Notes had either been converted into shares or
      repaid. Payments to redeem $556,250 in principal and interest due on the notes
      were disbursed in the three months ended September 30, 2007. The remaining
      notes
      were converted into common shares of the Company.




-10-




**NOTE
      10 – BANK LOANS AND NOTES PAYABLE**




At
      September 30, 2007 the Company's debt consisted of the following:


Bank
                  loans-current
              
              $
              1,890,379Bank
                  loans-long term
              
              $
              263,065**Total**
              
              **$**
              **2,153,444**
 
 During
          the period ended September 30, 2007 the Company came to terms with all
          the note
          and convertible debt holders to retire all principal and interest
          outstanding.
 
 Interest
          on the building loan is calculated at prime rate, secured by the property
          and
          equipment with the principal balance at September 30, 2007 of $1,798,868.
          The
          Company is currently in negotiations with its lenders to convert their
          building
          loan to long-term.
 
 Maximum
          aggregate annual principal payments for the 12 month periods subsequent
          to
          September 30, 2007 are as follows:
 2008
              
              $
              1,890,3792009
              
              $
              100,0362010
              
              $
              108,6082011
              
              $
              54,421**$**
              **2,153,444**





**NOTE
      11- EMPLOYEE/DIRECTOR OPTION PLANS**





In
      1998
      the Company adopted a Key Employee Stock Option Plan (the “KESOP”) pursuant to
      which up to 268,927 shares of common stock were authorized for grants of
      options, rights, and stock awards. The exercise price of all options granted
      under the Plan was determined by the Board of Directors at an amount no less
      than the estimated fair value of the Company’s common stock at the date of
      grant. All options available under the KESOP have been granted. As of
      September 30, 2007 4,412 options remain outstanding with an exercise price
      of $8.50 per share, which expire March 15, 2008.





In
      1998
      the Company entered into an Outside (Non-Executive) Directors Stock Option
      Plan
      (ODSOP) whereby 67,231 options were issued to Non-Executive Directors over
      a
      five year period commencing on January 2, 1999. At June 30, 2003 all ODSOP
      options had been granted. During fiscal 2007, 9,882 ODSOP options were
      exercised. No options have been exercised in the current period ended September
      30, 2007. At September 30, 2007 8,470 ODSOP options with an exercise price
      of
      $4.25 and an exercise date of January 2, 2008 remain outstanding.





In
      2002
      the Company established the 2002 Stock Option Plan (“SOP”) whereby a stock
      option committee was given the discretion to grant up to 617,647options to
      key
      employees of the Company at exercise prices and dates to be determined (but
      in
      any case not less than $5.67 per share) by the Directors. At September 30,
      2007
      there remains 197,728 options with exercise prices of not less than US$5.61
      and
      exercise dates up to March 30, 2010 outstanding. A further 193,213 options
      are
      available to be issued under the SOP. No options were exercised in fiscal 2007
      or fiscal 2008 to date.





During
      2005 the Company established an Employee Stock Option Scheme that authorizes
      the
      board of directors or a committee thereof, to grant options to employees and
      directors of the company or any affiliate of the company. The maximum number
      of
      options that may be granted in aggregate at any time under this option scheme
      or
      under any other employee option or share plan is the number equivalent to 5%
      of
      the total number of issued shares of the Company including all shares underlying
      options under the KESOP, the ODSOP and the 2002 Plan. Options issued are to
      expire five years after the grant. During the year ended June 30, 2007
      250,000 options were granted with a balance of 295,804 options available for
      future grant. At September 30, 2007 250,000 options with an exercise price
      of
      $3.82 with an exercise date of June 12, 2012 remain outstanding. No options
      have
      been exercised in fiscal 2007 or 2008 year to date.





During
      the three months ended September 30, 2007 there was no activity related to
      the
      KESOP and ODSOP plans.





At
      September 30, 2007 the Company had 489,017 options available for future
      grant.




-11-





The
      following table summarizes information relating to the stock options outstanding
      at September 30, 2007:


**Outstanding**
                
                **Exercisable******
                
                
                
                **Weighted-****Average**
                
                **Weighted-**
                
                
                
                **Weighted-****Number of**
                
                **Remaining**
                
                **Average**
                
                
                
                **Average****Options**
                
                **Contractual Life**
                
                **Exercise**
                
                **Number of**
                
                **Exercise****Range
                    of Exercise Prices**
                
                **Outstanding**
                
                ***(in
                    years)***
                
                **Price**
                
                **Options**
                
                **Price**$3.06-3.82
                
                
                250,000
                
                
                4.7
                
                $
                3.82
                
                
                250,000
                
                $
                3.82$4.25-5.61
                
                
                118,292
                
                
                0.6
                
                $
                5.51
                
                
                118,292
                
                $
                5.51$6.51-8.50
                
                
                92,319
                
                
                2.4
                
                $
                6.61
                
                
                92,319
                
                $
                6.61**Balance
                    at September 30, 2007**
                
                
                460,611
                
                
                3.2
                
                $
                4.81
                
                
                460,611
                
                $
                4.81





**NOTE
      12 - NON RELATED PARTY OPTIONS**





At
      September 30, 2007 there are 286,765 options (issued one option per four shares
      acquired through the Australian IPO, March 2005) with an expiration date of
      December 2007 and an exercise price of $6.46 issued and outstanding.





At
      September 30, 2007 there are 314,176 options (per Australian IPO brokerage
      agreement) with an expiration date of December 2007 and an exercise price of
      $6.46 issued and outstanding.





At
      September 30, 2007 there are 120,023 options (per Empire brokerage agreement)
      with an expiration date of September 2011 and an exercise price of $3.23 issued
      and outstanding.





At
      September 30, 2007 there are 50,000 options (per Empire brokerage agreement)
      with an expiration date of June 2012 and an exercise price of $7.20 issued
      and
      outstanding.





At
      September 30, 2007 there are 195,800 options (Strategic Growth International)
      with an expiration date between March 2011 and June 2012 and an exercise price
      of between $3.75 and $7.20 issued and outstanding.





The
      table
      below summarizes non-related party option balances:


**Stock
                  Options**
              
              
              
              **Weighted-Average****Non-related
                  party activity**
              
              **Number of Options**
              
              **Exercise Price Per Share****Balance
                  at June 30, 2006**
              
              
              **1,242,510**
              
              **$**
              **5.96**Options
                  granted
              
              
              715,103
              
              
              3.40Options
                  expired
              
              
              (152,811
              )
              
              6.00Options
                  exercised
              
              
              (720,391
              )
              
              4.33**Balance
                  at June 30, 2007**
              
              
              **1,084,411**
              
              **$**
              **5.41**Options
                  granted
              
              
              -
              
              
              -Options
                  expired
              
              
              -
              
              
              -Options
                  exercised
              
              
              (117,647
              )
              
              3.40**Balance
                  at September 30, 2007**
              
              
              **966,764**
              
              **$**
              **5.65**





**NOTE
      13 – COMMITMENTS**





In
      July
      2006, the Company entered into a business development agreement with 41 Broadway
      Associates, whereby 41 Broadway Associates is to provide consulting services
      including business planning and facilitation of introductions to strategic
      relationships and customers, corporate financiers and investment bankers at
      a
      fee of $200,000 per year payable quarterly until September 2010. During the
      three months ended September 30, 2007 fees of $50,000 were incurred by the
      Company.




-12-




In
      July
      2007 the Company commenced engineering and product development activities
      pursuant to a collaborative project (Advanced Electricity Storage Technologies
      project) with an Australian government agency through July 2010 which terms
      include the receipt of funding toward future development costs which include
      the
      production and delivery of one 500kWh energy storage system. During the three
      months ended September 30, 2007 $277,485 was recognized as revenue based on
      the
      first of nine performances of the contract.





The
      AEST
      project has total budgeted expenditure for operating and capital items of
      A$5,892,434 (approximately US$5.1M) exclusive of any Australian taxes. The
      company’s contribution of A$2,830,216 (approximately US$2.5M) is the value of
      any cash and in-kind contributions provided to the project by the company,
      or
      others, in undertaking the project activities. The Australian Government is
      providing the project funding of A$3,062,218 (approximately US$2.6M) to be
      paid
      in accordance with the completion of contracted project milestones and subject
      to the company’s compliance with project reporting requirements, and the company
      demonstrating that the funds already provided to it have been fully spent or
      will be fully spent in the near future.





**NOTE
      14 - RELATED PARTY TRANSACTIONS**





The
      Company leases its Australian office facility from an entity affiliated with
      three of the Company’s officers. The current rental is $58,520 per annum
      (A$66,500) and is subject to an annual CPI adjustment.





Rent
      expense was $14,194 and $10,448 for the three months ended September 30, 2007
      and 2006.





The
      future payments required under the terms of the lease are as
      follows:


For
                  the twelve months ending September 30,2008
              
              $
              58,5202009
              
              $
              58,5202010
              
              $
              58,5202011
              
              $
              58,5202012
              
              $
              4,877**TOTAL:**
              
              **$**
              **238,957**


The
      Company has received a purchase order from ZBB China Pty Ltd; a 49% owned joint
      venture company for delivery of an energy storage system in 2007. The Company
      has received a deposit of $160,000 on the order which it has recorded as
      deferred revenue at September 30, 2007. See additional discussion in Note 3,
      “Revenue Recognition”.





**NOTE
      15 - 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
      US employees, the Company has a 401(k) plan. All active participants are 100%
      vested immediately.




Expenses
      under these plans were $10,553 and $26,384 for the three months ending September
      30, 2007 and 2006.





**NOTE
      16 – SUBSEQUENT EVENTS**




On
      November 7, 2007 Mr Geoffrey Hann, the Company’s Chief Financial Officer and a
      member of the board of directors advised he will be resigning from the Company
      effective December 31, 2007.




On
      November 7, 2007 the Company announced the Mr. Scott W. Scampini will be
      appointed as interim Chief Financial Officer to take effect from January 1,
      2008.




On
      November 7, 2007 the Company also announced that Steven Jay Mueller has resigned
      from the Company’s Board of Directors, effective immediately.




-13-







**ZBB
      ENERGY CORPORATION**




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




**Introduction**




The
      following information should be read in conjunction with the financial
      statements and notes thereto in Part I, Item
      1 of
      this Quarterly Report and with Management’s Discussion and Analysis of Financial
      Condition and Results of Operations
      contained in our Annual Report on Form 10-KSB for the year ended June 30, 2007.




**Forward-Looking
      and Cautionary Statements**




We
      do not
      provide forecasts of our future financial performance. However, from time to
      time, information provided by
      us or
      statements made by our employees may contain “forward-looking” information that
      involves risks and uncertainties. In particular, statements contained in this
      Quarterly Report that are not historical facts constitute forward-looking
      statements and are made under the safe harbor provisions of the Private
      Securities Litigation Reform Act of 1995. Forward-looking statements involve
      substantial risks and uncertainties. You can identify these statements by
      forward-looking words such as “may”, “will”, “expect”, “anticipate”, “believe”,
“estimate”, “continue”, and similar words. You should read forward-looking
      statements carefully because they: (1) discuss our future expectations; (2)
      contain projections of our future operating results or financial condition;
      or
      (3) state other “forward-looking” information. Various factors described below,
      as well as any other instances of cautionary language in this Quarterly Report,
      refer to or provide examples of risks, uncertainties and events that may cause
      our actual results to be materially different than the expectations described
      in
      our forward-looking statements. You should be aware that the occurrence of
      any
      of the events or factors described below and elsewhere in this Quarterly Report
      could materially and adversely affect our business. All forward-looking
      statements included in this Quarterly Report are based on information available
      to us on the date hereof, and we assume no obligation to update any such
      forward-looking statements


.


Each
      forward-looking statement should be read in conjunction with the financial
      statements and notes thereto in Part
      I,
      Item 1 of this Quarterly Report, this section, and Management’s Discussion and
      Analysis of Financial Condition and Results
      of Operations and Description of Business and Risk Factors contained in our
      Annual Report on Form 10-KSB for the year ended June 30, 2007.





In
      addition to the risks and uncertainties faced generally by participants in
      the
      renewable energy industry, we face the
      following risks and uncertainties:





·
            **We
                have incurred losses and anticipate incurring continuing
                losses.**


·
            **Until
                2004, we were primarily a research and development company with no
                commercial sales.**


·
            **We
                have made only one direct sale of our energy storage system and there
                can
                be no assurance that we will be able to make additional sales to
                such
                customer or other potential
                purchasers.**


·
            **Our
                ability to sell our energy storage systems to California Energy Commission
                and other utility companies will be materially and adversely affected
                if
                our two installed systems fail to perform satisfactorily or otherwise
                meet
                performance
                specifications.**


·
            **Our
                initial customer focus, namely, utilities and renewable energy companies
                are generally slow to react to new technologies or make substantial
                financial commitments.**


·
            **The
                market for our products is new and evolving and a viable market may
                never
                develop or may take longer to develop than we
                anticipate.**


·
            **Undetected
                and unanticipated defects in our energy storage systems could increase
                our
                costs and harm our reputation.**


·
            **We
                will be required to regularly devote capital to updating, refining
                and
                expanding our energy storage systems technology and there is no assurance
                that we will be able to make improvements to remain competitive with
                new
                technologies.**


·
            **Our
                products must compete against both existing and newly developed
                technologies.**


·
            **We
                face competition from larger, more well-established companies. We
                may not
                be able to protect important intellectual property.**


·
            **We
                face risks associated with our plans to market, distribute and service
                our
                products internationally.**


·
            **Sales
                of our common stock may have an adverse effect on the market price
                of our
                common stock.**


-14-




**Overview**




**Company
      Background**




Since
      our
      inception in 1981, and through 2004, we have been a research and development
      company with little or no revenues. We have historically funded our operations
      primarily through debt and equity financings, government grants and joint
      ventures.





On
      June
      18, 2007, in connection with our initial United States public offering of
      3,333,333 shares of our common stock at an initial offering price of $6.00
      per
      share, our shares of common stock began trading on the American Stock Exchange
      and we delisted on the Australian Stock Exchange effective as of August 9,
      2007.





Our
      production capacity currently remains limited because we have only recently
      commenced implementation of our business plan which requires the acquisition
      of
      manufacturing plant and equipment to increase production output as well as
      increasing the level of inventory purchases to obtain economies of scale in
      pricing.





Our
      business model involves marketing primarily to large utility companies and
      renewable energy customers. In order for these customers to make the most
      efficient use of our products in their electricity production and delivery
      operations, they would likely purchase our energy storage systems in quantities
      that could exceed our current production capacity.





Our
      products reflect a new technology that has not yet attained market acceptance.
      Additionally, we intend to compete primarily with the existing lead-acid storage
      system technologies which have attained market acceptance.





We
      do not
      believe that historic performance, trend, financial ratios or industry
      benchmarks are useful for analysis of our financial condition.  This is due
      to the transitional nature of the Company as we evolve from a research and
      development entity into a commercial manufacturer of energy storage
      systems.





We
      have
      recently implemented performance reviews and detailed individual objectives
      for
      existing employees and initiated performance objectives for new employees
      during their first year. We are also in the process of developing standards
      and
      detailed objectives that can be reviewed and used as a tool for reviewing
      individuals and overall performance of our business.





**Results
      of Operations**





***Three
      months ended September 30, 2007 as compared to the three months ended September
      30, 2006:***





*Revenue
      and Other income:*





Our
      revenues for the three months ended September 30, 2007 were $386,422 which
      reflected an increase of $176,142 from $210,280 for the three months ended
      September 30, 2006. This increase was primarily attributable to $277,485 in
      revenues from the Advanced Electricity Storage Technologies engineering project
      (“AEST”) with an Australian government agency which began in July 2007 and a
      reduction in revenues of $101,343 in our contract with the California Energy
      Commission. Revenues include estimates based on the percentage-of-completion
      method of accounting for long-term contracts.





Other
      income for the three months ended September 30, 2007 was $191,362 which
      reflected an increase of $185,192 from $6,170 for the three months ended
      September 30, 2006.





This
      increase in other income resulted from an increase of $178,859 in interest
      income resulting from the investment of proceeds from the Company’s public
      offering of June 20, 2007 and an increase in rental income paid to us by tenants
      in our Wisconsin property of $6,333. We expect rental income to decrease in
      future periods as the facility in Wisconsin is expanded into commercial
      manufacturing and distribution activities. Interest income is also expected
      to
      gradually decrease in future periods as proceeds from the public offering are
      utilized for capital expenditures and operational purposes.


-15-





*Cost
      and Expenses and Other expense:*




Total
      operating expenses for the three months ended September 30, 2007 were $1,128,484
      which represents an increase of $83,492 from expenses of $1,044,992 incurred
      during the three months ended September 30, 2006.





The
      total
      operating expense increase was due to increases of $71,601 in cost of contracts
      and product sales (see below); selling, general and administrative expense
      of
      $17,851 (see below) and depreciation increase of $6,756; and a decrease in
      research and development costs of $12,716 (see below).





Other
      expenses for the three months ended September 30, 2007 were $105,607, which
      represents a decrease of $362,507 from expenses of $468,114 in the three months
      ended September 30, 2006.





The
      decrease in other expenses was primarily due to the significant finance related
      costs incurred during the prior fiscal year and leading up to the initial US
      public offering which closed on June 20, 2007. These decreases included $114,325
      in interest expense, $223,274 in amortization of debt discounts and options
      and
      a $24,908 decrease in other finance charges from the three months ended
      September 30, 2006.





During
      the three months ended September 30, 2007, except for the bank loans, all debt
      has been converted or repaid which has reduced interest expense during the
      current period and will significantly reduce interest expense in future periods.





Cost
      of Contracts .
      Our
      cost of contracts for the three months ended September 30, 2007 was $265,091,
      which represented an increase of $71,601 from the comparable 2006 period expense
      of $193,490. The increase is attributable to the July 2007 start of the “AEST”
contract in Australia which incurred $175,678 of costs during the period.





Prior
      to
      this period, the type of costs attributable to project engineering and
      development contract in Australia were classified under Research and Development
      in the Statement of Operations. To the extent these costs are allowable under
      an
      active contract they are classified as a cost of the contract as opposed to
      general research and development expenses. These costs include allocations
      and
      estimates based on the percentage-of-completion method of accounting for
      long-term contracts and include a $104,077 reduction in cost of product sales
      on
      the CEC contract in the three months ended September 30, 2007 as compared to
      the
      same period of the prior year.




Selling,
      General and Administrative .
      Our
      selling, general and administrative expenses for the three months ended
      September 30, 2007 was $615,362, an increase of $17,851 for the three months
      ended September 30, 2006 of $597,511. The increases were due to additions to
      engineering personnel less reductions in the current quarter related to the
      Company de-listing from the Australian Stock Exchange and the related audit
      and
      listing costs that were incurred in the three month period ended September
      30,
      2006.





Travel
      costs were approximately $92,000 and $66,000 for the three month periods ending
      September 2007 and 2006, respectively, due to installation and maintenance
      of
      our product sold to the California Energy Commission and our marketing efforts.
      We expect travel related to marketing and business development to increase
      as
      our sales efforts and installations increase.





Insurance
      costs include insurance benefits for employees of $28,427 and general liability
      insurance of $12,308. We acquired a $5,000,000 Directors and Officers policy
      in
      July 2007 costing $39,500 in annual premiums and expensed $9,875 in the first
      quarter.




Research
      and Development .
      Our
      research and development costs for the three months ended September 30, 2007
      were $177,104 which represented a decrease of $12,716 from the comparable 2006
      period. The decrease was primary due to costs of $175,678 incurred under the
      AEST project contract which began July 2007 that were reclassified to Cost
      of
      engineering contracts in the Company’s Statement of Operations, thus reducing
      the research and development costs. This recently awarded government project
      grant will affect future expenditures (and revenues) and the classification
      of
      expenses thru the contact (June 2010) to the extent the costs are allowable
      under the contract. We intend to maintain our Australian staff and facility
      for
      the purposes of facilitating further marketing in Australia and Asia and to
      conduct research and development as needed.





Net
      Loss. Our net
      loss for the three months ended September 30, 2007 was $656,307 a
      decrease of $640,349 from
      the $1,296,656
      loss in the
      comparable three months ended September 30, 2006. This reduction in net loss
      resulted primarily from decreases in finance charges, interest expense, and
      amortization of debt discounts of $362,507,
      an increase in revenues of $176,142 less increases in operating costs of $83,492.




-16-





**Liquidity
      and Capital Resources**





Since
      our
      inception, our research and development and operations were primarily financed
      through debt and equity financings, government grants and joint ventures. Total
      paid in capital as of September 30, 2007 was $45,470,441. We had a cumulative
      deficit of $27,478,438 through September 30, 2007 and a cumulative deficit
      of
      $26,822,131 through June 30, 2007. At September 30, 2007 we had a working
      capital surplus of $11,036,603 and as of June 30, 2007 a working capital surplus
      of $11,617,425. Our net worth as at September 30, 2007 and June 30, 2007 was
      $15,736,295 and $15,918,203, respectively.





As
      a
      result of consummation of our initial United States public offering and our
      receipt of $18,410,000 (net of underwriter’s costs) proceeds on June 20, 2007,
      our working capital increased by $17,267,365 (net proceeds less $1,142,635
      in
      capital raising costs).




Additional
      funding will be generated from our current California Energy Commission contract
      along with funding from an agreement entered into on June 29, 2007 by ZBB
      Technologies, Ltd, our subsidiary based in Western Australia, and the Department
      of Environment and Water Resources (Australia), entered into an agreement
      (“AEST” project) whereby, among other things, the Department has agreed to
      provide funding to us for the development and delivery of an energy storage
      system to be used to store and supply renewable energy generated from
      photovoltaic solar panels and wind turbines already operational at the
      Commonwealth Scientific and Industrial Research Organization’s Newcastle Energy
      Centre in New South Wales.




The
      “AEST” agreement provides for funding through June 2010 under which the
      Commonwealth of Australia will provide $2.6 million (A$3.1 million) in project
      funding over several periods, totaling $1.35 million in year one, $1.01 million
      in year two and $0.24 million in year three, as certain development progress
      “milestones” allowable expenditures are met by us. The AEST project has total
      budgeted expenditure for operating and capital items of A$5,892,434
      (approximately US$5.1M) exclusive of any Australian taxes. The company’s
      contribution of A$2,830,216 (approximately US$2.5M) is the value of any cash
      and
      in-kind contributions provided to the project by the company, or others, in
      undertaking the project activities.





We
      believe that we will have sufficient capital necessary to meet our operating
      and
      capital commitments for at least the next 18 to 24 months. However, if sales
      increase substantially, we will require additional capital in order to expand
      our production capacity.





**Material
      Commitments for Capital Expenditures**





From
      the
      proceeds of our June 2007 United States initial public offering, we retired
      an
      aggregate of $4,523,060 in indebtedness (including conversions of debt) in
      July
      and August 2007. In addition, we intend to apply approximately $3,750,000
      towards the acquisition of new vibration welding and production equipment
      ($3,000,000), infra-red welding equipment ($250,000) and other production line
      tools and sundry equipment ($500,000) over the next 24 months.





**Operating
      Activities**





For
      the
      three months ended September 30, 2007, net cash used in operations was
      $1,395,243 after adding back non-cash items of $70,927 of depreciation and
      other
      non-cash sources of $50,000. Cash used in operations resulted from decreases
      in
      accounts payable of $408,129; accrued expenses of $91,574; deferred revenues
      of
      $102,937; and increase to inventory of $187,016; prepaid and other current
      assets of $110,614.. Cash provided from operations was generated from a decrease
      in accounts receivable of $40,408.





For
      the
      three months ended September 30, 2006, net cash used in operations was $850,379
      after adding back non-cash items of $490,288 consisting primarily of
      depreciation, issuances and amortizations of financial assets, deferred finance
      fees and discounts and increases in accrued interest expense. Sources of cash
      provided by operations resulted from increases in accounts payable of $101,948
      and accrued expenses of $47,314 and reductions in accounts receivable and other
      current assets of 90,216. Cash used by operations was adjusted by increases
      in
      inventory of $74,890 and a decrease in deferred revenue of
      $208,600.





**Investing
      Activities**




For
      the
      three months ended September 30, 2007, net cash used in investing activities
      was
      $89,669 due to purchases of manufacturing equipment and computer
      hardware.





For
      the
      three months ended September 30, 2006, net cash used in investing activities
      was
      $5,918 in other equipment purchases


-17-





**Financing
      Activities**





For
      the
      three months ended September 30, 2007, net cash used in financing activities
      was
      $4,170,470 consisting primarily of $4,047,822 in repayments of interest and
      principal on notes payable, additional public offering costs of $100,000 and
      $22,647 reduction in principal on bank loans. Additional conversion of $475,237
      in notes payable for shares of the Company’s common stock resulted in only the
      bank loan debt remaining at September 30, 2007.





For
      the
      three months ended September 30, 2006, net cash provided from financing
      activities was $568,766 resulting from $687,500 in convertible note proceeds
      less repayments of bank loans of $18,753 and deferred finance fees payments
      of
      $99,980.





**Known
      Trends, Market Opportunities and Challenges**





We
      believe that there are specific existing and rapidly emerging market
      opportunities for the Company’s energy storage products.





We
      believe that the electric utilities market’s increasing energy demands on an
      increasingly fragile transmission and distribution networks are forcing both
      utilities and commercial and industrial customers to adopt distributed storage
      and delivery systems to increase the reliability and the capacity of the
      electrical grid. Network reliability depends on both energy storage systems,
      and
      delivery products that are lower in cost, have greater life span and are lower
      in emission with minimal disposal costs. We have designed our products to meet
      these needs in that they can be combined for use in larger storage applications
      and we believe that our products will cost less with competing products, based
      on a life of product basis and on energy density and delivery.




We
      believe that the increasing importance of renewable energy generating sources
      for future energy supply is now being enhanced with Federal and State Government
      initiatives to lessen the United States greenhouse gas emissions and dependency
      on oil. Increasing concerns surrounding CO 2 emissions are also driving this market sector. We believe that solar and wind
      energy has grown over the past five years and will continue to grow for so
      long
      as fossil fuel prices are increasing. Because both solar and wind are
      intermittent primary energy sources, both grid connected and off-grid
      installations require energy storage devices to optimize their capabilities.





We
      are
      already working in the California energy market, in association with the
      California Energy Commission, Pacific Gas & Electric and the US Department
      of Energy amongst others, to install products into the local transmission and
      distribution network. In addition we are currently addressing opportunities
      in
      the renewable energy markets in both the United States and Australia with the
      intention of introducing products and services into these markets.




**Off-Balance
      Sheet Arrangements**




We
      have
      no off-balance sheet arrangements.




**Item
      3.  CONTROLS AND PROCEDURES**




As
      of the
      end of the period covered by this report, we carried out an evaluation, under
      the supervision and with the participation of management, including our chief
      executive officer and principal financial officer, of the effectiveness of
      the
      design and operation of our disclosure controls and procedures as defined in
      Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934. Based
      upon
      that evaluation, our chief executive officer and principal financial officer
      concluded that our disclosure controls and procedures are effective to cause
      the
      material information required to be disclosed by us in the reports that we
      file
      or submit under the Exchange Act to be recorded, processed, summarized and
      reported within the time periods specified in the SEC’s rules and forms.




It
      should
      be noted that any system of controls, however well designed and operated, can
      provide only reasonable, and not absolute, assurance that the objectives of
      the
      system are met. In addition, the design of any control system is based in part
      upon certain assumptions about the likelihood of future events. Because of
      these
      and other inherent limitations of control systems, there can be no assurance
      that any design will succeed in achieving its stated goals under all potential
      future conditions, regardless of how remote.




There
      have been no significant changes in our internal controls or in other factors
      which could significantly affect internal controls subsequent to the date we
      carried out our evaluation.


-18-




**PART
      II**




**Item
      1. Legal Proceedings**




On
      July
      23,2007, Thomas G. Folliard, a former director of the Company who last served
      in
      a board meeting in August of 2006, filed suit against the company for
      outstanding compensation as a director of $75,000 (Case No. 07-CV-2006, State
      of
      Wisconsin, Milwaukee County Circuit Court). While we have accrued for certain
      fees to Mr. Folliard, we believe that Mr. Folliard’s claim is without merit.





Other
      than the foregoing, there are no pending legal proceedings against us.




**Item
      2.** **Unregistered
      Sales of Equity Securities and Use of Proceeds**




This
      Item
      is not applicable.




**Item
      3. Defaults Upon Senior Securities**




This
      Item
      is not applicable.




**Item
      4** **.** **Submission
      of Matters to a Vote of Security Holders**




This
      Item
      is not applicable




**Item
      5. Other Information**




This
      Item
      is not applicable.




**Item
      6. Exhibits**




(a)   Exhibits:


Exhibit
        31.1
 Certification
        of C.E.O. Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  Exhibit
        31.2
 Certification
        of Principal Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley
        Act of 2002.
  Exhibit
        32.1
 Certification
        of C.E.O. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
        906
        of the Sarbanes-Oxley Act of 2002.
  Exhibit
        32.2
 Certification
        of Principal Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted
        pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.




-19-


**SIGNATURES**





Pursuant
      to the requirements of Section 13 or 15(d) of the Exchange Act, the
      registrant has duly caused this Form 10-QSB Quarterly Report to be signed
      on its behalf by the undersigned on November 14, 2007, thereunto duly
      authorized.





**ZBB
                ENERGY CORPORATION**/s/  Robert
                J. ParryRobert
                J. ParryChief
                Executive Officer(Principal
                Executive Officer) and Director





In
      accordance with the requirements of the Securities Exchange Act of 1934, this
      Form 10- QSB Quarterly Report has been signed by the following persons in
      the capacities and on the dates indicated.




**Position**
              
              **Date**/s/  Robert
                  J. Parry
              
              Chief
                  Executive Officer
              
              November
                  14, 2007Robert
                  J. Parry
              
              (Principal
                  executive officer) and
                Director/s/  Geoffrey
                  D. Hann
              
              Chief
                  Financial Officer
              
              November
                  14, 2007Geoffrey
                  D. Hann
              
              (Principal
                  financial officer andprincipal
                  accounting officer) and
                Director/s/  Richard
                  A. Payne
              
              Chairman
                  and Director
              
              November
                  14, 2007Richard
                  A. Payne/s/  William
                  Mundell
              
              Director
              
              November
                  14, 2007William
                  Mundell/s/  Manfred
                  Birnbaum
              
              Director
              
              November
                  14, 2007Manfred
                  Birnbaum


-20-