**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 March 31, 2008**
  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 001-33540**
  **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 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.
  Yes
**x**
              No
**o**
  As
        of May
        13, 2008 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 (the “Company”)
        at March 31, 2008 and the related unaudited statements of operations, changes
        in
        shareholder’s equity and cash flows for the three and nine months ended March
        31, 2008 and 2007 have been prepared by management in conformity with accounting
        principles generally accepted in the United States (“GAAP”). 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 March 31, 2008 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 March 31, 2008 and June 30,
                  2007


**March
                    31, 2008**
                
                **June
                    30, 2007****Assets**
                
                *(unaudited)*Current
                    assets:Cash
                    and cash equivalents
                
                $
                9,009,631
                
                $
                17,823,022Accounts
                    receivable
                
                
                476,963
                
                
                192,768Other
                    receivables
                
                
                165,140
                
                
                36,602Inventories-*net
                    of $311,158 allowance at March 31, 2008*
                
                
                1,905,990
                
                
                1,272,568Prepaids
                    and other current assets
                
                
                414,056
                
                
                319,790**Total
                    current assets**
                
                
                **11,971,780**
                
                
                **19,644,750**Long-term
                    assets:Property,
                    plant and equipment, net
                
                
                3,897,595
                
                
                3,570,386Investment
                    in joint venture
                
                
                234,125
                
                
                213,025Goodwill
                
                
                803,079
                
                
                803,079**Total
                    assets**
                
                
                **16,906,578**
                
                **$**
                **24,231,240****Liabilities
                    and Shareholders' Equity**Current
                    liabilities:Bank
                    loans
                
                
                1,890,379
                
                
                1,890,379Accounts
                    payable
                
                
                710,944
                
                
                836,183Accrued
                    loss on contracts
                
                
                268,000
                
                
                357,250Deferred
                    revenues
                
                
                160,000
                
                
                336,305Accrued
                    compensation and benefits
                
                
                79,642
                
                
                84,148Notes
                    payable
                
                
                -
                
                
                4,523,060**Total
                    current liabilites**
                
                
                **3,108,965**
                
                
                **8,027,325**Long-term
                    liabilities:Bank
                    loans
                
                
                214,114
                
                
                285,712**Total
                    liabilities**
                
                **$**
                **3,323,079**
                
                **$**
                **8,313,037**Shareholders'
                    equityCommon
                    stock*($0.01 par value); 150,000,000 authorized*
                  *10,512,283
                    and 10,087,090 shares issued and outstanding*Additional
                    paid-in capital
                
                
                45,365,318
                
                
                44,994,333Note
                    receivable from shareholders
                
                
                (658,333
                )
                
                (808,333
                )Accumulated
                    other comprehensive (loss)
                
                
                (1,410,791
                )
                
                (1,546,537
                )Accumulated
                    (deficit)
                
                
                (29,817,817
                )
                
                (26,822,131
                )**Total
                    shareholders' equity**
                
                **$**
                **13,583,500**
                
                **$**
                **15,918,203****Total
                    liabilities and shareholders' equity**
                
                **$**
                **16,906,579**
                
                **$**
                **24,231,240**




*See
      accompanying notes to consolidated financial statements*




***ZBB
                    ENERGY CORPORATION***Consolidated
                    Statements of Operations for theThree
                    and Nine Months Ended March 31, 2008 and
                    2007
  *Three
                    months ended March 31,*
                
                *Nine
                    months ended March 31,***2008**
                
                **2007**
                
                **2008**
                
                **2007**unaudited
                
                unaudited
                
                unaudited
                
                unaudited**Revenues**Product
                    sales and revenues
                
                $
                181,708
                
                $
                149,911
                
                $
                303,063
                
                $
                659,500Engineering
                    and development contracts
                
                
                371,148
                
                
                -
                
                
                811,474
                
                
                -**Total
                    Revenues**
                
                
                **552,856**
                
                
                **149,911**
                
                
                **1,114,537**
                
                
                **659,500****Cost
                    and Expenses**Cost
                    of product sales
                
                
                180,862
                
                
                147,531
                
                
                283,837
                
                
                619,015Cost
                    of engineering and development contracts
                
                
                398,147
                
                
                -
                
                
                717,045
                
                
                -Selling,
                    general, and administrative
                
                
                729,495
                
                
                536,569
                
                
                2,197,326
                
                
                1,534,457Advanced
                    engineering and development
                
                
                425,362
                
                
                287,111
                
                
                945,118
                
                
                610,690Depreciation
                
                
                100,387
                
                
                64,358
                
                
                253,718
                
                
                193,094**Total
                    Costs and Expenses**
                
                
                **1,834,253**
                
                
                **1,035,569**
                
                
                **4,397,044**
                
                
                **2,957,256****Loss
                    from Operations**
                
                
                (1,281,397
                )
                
                (885,658
                )
                
                (3,282,507
                )
                
                (2,297,756
                )**Other
                    Income (Expense)**Interest
                    income
                
                
                107,371
                
                
                18,646
                
                
                432,295
                
                
                55,255Interest
                    expense
                
                
                (35,827
                )
                
                (177,688
                )
                
                (130,161
                )
                
                (529,853
                )Finance
                    costs
                
                
                (28
                )
                
                (84,182
                )
                
                (52,813
                )
                
                (246,057
                )Amortization
                    of debt discounts
                
                
                -
                
                
                (771,623
                )
                
                -
                
                
                (1,384,108
                )Rental
                    income
                
                
                12,500
                
                
                18,500
                
                
                37,500
                
                
                41,967**Total
                    Other Income (Expense)**
                
                
                **84,016**
                
                
                **(996,347**
                **)**
                
                **286,821**
                
                
                **(2,062,796**
                **)**Loss
                    before provision for Income Taxes
                
                
                (1,197,381
                )
                
                (1,882,005
                )
                
                (2,995,686
                )
                
                (4,360,552
                )Provision
                    for Income Taxes
                
                
                -
                
                
                -
                
                
                -
                
                
                -**Net
                    Loss**
                
                **$**
                **(1,197,381**
                **)**
                **$**
                **(1,882,005**
                **)**
                **$**
                **(2,995,686**
                **)**
                **$**
                **(4,360,552**
                **)****Net
                    Loss per share-**Basic
                    and diluted
                
                **$**
                **(0.11**
                **)**
                **$**
                **(0.36**
                **)**
                **$**
                **(0.29**
                **)**
                **$**
                **(0.83**
                **)****Weighted
                    average shares-basic and diluted:**Basic
                
                
                10,512,283
                
                
                5,249,624
                
                
                10,447,344
                
                
                5,246,770Diluted
                
                
                10,512,283
                
                
                5,249,624
                
                
                10,447,344
                
                
                5,246,770
 *See
            accompanying notes to consolidated financial statements.*
  -2-
 
 **ZBB
                          Energy Corporation****Consolidated
                          Statements of Changes in Shareholders' Equity
                          (unaudited)**


Number
                    of Shares
                
                Common
                    Stock
                
                Add'l
                    Paid-in Capital
                
                Note
                    Receivable from Shareholders
                
                Accumulated
                    Other Comprehensive (Loss)
                
                Accumulated
                    Deficit
                
                **TOTAL
                    Shareholders' Equity**
                
                Comprehensive
                    (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
                
                
                
                
                
                
                
                
                
                
                
                150,000
                
                
                
                
                
                
                
                $
                150,000Public
                    offering costs
                
                
                
                
                
                
                
                
                (100,000
                )
                
                
                
                
                
                
                
                
                
                $
                (100,000
                )Net
                    Loss
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                $
                (2,995,686
                )
                $
                (2,995,686
                )
                $
                (2,995,686
                )Net
                    Translation Adjustment
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                135,746
                
                
                
                
                $
                135,746
                
                
                135,746**Balance:
                    March 31, 2008**
                
                
                **10,512,283**
                
                **$**
                **105,123**
                
                **$**
                **45,365,318**
                
                **$**
                **(658,333**
                **)**
                **$**
                **(1,410,791**
                **)**
                **$**
                **(29,817,817**
                **)**
                **$**
                **13,583,500**
                
                **$**
                **(2,859,940**
                **)**
  *See
          accompanying notes to consolidated financial statements.*
  -3-
 **ZBB
                    Energy Corporation**
                
                Nine
                    months ended March 31,Consolidated
                    Statements of Cash Flows (unaudited)
                
                **2008**
                
                **2007****Cash
                    flows from operating activities:**Net
                    loss
                
                **$**
                **(2,995,686**
                **)**
                **$**
                **(4,360,552**
                **)**Adjustments
                    to reconcile net loss to net cash used in operating
                    activities:Depreciation
                
                
                253,718
                
                
                193,094Accrued
                    interest on notes payable
                
                
                -
                
                
                311,717Equipment
                    expensed to cost of contracts
                
                
                118,000
                
                
                -Payments
                    applied to note receivable for consulting fees
                
                
                150,000
                
                
                141,667Amortization
                    of note discounts, options and finance fees
                
                
                -
                
                
                1,464,915Prepaids
                    and other assets reclassed to property, plant and
                    equipment
                
                
                (239,000
                )
                
                -(Increase)
                    decrease in operating assets:Accounts
                    receivable
                
                
                (284,195
                )
                
                (28,761
                )Inventories
                
                
                (633,423
                )
                
                (149,269
                )Prepaids
                    and other current assets
                
                
                (94,266
                )
                
                123,580Other
                    assets-interest receivable
                
                
                (128,538
                )
                
                -Increase
                    (decrease) in operating liabilities:Accounts
                    payable
                
                
                (125,240
                )
                
                726,373Accrued
                    expenses
                
                
                (4,506
                )
                
                12,636Accrued
                    loss on contracts
                
                
                (89,250
                )
                
                -Deferred
                    revenues
                
                
                (176,305
                )
                
                (422,276
                )Net
                    cash used in operating activities
                
                
                **(4,248,690**
                **)**
                
                **(1,986,876**
                **)****Cash
                    flows from investing activities**Capital
                    expenditures
                
                
                (345,281
                )
                
                (191,531
                )Net
                    cash (used) in investing activities
                
                
                **(345,281**
                **)**
                
                **(191,531**
                **)****Cash
                    flows from financing activities**Bank
                    loans and other borrowings
                
                
                (71,598
                )
                
                137,668Bank
                    overdraft
                
                
                -
                
                
                106,664Repayments
                    of notes payable
                
                
                (4,047,823
                )
                
                -Proceeds
                    from exercise of stock options
                
                
                -
                
                
                42,000Proceeds
                    from issue of notes payable
                
                
                -
                
                
                1,500,000Additional
                    public offering costs
                
                
                (100,000
                )
                
                -Deferred
                    finance fees
                
                
                -
                
                
                (407,973
                )Net
                    cash used by financing activities
                
                
                **(4,219,420**
                **)**
                
                **1,378,359**Effect
                    of exchange rate changes on cash
                
                
                -
                
                
                5,442**Net
                    decrease in cash and cash equivalents**
                
                
                (8,813,391
                )
                
                (794,606
                )**Cash
                    and cash equivalents - beginning of period**
                
                
                17,823,022
                
                
                794,606**Cash
                    and cash equivalents - end of period**
                
                **$**
                **9,009,631**
                
                **$**
                **(0**
                **)**Cash
                    paid for interest
                
                $
                182,974
                
                $
                218,136Supplemental
                    schedule of non-cash investing and financing activities:Issuance
                    of common stock pursuant to conversion of convertible
                    notes
                
                
                475,237
                
                
                60,000Issuance
                    of common stock pursuant to issuance of note receivable
                
                
                -
                
                
                1,000,000Prepaids
                    and other assets reclassed to property, plant and
                    equipment
                
                
                239,000
                
                
                -Beneficial
                    conversion features on convertible debt issued
                
                
                -
                
                
                775,808
 *See
          accompanying notes to consolidated financial statements.*
  -4-
  **ZBB
        ENERGY CORPORATION**
 **Notes
        to Unaudited Consolidated Financial Statements**
 **March
        31, 2008**
 
 **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
        March 31, 2008 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. which operates a
        manufacturing facility in Menomonee Falls, Wisconsin, and ZBB Technologies,
        Ltd.
        which has its advanced engineering and development facility in Perth, Australia,
        and ZBB China Pty Ltd a 49% owned joint venture company.
 
 **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 one 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
        GAAP 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 covered by the report. 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 the Financial Accounting Standards Board’s (”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 - purchased 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 type of contract is for the production, delivery and
        installation of energy storage systems. The second type of contract is for
        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 energy storage system long-term 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
        only long-term contract which involved revenue recognition estimates during
        the
        period reported on was with the California Energy Commission (“CEC”), but no
        revenues were deferred as the contract expired on March 31, 2008. 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
        nine months ended March 31, 2008 and 2007, $303,063 and $659,500 respectively
        was recognized as revenue on an energy storage system contract with the
        CEC.
 
 Engineering
        and development contracts are typically collaborative agreements to further
        develop renewable energy technologies and are often sponsored and partially
        funded 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 the Commonwealth of Australian through July 2010 which terms
        include the receipt of funding of A$3.1 million (approximately US$2.7 million)
        toward future development costs which include the production and delivery
        of one
        500kWh energy storage system. During the nine months ended March 31, 2008,
        $811,474 was recognized as revenue based on the completion of all or a part
        of
        the first four of nine performance milestones specified in 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 March 31, 2008 provisions
        of
        $268,000 have been identified and accrued on existing contracts including
        the
        CEC contract which expired on March 31, 2008.
 
 For
        the
        three and nine month periods ended March 31, 2008 substantially all of the
        Company’s revenues were from the two multi-year contracts discussed
        above.
  -7-
  **Loss
        per Share**
 
 The
        Company adopted SFAS 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 Emerging
        Issues Task Force Issue ("EITF") EITF 00-19, in accordance with the provisions
        of 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**
 
 The
        Company follows the provisions of SFAS No. 123, "Share-Based Payment" ("SFAS
        No.
        123(R)"), which is a revision of SFAS No. 123. 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.
  **Advanced
        engineering and development**
 
 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, develop manufacturing processes and include
        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 advanced engineering 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 types of agreements.
 
 **Comprehensive
        income (loss)**
 
 The
        Company reports its comprehensive income (loss) in accordance with SFAS No.
        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 currency translation adjustments
        applicable for the periods ended March 31, 2008 and 2007.
 
 **Recent
        Accounting Pronouncements**
 
 In
        December 2007, the FASB issued SFAS No. 141R (revised 2007), “Business
        Combinations. SFAS No.141R among other things, establishes principles and
        requirements for how the acquirer in a business combination (i) recognizes
        and
        measures in its financial statements the identifiable assets acquired, the
        liabilities assumed, and any non **-** controlling
        interest in the acquired business, (ii) recognizes and measures the goodwill
        acquired in the business combination or a gain from a bargain purchase and
        (iii)
        determines what information to disclose to enable users of the financial
        statements to evaluate the nature and financial effects of the business
        combination. SFAS No.141R is effective for fiscal years beginning on or after
        December 15, 2008, with early adoption prohibited. The adoption of this
        statement is not expected to have a material effect on the Company's financial
        statements.
 
 In
        December 2007, FASB issued SFAS No. 160, “Non-controlling Interests in
        Consolidated Financial Statements” - an amendment of ARB No. 51. This statement
        improves the financial information that a reporting entity provides in its
        consolidated financial statements by establishing accounting and reporting
        standards that require the ownership interests in subsidiaries held by parties
        other than the parent and the amount of consolidated net income attributable
        to
        the parent and to the non-controlling interest be clearly identified and
        presented on the face of the consolidated statements. SFAS No. 160 is effective
        for fiscal years, and interim periods within those fiscal years beginning
        on or
        after December 15, 2008. The adoption of this statement is not expected to
        have
        a material effect on the Company's financial statements.
 
 -8-
  In
        March
        2008, the FASB issued SFAS No. 161 “Disclosure about Derivative Instruments and
        Hedging Activities”. SFAS 161 changes the disclosure requirements for derivative
        instruments and hedging activities. The guidance will become effective for
        the
        fiscal year beginning after November 15, 2008. This statement encourages,
        but
        does not require, comparative disclosures for earlier periods at initial
        adoption. The adoption of this statement is not expected to have a material
        effect on the Company's financial statements.
 
 **NOTE
        4 - INVENTORIES**
 
 Inventory
        balances are comprised of the following amounts as of March 31,
        2008:
 
 Raw
                  materials
              
              $
              920,638Work
                  in progress
              
              
              528,090Finished
                  goods
              
              
              457,262**TOTAL**
              
              **$**
              **1,905,990**
  **NOTE
        5- PROPERTY, PLANT & EQUIPMENT**
 
 Office
                  equipment
              
              $
              121,347Manufacturing
                  equipment
              
              
              3,270,748Test
                  units
              
              
              457,916Building
              
              
              1,996,134Land
              
              
              217,000**6,063,145**Less,
                  accumulated depreciation
              
              
              (2,165,550
              )Net
                  Property, Plant & Equipment
              
              **$**
              **3,897,595**
  **NOTE
        6 - INVESTMENT IN JOINT VENTURE**
  In
        March
        2005, the Company acquired a 49% interest in ZBB China Pty Ltd for a cost
        of
        $221,875 (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 nine months ended March 31, 2008 and 2007 there was no significant activity
        in the joint venture company (see Note 14-Related Party Transactions for
        additional information on energy storage system order).
 
 **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 SFAS No. 142, “Goodwill and Other Intangible
        Assets”. Under SFAS No. 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 March 31,
        2008.
 
 -9-
  **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, LLC a total of 294,118 shares in consideration for a 4% $1,000,000
        promissory note payable in installments over five years.
 
 As
        of
        March 31, 2008 the Company is owed $658,333 on the note, which is reflected
        as a
        reduction to Shareholders’ equity and $63,689 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. (“Montgomery”), and entered into a convertible loan and warrant
        agreement (the “Montgomery Facility”). Interest on the Montgomery 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.
 
 On
        July
        11, 2007, subsequent to the Company’s public offering, the Company repaid the
        Montgomery Facility in full, an aggregate of $1,295,239 representing $890,000
        of
        the outstanding principal amount of the Montgomery Facility, $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 Facility, the
        Company was also required to issue to Montgomery a number of shares of common
        stock equal to 50% of the amount required to be repaid under the Montgomery
        Facility, 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 Facility 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 was 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.
 
 There
        are
        no outstanding obligations under the Montgomery Facility or to Montgomery
        at
        March 31, 2008.
 
 ***$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 (“ABS-SOS”); and Pierce
        Diversified Strategy Master Fund (“Pierce”), (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 (the “Bushido Loan”) 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 Bushido 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 exercised their warrants by payment of $1,113,300 in cash for their
        shares. Bushido and Pierce exercised their warrants by means of a cashless
        exercise.
 
 On
        August
        7, 2007, after discussions with the Bushido Lenders, the Company 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, 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 from all of its obligations under
        the registration rights provisions of Bushido Warrants agreement.
 
 The
        Company satisfied all of the foregoing requirements.
  -10-
 ***$3,260,000
        Convertible Promissory Notes***
 
 Between
        April 2006 and May of 2007 the Company issued $3,260,000 convertible promissory
        notes (the “Notes”) to 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. There was an
“embedded conversion benefit discount” deemed to be available to the Note
        holders resulting in additional paid-in capital recorded at the time the
        Notes
        were issued of $1,630,000 which were amortized over the term of the
        Notes.
 
 As
        of
        March 31, 2008 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 nine months ended March 31, 2008.
 
 **NOTE
        10 - BANK LOANS AND NOTES PAYABLE**
 At
          March
          31, 2008 the Company's debt consisted of the following:
 Bank
                    loans-current
                
                $
                1,890,380Bank
                    loans-long term
                
                $
                214,114**Total**
                
                **$**
                **2,104,494**
 Interest
          on the building loan is calculated at prime rate, secured by the property
          and
          equipment with the principal balance at March 31, 2008 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 March
          31, 2008 are as follows:
  2008
                  
                  $
                  1,890,3802009
                  
                  $
                  100,0362010
                  
                  $
                  108,6082011
                  
                  $
                  5,470**$**
                  **2,104,494**
  **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. As of March 31, 2008 there were no options or other awards outstanding
        under the KESOP and there were no additional shares available for grant.
 
 In
        1998
        the Company adopted an Outside (Non-Executive) Directors Stock Option Plan
        (the
“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. As of March 31, 2008 there were no options outstanding under the
        ODSOP.
 
 In
        2002
        the Company established the 2002 Stock Option Plan (“SOP”) whereby a stock
        option committee was given the discretion to grant up to 882,353 options
        to key
        employees of the Company at exercise prices and dates to be determined (but
        in
        any case not less than $5.61 per share) by the directors. At March 31, 2008
        there remain 157,641 options outstanding with exercise prices of not less
        than
        $5.61 and exercise dates up to March 30, 2010. A further 421,466 options
        are
        available to be issued under the SOP. No options were exercised during the
        nine
        months ended March 31, 2008.
  -11-
 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 SOP. Options issued expire five
        years
        after the vesting date. During the year ended June 30, 2007 250,000 options
        were granted. At March 31, 2008, 250,000 options with an exercise price of
        $3.82
        and an expiration date of June 12, 2012 remain outstanding. No options have
        been
        exercised in fiscal 2007 or fiscal 2008 to date.
 
 During
        2007 the Company established the 2007 Equity Incentive Plan (the “2007 Plan”)
        that authorizes the board of directors or a committee thereof, to grant up
        to a
        maximum of 1,500,000 options to employees and directors of the Company at
        exercise prices to be determined by the administrator but not less than 100%
        (110% for a 10% shareholder) of the market value on the date granted. The
        maximum number of shares subject to options granted to any one employee during
        any fiscal year shall not exceed 300,000. No options were issued under this
        plan
        as of March 31, 2008.
 
 At
        March
        31, 2008 the Company had a total of 1,921,466 options available for future
        grant
        under the SOP, the Employee Stock Option Scheme and the 2007 Plan.
 
 The
        following table summarizes information relating to the stock options outstanding
        at March 31, 2008:
 **Outstanding**
                      
                      **Exercisable****Range
                          of Exercise Prices**
                      
                      **Number
                          of Options Outstanding**
                      
                      **Weighted-Average
                          Remaining Contractual Life********
                        ***(in
                          years)***
                      
                      **Weighted-Average
                          Exercise Price**
                      
                      **Number
                          of Options**
                      
                      **Weighted-Average
                          Exercise Price**$3.82-5.60
                      
                      
                      250,000
                      
                      
                      4.2
                      
                      $
                      3.82
                      
                      
                      250,000
                      
                      $
                      3.82$5.61-6.50
                      
                      
                      69,734
                      
                      
                      0.3
                      
                      $
                      5.61
                      
                      
                      69,734
                      
                      $
                      5.61$6.51-8.50
                      
                      
                      87,907
                      
                      
                      2.0
                      
                      $
                      6.51
                      
                      
                      87,907
                      
                      $
                      6.51**Balance
                          at March 31, 2008**
                      
                      
                      407,641
                      
                      
                      3.1
                      
                      $
                      4.71
                      
                      
                      407,641
                      
                      $
                      4.71
 **NOTE
        12 - NON RELATED PARTY WARRANTS**
 
 At
        March
        31, 2008 there are 120,023 warrants issued and outstanding to Empire Financial
        Group, Ltd. in connection with certain capital raising activities in 2006,
        exercisable at $3.23 per share and which expire on September 30,
        2011.
 
 At
        March
        31, 2008 there are 50,000 warrants issued and outstanding as part of the
        underwriting compensation to Empire Financial Group, Ltd. as part of the
        underwriting compensation in connection with our recent United States public
        offering which are exercisable at $7.20 per share.
 
 At
        March
        31, 2008 there are 195,800 warrants issued and outstanding to Strategic Growth
        International in connection with capital raising activities in 2006 and 2007,
        with expiration dates between March 2011 and June 2012 and exercise prices
        of
        between $3.75 and $7.20.
 
 The
        table
        below summarizes non-related party warrant balances:
 **Stock
                    Warrants**
                
                
                
                **Weighted-Average****Non-related
                    party activity**
                
                **Number
                    of Warrants**
                
                **Exercise
                    Price Per Share****Balance
                    at June 30, 2006**
                
                
                **1,242,510**
                
                **$**
                **5.96**Warrants
                    granted
                
                
                715,103
                
                
                3.40Warrants
                    expired
                
                
                (152,811
                )
                
                6.00Warants
                    exercised
                
                
                (720,391
                )
                
                4.33**Balance
                    at June 30, 2007**
                
                
                **1,084,411**
                
                **$**
                **5.41**Warrants
                    granted
                
                
                -
                
                
                -Warrants
                    expired
                
                
                (600,941
                )
                
                8.50Warants
                    exercised
                
                
                (117,647
                )
                
                3.40**Balance
                    at March 31, 2008**
                
                
                **365,823**
                
                **$**
                **4.24**
 -12-
 **NOTE
        13 - COMMITMENTS**
 
 In
        July
        2006, the Company entered into a business development agreement with 41 Broadway
        Associates, whereby 41 Broadway Associates,LLC 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
        nine
        months ended March 31, 2008 fees of $150,000 were incurred by the
        Company.
 
 In
        July
        2007 the Company commenced engineering and product development activities
        pursuant to a collaborative project entitled the Advanced Electricity Storage
        Technologies (“AEST”) project, with the Commonwealth of Australia, through July
        2010. The terms of the project provide for the receipt of funding by the
        Company
        for future development costs which include the production and delivery of
        one
        500kWh energy storage system.
 
 During
        the nine months ended March 31, 2008 $811,474 was recognized as revenue based
        on
        the completion of all or a part of the first four of nine performance milestones
        specified in the contract.
 
 The
        AEST
        project has total budgeted expenditure for operating and capital items of
        approximately $5.2 million (A$5.9 million) exclusive of any Australian taxes.
        The Company’s contribution of approximately $2.5 million (A$2.8 million) is the
        value of any cash and in-kind contributions provided to the project by the
        Company in undertaking the project activities. The Australian Government
        is
        providing the project funding of approximately $2.7 million (A$3.1 million)
        to
        be paid in accordance with the completion of contracted project milestones
        and
        subject to the Company’s compliance with project reporting requirements and
        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 had leased its Australian office facility from an entity affiliated
        with
        three of the Company’s officers. In January 2008 the facility was sold to a
        non-related Australian company, eliminating the related party relationship
        between the Company and its landlord. The current rental is $60,042 per annum
        (A$68,230) and is subject to an annual CPI adjustment.
 
 Rent
        expense was $45,024 and $35,943 for the nine months ended March 31, 2008
        and
        2007.
 
 The
        future payments required under the terms of the lease are as
        follows:
  For
                the twelve months ending March
                31,2009
              
              $
              60,0422010
              
              $
              60,0422011
              
              $
              60,0422012
              
              $
              40,028**TOTAL:**
              
              **$**
              **220,154**
  In
        2007,
        the Company received a purchase order from its 49% owned joint venture company,
        ZBB China Pty Ltd, for delivery of an energy storage system. There was no
        significant activity during the nine months ended March 31, 2008. The Company
        has received a deposit of $160,000 on the order which it has recorded as
        deferred revenue at March 31, 2008. 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
        U.S. employees, the Company has a 401(k) plan. All active participants are
        100%
        vested immediately.
  Expenses
        under these plans were $45,092 and $24,068 for the nine months ending March
        31,
        2008 and 2007.
  -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**
  Information
        provided by us or statements made by our employees may, from time to time,
        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”, “expect”,
“anticipate”, “believe”, “estimate”, “continue”, and similar words. You should
        read and use our 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.**
 ·
              **Our
                  initial customer focus is utilities and renewable energy companies
                  which
                  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 revised 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 newer technology that has not yet attained commercial
        acceptance .in the market. Additionally, we intend to compete with the existing
        lead-acid storage system and other 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
        and nine months ended March 31, 2008 and 2007:***
 
 *Revenue
        and Other income:*
 
 Our
        revenues for the three and nine months ended March 31, 2008 and 2007 were
        $552,856 and $149,911 for the three months, and $1,114,537 and $659,500 for
        the
        nine months, respectively. The increase of $455,037 in the nine months ended
        March 31, 2008 was attributable to a $811,474 increase in revenues from the
        AEST
        engineering project with the Commonwealth of Australia, which began in July
        2007
        and a reduction in revenues of $356,437 in the contract with the CEC which
        was
        substantially completed in prior periods and concluded with the expiration
        of
        the contract as of March 31, 2008. Revenues include estimates based on the
        percentage-of-completion method of accounting for long-term
        contracts.
 
 Other
        income for the three and nine months ended March 31, 2008 and 2007 was $119,871
        and $37,146 for the three months, and $469,795 and $97,222 for the nine months,
        respectively. The increase of $372,573 in the nine months ended March 31,
        2008
        resulted from an increase in interest income from the investment of proceeds
        from the Company’s U.S. public offering in June 2007. Interest income is
        expected to decrease in future periods as proceeds from the public offering
        are
        utilized for capital expenditures and operational purposes and from lower
        interest rates on the funds invested, based on current market
        rates.
 
 *Cost and Expenses and Other expense:*
 
 Total
        operating expenses for the three and nine months ended March 31, 2008 and
        2007
        were $1,834,253 and $1,035,569 for the three months, and $4,397,044 and
        $2,957,256 for the nine months, respectively. The total operating expense
        increase of $1,439,788 in the nine months ended March 31, 2008 was related
        to
        increased levels of revenues and related costs of $381,867; increased
        expenditures subsequent to our initial U.S. public offering (including legal
        activities and other compliance costs) contributing to approximately $300,000
        of
        the $662,869 total increase in selling, general and administrative expense;
        increases in advanced engineering and development costs of $334,428; and
        $60,624
        in additional depreciation, as compared to the period ending March 31, 2007.
 
 -15-
 Other
        expenses for the three and nine months ended March 31, 2008 and 2007 were
        $35,855 and $1,033,493 for the three months, and $182,974 and $2,160,018
        for the
        nine months, respectively. The decrease of $1,977,044 in other expenses for
        nine
        month period ending March 31, 2008 was primarily due to the significant decrease
        in finance related costs as compared to costs incurred during the prior fiscal
        year and leading up to the our U.S. public offering in June 2007.
 
 During
        the nine months ended March 31, 2008, except for the building and equipment
        bank
        loans, all debt was converted to shares of our common stock or repaid which
        has
        reduced interest expense during the current period.
 
 Cost
        of Contracts .
        Our
        cost of contracts for three and nine months ended March 31, 2008 and 2007
        were
        $579,009 and $147,531 for the three months, and $1,000,882 and $619,015 for
        the
        nine months, respectively. The increase in expense in the three and nine
        month
        periods ended March 31, 2008 resulted from higher cost of sales related to
        the
        July 2007 start of the AEST contract in Australia which resulted in $717,045
        of
        additional costs, partially offset by lower costs related to the CEC sales
        contract which expired during the nine months ending March 31,
        2008.
  Selling,
        General and Administrative .
        Our
        selling, general and administrative expense for the three and nine months
        ended
        March 31, 2008 and 2007 was $729,495 and $536,569 for the three months, and
        $2,197,326 and $1,534,457 for the nine months, respectively. This expense
        during
        the current nine month period was $662,869 higher than the nine month period
        ending March 31, 2007 and included increases of approximately $300,000 in
        costs
        directly related to our initial U.S. public offering, Australian Stock Exchange
        de-listing, and compliance costs. The remaining balance of the increase is
        mostly attributable to additional investor and public relations costs;
        management, financial and administrative personnel; the establishment of
        a sales
        and marketing department; and overall cost increases.
 
 Travel
        costs were approximately $238,000 and $182,000 for the nine month periods
        ending
        March 2008 and 2007, respectively, related to installation and maintenance
        of an
        energy storage system sold to the CEC and increases in marketing and investor
        relations activities. We expect overall travel related to marketing and business
        development to increase as our sales efforts and installations increase,
        but
        decrease as a percentage of sales.
 
 Insurance
        costs include insurance benefits for employees of $91,005 and general liability
        insurance of $45,946. We acquired a $5,000,000 Directors and Officers policy
        in
        July 2007 costing $39,500 in annual premiums. We amortized $29,625 of the
        annual
        premium in the nine months ended March 31, 2008.
 Advanced
        engineering and development .
        Our
        engineering and development costs for the three and nine months ended March
        31,
        2008 and 2007 were $425,362 and $287,111 for the three months, and $945,118
        and
        $610,690 for the nine months, respectively. The increase during the six month
        period ending March 31, 2008 of $334,428 from the comparable 2007 period
        was
        primary due to additional engineering staffing and materials costs incurred
        under the AEST project contract, as well as further development and improvements
        to the energy storage system manufacturing capacity, quality control, and
        cost
        improvement processes. This project will affect future expenditures through
        the
        term of the contract 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 for advanced
        engineering and development projects as needed.
 
 Net
        Loss. Our net
        loss for the three
        and
        nine months ended March 31, 2008 and 2007 was $1,197,381
        and $1,882,005 for the three months, and $2,995,686 and $4,360,552 for the
        nine
        months, respectively. In the
        three months ended March 31, 2008 there was a $684,624 reduction in net loss,
        and for the nine
        months ended March 31, 2008 a
        decrease in net loss of $1,364,866 as
        compared to the nine months ended March 31, 2007.
 
 **Liquidity
        and Capital Resources**
  Since
        our
        inception, our research, advanced engineering and development, and operations
        were primarily financed through debt and equity financings, government grants
        and joint ventures. Total paid in capital as of March 31, 2008 was $44,812,108.
        We had a cumulative deficit of $29,817,817 as of March 31, 2008 compared
        to a
        cumulative deficit of $26,822,131 as of June 30, 2007. At March 31, 2008
        we had
        a working capital surplus of $8,862,815 and as of June 30, 2007 a working
        capital surplus of $11,617,425. Our shareholders’ equity as of March 31, 2008
        and June 30, 2007 was $13,583,500 and $15,918,203, respectively.
 
 As
        a
        result of consummation of our initial U.S. public offering and our receipt
        of
        $18,410,000 proceeds (net of underwriter’s costs) on June 20, 2007, our working
        capital increased by $17,267,365 (net proceeds less $1,142,635 in capital
        raising costs).
  -16-
  Additional
        funding is expected to be generated with funding from the AEST agreement
        entered
        into on June 29, 2007 by ZBB Technologies, Ltd, our subsidiary based in Western
        Australia, and the Commonwealth of Australia (administered by the Department
        of
        Environment and Water Resources), 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 $2.7 million (A$3.1 million) in project funding through
        June 2010 totaling $1.4 million in year one, $1.1 million in year two and
        $0.2
        million in year three, as certain development progress “milestones” are met by
        us. The AEST project has total budgeted expenditure for operating and capital
        items of approximately $5.2 million (A$5.9 million) exclusive of any Australian
        taxes. The Company’s contribution of approximately $2.5 million (A$2.8 million)
        is the value of any cash and in-kind contributions provided to the project
        by
        the Company 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 believe 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 $2,750,000
        towards the acquisition of new vibration welding and production equipment
        ($2,000,000), 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
        nine months ended March 31, 2008, net cash used in operations was $4,248,690.
        Cash used in operations resulted from decreases in accounts payable of $125,240;
        accrued expenses and loss on contracts of $93,756; deferred revenues of
        $176,305; increase to inventory of $633,423; an increase in accounts receivable
        of $284,195; and an increase in other assets of $128,538. Other non-cash
        adjustments to cash included long-term assets of $118,000 expensed to costs
        of
        engineering and development contracts and $150,000 of non-cash consulting
        fees.
 
 For
        the
        nine months ended March 31,2007, net cash used in operations was $1,986,876
        after adding back non-cash items of $2,111,393 consisting primarily of
        depreciation, issuances and amortizations of financial assets, deferred finance
        fees and discounts and increases in accrued interest and non-cash consulting
        expenses Sources of cash provided by operations resulted from increases in
        accounts payable of $726,373 and accrued expenses of $12,636, and a decrease
        in
        prepaids and other current assets of $123,580. Cash used by operations included
        increases in inventory of $149,269; accounts receivable of $28,761; and a
        decrease in deferred revenue of $422,276.
 
 *Investing
        Activities*
  For
        the
        nine months ended March 31, 2008, net cash used in investing activities was
        $345,281 due to purchases of manufacturing equipment and computer
        hardware.
 
 For
        the
        nine months ended March 31, 2007, net cash used in investing activities was
        $191,531 in equipment purchases **.**
 
 *Financing
        Activities*
 
 For
        the
        nine months ended March 31, 2008, net cash used in financing activities was
        $4,219,420 consisting primarily of $4,047,823 in repayments of interest and
        principal on notes payable, additional public offering costs of $100,000
        and
        $71,598 reduction in principal on bank loans. Also, the conversion of $475,237
        in notes payable for shares of the Company’s common stock during the first
        quarter significantly reduced debt balances leaving only bank loan debt
        remaining at March 31, 2008.
 
 For
        the
        nine months ended March 31,2007, net cash provided from financing activities
        was
        $1,378,359 resulting from $1,500,000 in convertible note proceeds, bank loans
        of
        $244,332, less deferred finance fees expenditures of $407,973.
 
 -17-
 
 **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
        continue to work in the California energy and utility markets through the
        CEC
        (under a new May 2008 agreement), and pursue opportunities with Pacific Gas
        & Electric and the U.S. 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 chief 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 chief 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 changes in our internal controls over financial reporting or
        in
        other factors which could significantly affect internal controls over financial
        reporting subsequent to the date we carried out our evaluation.
  -18-
 **PART
        II**
  **Item
        1.     Legal Proceedings**
  This
        Item
        is not applicable.
   **Item
        2.     Unregistered Sales of Equity Securities and Use of
        Proceeds**
  As
        a
        result of consummation of our initial United States public offering 3,333,333
        shares of our common stock, par value $0.01 was effected through a Registration
        Statement on Form SB-2 (Reg. No. 333-138243) which was declared effective
        by the
        SEC on June 20, 2007 resulting in receipt of $18,410,000 (net of underwriter’s
        costs) proceeds on June 20, 2007. The managing underwriter of our offer was
        Empire Financial Group, Inc.
 
 From
        the
        proceeds of our June 2007 United States initial public offering, we incurred
        approximately $1.2 million in additional offering expenses and retired an
        aggregate of $4.5 million in indebtedness. Approximately $2 million of the
        net
        proceeds has been used for working capital, including expanding our selling
        and
        marketing efforts and compliance costs, and additions and improvements to
        manufacturing operations. The remaining net proceeds have all been applied
        to
        temporary investments in bank certificates of deposits and money market funds.
 
  **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 Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
          Act of
          2002.
  Exhibit
          31.2
 Certification
          of Chief Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley
          Act of
          2002.
  Exhibit
          32.1
 Certification
          of Chief Executive Officer 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 Chief 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**
 
 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.
 
 
 
 **ZBB
        ENERGY CORPORATION**
   
 **Position**
              **Date**/s/ Scott
                  W. Scampini
              Chief
                  Financial Officer
              May
                  13, 2008Scott
                  W. Scampini
              (Signing
                  on behalf of the Registrant and
                as
                  the Principal financial officer and
                principal
                  accounting officer)