UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




FORM
10-Q




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


For
the quarterly period ended December 31, 2008




or




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


For the
transition period from _________ to________




Commission
File Number 001-33540







(Exact
name of registrant as specified in its charter)




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




N93
W14475 Whittaker Way, Menomonee Falls, WI  53051


(Address
of principal executive offices)




(262)
253-9800


(Registrant’s
telephone number)




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




Check
whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act.) Yes £     
No R




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.





Large accelerated filer £
                Accelerated filer £
                Non-accelerated filer £
                Smaller reporting company R




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





Class
              Shares
      Outstanding as of February 12, 2009Common
      Stock, $.01 par value per share
              10,512,283













ZBB
Energy Corporation




Form
10-Q




TABLE OF
CONTENTS




PagePART I. FINANCIAL INFORMATION
      (*)Item 1.
                      Consolidated
      Financial Statements
                      
                      
                      1Balance
      Sheets
                      
                      
                      1Statements
      of Operations
                      
                      
                      2Statements
      of Changes in Shareholders’ Equity
                      
                      
                      3Statements
      of Cash Flows
                      
                      
                      4Notes
      to Financial Statements
                      
                      
                      5Item
      2.
                      Management’s
      Discussion and Analysis and Results of Operations
                      
                      
                      14Item
      3.
                      Quantitative
      and Qualitative Disclosures About Market Risk
                      
                      
                      20Item
      4.
                      Controls
      and Procedures
                      
                      
                      20PART II. OTHER INFORMATIONItem
      1.
                      Legal
      Proceedings
                      
                      
                      20Item
      1A.
                      Risk
      Factors
                      
                      
                      20Item
      2.
                      Unregistered
      Sales of Equity Securities and Use of Proceeds
                      
                      
                      21Item
      3.
                      Defaults
      upon Senior Securities
                      
                      
                      21Item
      4.
                      Submission
      of Matters to a Vote of Security Holders
                      
                      
                      21Item
      5.
                      Other
      Information
                      
                      
                      21Item
      6.
                      Exhibits
                      
                      
                      21Signatures
                      
                      
                      22





(*) All
of the financial statements contained in this Quarterly Report are unaudited
with the exception of the financial information at June 30, 2008, 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, 2008 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 September 5, 2008.










PART
I.  FINANCIAL INFORMATION




Item 1. FINANCIAL
STATEMENTS




ZBB
ENERGY CORPORATION
 Consolidated
Balance Sheets
 
 December 31, 2008
                          
                          
                          June 30, 2008(unaudited)AssetsCurrent
      assets:Cash
      and cash equivalents
                          
                          $
                          5,112,160
                          
                          
                          $
                          8,451,320Bank
      certificate of deposit
                          
                          
                          1,000,000
                          
                          
                          
                          -Accounts
      receivable
                          
                          
                          104,560
                          
                          
                          
                          4,167Interest
      receivable
                          
                          
                          75,759
                          
                          
                          
                          80,829Inventories-net
      of $107,268 and $234,000
      allowance
                          
                          
                          1,426,486
                          
                          
                          
                          1,312,885Prepaids
      and other current assets
                          
                          
                          84,495
                          
                          
                          
                          316,274Total
      current assets
                          
                          
                          7,803,460
                          
                          
                          
                          10,165,475Long-term
      assets:Property,
      plant and equipment, net
                          
                          
                          4,510,978
                          
                          
                          
                          4,240,640Investment
      in joint venture
                          
                          
                          -
                          
                          
                          
                          242,350Goodwill
                          
                          
                          803,079
                          
                          
                          
                          803,079Total
      assets
                          
                          $
                          13,117,517
                          
                          
                          $
                          15,451,544Liabilities
      and Shareholders' EquityCurrent
      liabilities:Bank
      loans
                          
                          
                          356,267
                          
                          
                          
                          171,634Accounts
      payable
                          
                          
                          775,477
                          
                          
                          
                          607,520Deferred
      revenues
                          
                          
                          -
                          
                          
                          
                          644,700Accrued
      compensation and benefits
                          
                          
                          62,605
                          
                          
                          
                          129,749Total
      current liabilites
                          
                          
                          1,194,349
                          
                          
                          
                          1,553,603Long-term
      liabilities:Bank
      loans
                          
                          
                          2,662,702
                          
                          
                          
                          1,881,823Total
      liabilities
                          
                          $
                          3,857,051
                          
                          
                          $
                          3,435,426Shareholders'
      equityCommon
      stock ($0.01 par value);
      150,000,000 authorized 10,512,283 shares issued and
      outstanding
                          
                          
                          105,123
                          
                          
                          
                          105,123Additional
      paid-in capital
                          
                          
                          45,728,550
                          
                          
                          
                          45,619,608Note
      receivable from shareholders
                          
                          
                          (508,333
                          )
                          
                          
                          (608,333
                          )Accumulated
      other comprehensive (loss)
                          
                          
                          (1,711,289
                          )
                          
                          
                          (1,373,485
                          )Accumulated
      (deficit)
                          
                          
                          (34,353,585
                          )
                          
                          
                          (31,726,795
                          )Total
      shareholders' equity
                          
                          $
                          9,260,466
                          
                          
                          $
                          12,016,118Total
      liabilities and shareholders' equity
                          
                          $
                          13,117,517
                          
                          
                          $
                          15,451,544




See
accompanying notes to consolidated financial statements




-1-




ZBB
ENERGY CORPORATION
 Consolidated
Statements of Operations
  Three months ended December 31,
                            
                            
                            Six months ended December 31,2008
                            
                            
                            2007
                            
                            
                            2008
                            
                            
                            2007(unaudited)
                            
                            
                            (unaudited)
                            
                            
                            (unaudited)
                            
                            
                            (unaudited)RevenuesProduct
      sales and revenues
                            
                            $
                            -
                            
                            
                            $
                            12,418
                            
                            
                            $
                            -
                            
                            
                            $
                            121,355Engineering
      and development revenues
                            
                            
                            222,188
                            
                            
                            
                            162,841
                            
                            
                            
                            513,885
                            
                            
                            
                            440,326Total
      Revenues
                            
                            
                            222,188
                            
                            
                            
                            175,259
                            
                            
                            
                            513,885
                            
                            
                            
                            561,681Costs
      and ExpensesCost
      of product sales
                            
                            
                            -
                            
                            
                            
                            13,562
                            
                            
                            
                            -
                            
                            
                            
                            102,975Advanced
      engineering and development
                            
                            
                            623,521
                            
                            
                            
                            485,872
                            
                            
                            
                            1,360,666
                            
                            
                            
                            838,654Selling,
      general, and administrative
                            
                            
                            881,737
                            
                            
                            
                            852,469
                            
                            
                            
                            1,666,818
                            
                            
                            
                            1,467,831Depreciation
                            
                            
                            59,965
                            
                            
                            
                            82,404
                            
                            
                            
                            134,866
                            
                            
                            
                            153,331Total
      Costs and Expenses
                            
                            
                            1,565,223
                            
                            
                            
                            1,434,307
                            
                            
                            
                            3,162,350
                            
                            
                            
                            2,562,791Loss
      from Operations
                            
                            
                            (1,343,035
                            )
                            
                            
                            (1,259,048
                            )
                            
                            
                            (2,648,465
                            )
                            
                            
                            (2,001,110
                            )Other
      Income (Expense)Interest
      income
                            
                            
                            41,389
                            
                            
                            
                            146,062
                            
                            
                            
                            95,341
                            
                            
                            
                            324,924Interest
      expense
                            
                            
                            (32,697
                            )
                            
                            
                            (41,512
                            )
                            
                            
                            (60,098
                            )
                            
                            
                            (94,334
                            )Finance
      costs
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (52,785
                            )Other
      income (expense)
                            
                            
                            1,562
                            
                            
                            
                            12,500
                            
                            
                            
                            (13,568
                            )
                            
                            
                            25,000Total
      Other Income (Expense)
                            
                            
                            10,254
                            
                            
                            
                            117,050
                            
                            
                            
                            21,675
                            
                            
                            
                            202,805Loss
      before provision for Income Taxes
                            
                            
                            (1,332,781
                            )
                            
                            
                            (1,141,998
                            )
                            
                            
                            (2,626,790
                            )
                            
                            
                            (1,798,305
                            )Provision
      for Income Taxes
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -Net
      Loss
                            
                            $
                            (1,332,781
                            )
                            
                            $
                            (1,141,998
                            )
                            
                            $
                            (2,626,790
                            )
                            
                            $
                            (1,798,305
                            )Net
      Loss per share-Basic
      and diluted
                            
                            $
                            (0.13
                            )
                            
                            $
                            (0.11
                            )
                            
                            $
                            (0.25
                            )
                            
                            $
                            (0.17
                            )Weighted
      average shares-basic and diluted:Basic
                            
                            
                            10,512,283
                            
                            
                            
                            10,317,467
                            
                            
                            
                            10,512,283
                            
                            
                            
                            10,317,467Diluted
                            
                            
                            10,512,283
                            
                            
                            
                            10,317,467
                            
                            
                            
                            10,512,283
                            
                            
                            
                            10,317,467
 
 See
accompanying notes to consolidated financial statements.




-2-




ZBB
Energy Corporation
 Consolidated
Statements of Changes in Shareholders' Equity
  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
                              )
                              
                              $
                              (26,822,131.49
                              )
                              
                              $
                              15,918,203
                              
                              
                              $
                              (9,538,360
                              )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
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              200,000
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              200,000Public
      offering costs
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              (100,000
                              )
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              (100,000
                              )Stock
      based compensation
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              254,290
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              254,290Net
      Loss
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              (4,904,663
                              )
                              
                              
                              (4,904,663
                              )
                              
                              $
                              (4,904,663
                              )Net
      Translation Adjustment
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              173,051
                              
                              
                              
                              
                              
                              
                              
                              173,051
                              
                              
                              
                              173,051Balance:
      June 30, 2008
                              
                              
                              10,512,283
                              
                              
                              $
                              105,123
                              
                              
                              $
                              45,619,608
                              
                              
                              $
                              (608,333
                              )
                              
                              $
                              (1,373,485
                              )
                              
                              $
                              (31,726,795
                              )
                              
                              $
                              12,016,118
                              
                              
                              $
                              (4,731,612
                              )Reduction
      of note receivablefrom
      stockholder
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              100,000
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              100,000Stock
      based compensation
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              108,942
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              108,942Net
      Loss
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              (2,626,790
                              )
                              
                              
                              (2,626,790
                              )
                              
                              $
                              (2,626,790
                              )Net
      Translation Adjustment
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              (337,804
                              )
                              
                              
                              
                              
                              
                              
                              (337,804
                              )
                              
                              
                              (337,804
                              )Balance:
      December 31, 2008
                              
                              
                              10,512,283
                              
                              
                              $
                              105,123
                              
                              
                              $
                              45,728,550
                              
                              
                              $
                              (508,333
                              )
                              
                              
                              (1,711,289
                              )
                              
                              $
                              (34,353,585
                              )
                              
                              $
                              9,260,466
                              
                              
                              $
                              (2,964,594
                              )
  See
accompanying notes to consolidated financial statements.




-3-




ZBB
      Energy Corporation
                                  
                                  Six months ended December 31,Consolidated Statements of Cash
      Flows
                                  
                                  2008
                                  
                                  
                                  2007Cash
      flows from operating activities:Net
      loss
                                  
                                  $
                                  (2,626,790
                                  )
                                  
                                  $
                                  (1,798,305
                                  )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
                                  
                                  
                                  134,866
                                  
                                  
                                  
                                  153,331Change
      in inventory allowance
                                  
                                  
                                  126,732
                                  
                                  
                                  
                                  -Equipment
      costs reclassified to expenses
                                  
                                  
                                  210,855
                                  
                                  
                                  
                                  118,000Payments
      applied to note receivable for consulting fees
                                  
                                  
                                  100,000
                                  
                                  
                                  
                                  100,000Stock
      based compensation
                                  
                                  
                                  108,942
                                  
                                  
                                  
                                  -(Increase)
      decrease in operating assets:Accounts
      receivable
                                  
                                  
                                  (100,393
                                  )
                                  
                                  
                                  (40,700
                                  )Inventories
                                  
                                  
                                  (240,333
                                  )
                                  
                                  
                                  (422,565
                                  )Prepaids
      and other current assets
                                  
                                  
                                  16,879
                                  
                                  
                                  
                                  (87,873
                                  )Other
      receivables-interest, other
                                  
                                  
                                  5,070
                                  
                                  
                                  
                                  (87,330
                                  )Increase
      (decrease) in operating liabilities:Accounts
      payable
                                  
                                  
                                  195,975
                                  
                                  
                                  
                                  (412,917
                                  )Accrued
      compensation and benefits
                                  
                                  
                                  (67,144
                                  )
                                  
                                  
                                  10,331Accrued
      loss on contracts
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (89,250
                                  )Deferred
      revenues
                                  
                                  
                                  (350,850
                                  )
                                  
                                  
                                  (102,937
                                  )Net
      cash (used) in operating activities
                                  
                                  
                                  (2,486,191
                                  )
                                  
                                  
                                  (2,660,215
                                  )Cash
      flows from investing activitiesCapital
      expenditures
                                  
                                  
                                  (580,217
                                  )
                                  
                                  
                                  (258,077
                                  )Bank
      certificates of deposit
                                  
                                  
                                  (1,000,000
                                  )
                                  
                                  
                                  -Net
      cash (used) in investing activities
                                  
                                  
                                  (1,580,217
                                  )
                                  
                                  
                                  (258,077
                                  )Cash
      flows from financing activitiesProceeds
      from refinancing of bank loan
                                  
                                  
                                  1,070,000
                                  
                                  
                                  
                                  (46,327
                                  )Repayment
      of bank loans
                                  
                                  
                                  (104,488
                                  )
                                  
                                  
                                  -Repayments
      of notes payable
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (4,047,822
                                  )Additional
      public offering costs
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (100,000
                                  )Net
      cash provided (used) by financing activities
                                  
                                  
                                  965,512
                                  
                                  
                                  
                                  (4,194,149
                                  )Effect
      of exchange rate changes on cash
                                  
                                  
                                  (238,265
                                  )
                                  
                                  
                                  -Net
      increase (decrease) in cash and cash equivalents
                                  
                                  
                                  (3,339,160
                                  )
                                  
                                  
                                  (7,112,441
                                  )Cash
      and cash equivalents - beginning of year
                                  
                                  
                                  8,451,320
                                  
                                  
                                  
                                  17,823,022Cash
      and cash equivalents - end of period
                                  
                                  $
                                  5,112,160
                                  
                                  
                                  $
                                  10,710,581Cash
      paid for interest
                                  
                                  $
                                  60,098
                                  
                                  
                                  $
                                  146,440Supplemental
      schedule of non-cash investing and financing activities:Issuance
      of common stock pursuant to conversion of convertible
notes
                                  
                                  
                                  -
                                  
                                  
                                  
                                  475,237Investment
      in joint venture offset by unfulfilled deferred revenue
                                  
                                  
                                  160,000
                                  
                                  
                                  
                                  -Prepaids
      and inventory reclassed to property, plant and equipment
                                  
                                  
                                  214,900
                                  
                                  
                                  
                                  239,000Equipment
      expensed to cost of contracts
                                  
                                  
                                  210,855
                                  
                                  
                                  
                                  -Stock
      options granted to directors and employees at fair value
                                  
                                  
                                  108,942
                                  
                                  
                                  
                                  -




See
accompanying notes to consolidated financial statements.


-4-




ZBB
ENERGY CORPORATION


Notes
to Unaudited Consolidated Financial Statements


December
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-Q. 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,
2008.




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
December 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.





NOTE
2 - Nature of Organization




ZBB
Energy Corporation (“ZBB” or the “Company”) develops and manufactures
distributed energy storage solutions based upon the Company’s proprietary
zinc-bromine renewable 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 and renewable energy applications as its initial market. This scalable,
mobile system is ideally suited for a number of market applications
including:




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




—
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.




—
Power quality to alleviate downtime caused by voltage sags, voltage swells,
frequency fluctuations, and combined with uninterruptible power supply (UPS) to
eliminate power outages.




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.





NOTE
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES




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.




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 and realizability of assets, depreciation, and
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.





-5-




Income
Tax




Provisions
for income taxes are based on taxes payable or refundable for the current year
and deferred tax assets and liabilities are included in the financial statements
at currently enacted income tax rates applicable to the period in which the
deferred tax assets and liabilities are expected to be realized or settled as
prescribed in FASB Statement No. 109, “Accounting for Income Taxes”. As
changes in tax laws or rates are enacted, deferred tax assets and liabilities
are adjusted through the provision for income taxes.  There were no
deferred tax assets recorded as of December 31, 2008.




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 plant and equipment 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.




Cash
and Cash Equivalents





The
Company considers all highly liquid investments with maturities of three months
or less to be cash equivalents.  The Company maintains its cash
deposits 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.




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.





-6-





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 subject to
percentage-of-completion estimates was with the California Energy Commission
(“CEC”) which included revenue recognition estimates during year the six month
period ended December 31, 2007 of $121,355, at which time the contract was
substantially completed.





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 the collaborative Advanced Electricity Storage Technologies project
(“AEST”) with the Commonwealth of Australia through July 2010 which terms
include the receipt of funding of A$3.1 million (approximately US$2.3 million)
toward future development costs which include the production and delivery of one
500kWh energy storage system.  During the six months ended December
31, 2008 and 2007, $513,885 and $440,326, respectively, was recognized as
revenue based on progress toward completion of the nine performance milestones
specified in the contract.





Total
revenues of $513,885 and $561,681 were recognized for the six month periods
ended December 31, 2008 and 2007, respectively.




Loss
per Share





The
Company follows the provisions of 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 (as of December 31, 2008 there were
1,580,523 underlying options and warrants that are excluded).





Stock-Based
Compensation





The
Company follows the provisions of "Share-Based Payment" ("SFAS No. 123(R)"),
which 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.  To the extent these cost are
allowable costs and funded by advanced engineering and development type
agreements with outside parties,  they will be shown separately on the
statement of operations as a “cost of engineering and development
contract”.





-7-





Costs
related to the AEST project were presented in the prior fiscal year‘s statement
of operations as  “cost of engineering and development contracts” and
have subsequently been reclassified and presented as “advanced engineering and
development” costs to conform with the current fiscal year
presentation.   The Company determined the AEST project agreement
did not contain adequate specificity to reasonably allocate revenues and related
expenditures between product sales, engineering and development revenues, and
general engineering and development costs to allow for separate classification
in the statement of operations.





Intellectual
property, including internally generated patents and know-how is carried at no
value.





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 December 31, 2008 and 2007 and is presented in
the Consolidated Statements of Changes in Shareholders’ Equity.





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
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities” (“SFAS 159”).  SFAS 159
provides companies with an option to report selected financial assets and
financial liabilities at fair value.  Unrealized gains and losses on
items for which the fair value option has been elected are reported in earnings
at each subsequent reporting date.  SFAS 159 is effective for fiscal
years beginning after November 15, 2007, our fiscal year 2009.  The
Company is currently evaluating the impact of adopting SFAS No. 159 on its
consolidated 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
requires  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.





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.





In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles”(“SFAS 162”).  SFAS No. 162 is intended
to improve financial reporting by identifying a consistent framework, or
hierarchy, for selecting accounting principles to be used in preparing financial
statements that are presented in conformity with U.S. Generally Accepted
Accounting Principles for nongovernmental entities.   SFAS 162 is
effective 60 days following the SEC’s approval of the Public Company Accounting
Oversight Board Auditing amendments to AU Section 411, “The Meaning of Present Fairly in
Conformity with Generally Accepted Accounting Principles”.  The
Company does not expect SFAS 162 to have a material effect on its financial
statements.





-8-





NOTE
4 - INVENTORIES





Inventory
balances are comprised of the following amounts as of December 31,
2008:





Raw
      materials
                  
                  $
                  1,029,137Work
      in progress
                  
                  
                  377,669Finished
      goods
                  
                  
                  126,948Inventory
      valuation allowance
                  
                  
                  (107,268
                  )TOTAL
                  
                  $
                  1,426,486





NOTE
5– PROPERTY, PLANT & EQUIPMENT





Office
      equipment
                  
                  $
                  106,513Manufacturing
      equipment
                  
                  
                  4,192,919Test
      units
                  
                  
                  177,066Building
                  
                  
                  1,996,134Land
                  
                  
                  217,0006,689,632Less,
      accumulated depreciation
                  
                  
                  (2,178,654
                  )Net
      Property, Plant & Equipment
                  
                  $
                  4,510,978





NOTE
6 – INVESTMENT IN JOINT VENTURE




In March
2005, the Company acquired a 49% interest in ZBB China Pty Ltd for a cost of
$175,000 (estimated for current period foreign exchange rates). The joint
venture company was licensed to distribute ZBB energy storage systems into the
Chinese market.





On
October 2, 2008 a mutual agreement was reached to terminate the co-operative
joint venture agreement between ZBB and China Century Capital
Limited.  The effect of this termination is to cancel the exclusive
manufacturing, marketing, and distribution rights granted by ZBB to the joint
venture company, ZBB China Pty Ltd, in which ZBB held a 49%
interest.  Each party has released the other from any
claims.  ZBB now regains control of 100% of these rights and equity
interest in ZBB China Pty Ltd.





During
the six months ended December 31, 2008 the Company dissolved the joint venture,
realizing a loss on the investment of $15,369 (included in other
expenses).





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 December 31,
2008.





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
December 31, 2008 the Company is owed $508,333 on the note, which is reflected
as a reduction to Shareholders’ equity and $67,142 in accrued
interest.





-9-





NOTE
9 – BANK LOANS AND NOTES PAYABLE





At
December 31, 2008 the Company's debt consisted of the following:
 
 Bank
      loans-current
                        
                        $
                        356,267Bank
      loans-long term
                        
                        
                        2,662,702Total
                        
                        $
                        3,018,969
  On
November 28, 2008 the Company entered into a loan agreement to finance new
production equipment. The $1,070,000 bank note is secured by specific equipment,
requiring monthly payments of $21,000 of principal and interest; rate equal to
the prime rate; maturity date of December 1, 2013. Principal balance is
$1,053,294 at December 31, 2008.
  On
May 14, 2008 the Company entered into two loan agreements to refinance the
building and land in Menomonee Falls, Wisconsin: —The first loan requires a
fixed monthly payment of principal and interest at a rate of .25% below the
prime rate, with any principal balance due at maturity on June 1, 2018, and
secured by the building and land. Principal balance is $880,934 at December 31,
2008. —The second loan is a secured promissary note guaranteed by the U.S. Small
Business Administration, requiring monthly payments of principal and interest at
a rate of 5.5% until May 1, 2028. Principal balance is $860,113 at December 31,
2008.
  On
January 22, 2007 the Company refinanced its equipment loan. The new loan term
requires monthly payments of principal and an interest rate equal to the prime
rate, maturity date of February 1, 2011. The loan is secured by a first lien on
all business personal property. Principal balance is $224,628 at December 31,
2008.
  Maximum
aggregate annual principal payments for the 12 month periods subsequent to
December 31, 2008 are as follows:
  2009
                      
                      $
                      356,2672010
                      
                      
                      402,0322011
                      
                      
                      298,2342012
                      
                      
                      313,1202013
                      
                      
                      268,1042014
      and thereafter:
                      
                      
                      1,381,212$
                      3,018,969





NOTE
10- 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 December 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.  As of December 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
purchase shares to key employees of the Company at exercise prices and dates to
be determined by the directors. During the year ended June 30, 2008 400,000
options to purchase shares were granted to employees and directors exercisable
at $3.59 (110% of the market closing price on June 6, 2008) based on vesting
terms of June 2008 through January 2009, and exercisable at various dates
through June 2014.  No options were exercised and 93,028 options
expired during the twelve months ended June 30, 2008.  At December 31,
2008 there remain 504,700 options outstanding with exercise prices of not less
than $3.59 and exercise dates up to June 30, 2014.  A further 74,407
options are available to be issued under the SOP.





During
2005 the Company established an Employee Stock Option Scheme (the “2005 Plan”)
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. No options were exercised in
fiscal 2008 or through December 31 of fiscal 2009.  At December 31,
2008, options to purchase 250,000 shares with an exercise price of $3.82 and an
expiration date of June 12, 2012 remain outstanding.  Options to
purchase 205,838 additional shares are available to be issued under this
plan.





-10-





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 options
to purchase up to a maximum of 1,500,000 shares 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.  During the year ended June 30, 2008 options to purchase
275,000 shares were granted to employees and directors exercisable at $3.59
(110% of the market closing price on June 6, 2008) based on vesting terms of
June 2008 through January 2011, and exercisable at various dates through January
2016.  During the six months ended December 31, 2008 options to
purchase 185,000 shares were granted to directors exercisable at $1.69 (110% of
the market closing price on December 30, 2008) based on vesting terms of October
2009 through January 2012, and exercisable at various dates through December
2016, and black-scholes valuation of $81,492.  Options to purchase an
additional 1,040,000 shares are available to be issued under the 2007
plan.





In
aggregate for all plans, at December 31, 2008, the Company has a total of
1,214,700 options outstanding and 1,320,245 options available for future grant
under the SOP,  2005 and the 2007 Plans.





The
following table summarizes information relating to the stock options outstanding
at December 31, 2008:




Outstanding
                  
                  
                  ExercisableWeighted-Average
                  
                  
                  Weighted-
                  
                  
                  
                  
                  
                  Weighted-Number of
                  
                  
                  Remaining
                  
                  
                  Average
                  
                  
                  
                  
                  
                  AverageOptions
                  
                  
                  Contractual Life
                  
                  
                  Exercise
                  
                  
                  Number of
                  
                  
                  ExerciseRange of Exercise Prices
                  
                  Outstanding
                  
                  
                  (in years)
                  
                  
                  Price
                  
                  
                  Options
                  
                  
                  Priceless
      than $3.59
                  
                  
                  185,000
                  
                  
                  
                  7.6
                  
                  
                  $
                  1.69
                  
                  
                  
                  -
                  
                  
                  $
                  -$3.59-5.61
                  
                  
                  941,793
                  
                  
                  
                  4.5
                  
                  
                  $
                  3.69
                  
                  
                  
                  657,793
                  
                  
                  $
                  4.19$5.62
      and higher
                  
                  
                  87,907
                  
                  
                  
                  1.2
                  
                  
                  $
                  7.65
                  
                  
                  
                  87,907
                  
                  
                  $
                  7.65Balance
      at December 31, 2008
                  
                  
                  1,214,700
                  
                  
                  
                  4.7
                  
                  
                  $
                  3.67
                  
                  
                  
                  745,700
                  
                  
                  $
                  4.60




NOTE
11 - NON RELATED PARTY WARRANTS





At
December 31, 2008 there are warrants to purchase 120,023 shares 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
December 31, 2008 there are warrants to purchase 50,000 shares issued and
outstanding 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 and which expire on June 20,
2012.





At
December 31, 2008 there are warrants to purchase 195,800 shares 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.





-11-





The table
below summarizes non-related party warrant balances:




Stock Warrants
                    
                    
                    
                    
                    Weighted-AverageNon-related party activity
                    
                    Number of Warrants
                    
                    
                    Exercise Price Per ShareBalance
      at June 30, 2007
                    
                    
                    1,084,411
                    
                    
                    $
                    5.41Warrants
      expired
                    
                    
                    (600,941
                    )
                    
                    
                    8.50Warants
      exercised
                    
                    
                    (117,647
                    )
                    
                    
                    3.40Balance
      at June 30, 2008
                    
                    
                    365,823
                    
                    
                    $
                    4.54Warrants
      granted
                    
                    
                    -
                    
                    
                    
                    -Warrants
      expired
                    
                    
                    -
                    
                    
                    
                    -Warants
      exercised
                    
                    
                    -
                    
                    
                    
                    -Balance
      at December 31, 2008
                    
                    
                    365,823
                    
                    
                    $
                    4.54




NOTE
12 – 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 six months ended December 31, 2008 fees of $100,000 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.





The
AEST project has total budgeted expenditure for operating and capital items of
approximately $4.2 million (A$5.9 million) exclusive of any Australian taxes.
The Company’s contribution of approximately $2.3 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 $2.3 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.  There is a balance of
approximately $1.1 million in contributions due by the Company to the project in
cash and in-kind contributions as of December 31, 2008.





NOTE
13 - 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 $54,484 per annum (A$68,230) and is subject to an annual CPI
adjustment.





Rent
expense was $27,292 and $28,388 for the six months ended December 31, 2008 and
2007.





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





For the twelve months ending December
      31,2009
                      
                      $
                      54,5842010
                      
                      $
                      54,5842011
                      
                      $
                      45,490TOTAL:
                      
                      $
                      154,658





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.  This
order has since been cancelled effective October 2, 2008 pursuant to the Company
agreement with its joint venture partner to dissolve the relationship. The
balance of the investment was written off during the six month period ended
December 31, 2008 subsequent to the liquidation of the remaining assets,
resulting in a loss of $15,369 reflected in other expenses.





-12-





NOTE
14 - 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 $38,550 and $19,734 for the six months ending December
31, 2008 and 2007.





NOTE 15 —
STOCK-BASED COMPENSATION





On
July 1, 2006, the Company adopted the fair value recognition provisions of
Statement of Financial Accounting Standards (SFAS) No. 123R, “Share-Based
Payment”.  Consequently, for the six month periods ended December 31,
2008 and 2007, the Company’s results of operations reflect compensation expense
for new stock options granted and vested under its stock incentive plans. The
amount recognized in the financial statements related to stock-based
compensation was $108,942 and $-0, based on the fair value of all options vested
during the six months ended December 31, 2008 and 2007
respectively.





During
the three months ended December 31, 2008 options to purchase 185,000 shares were
granted to directors.  The options granted have an exercise price of
$1.69 per share, 110% of the market price of the Company’s stock on the date of
grant.  The options vest at various times of October 2009 through
January 2012 and exercisable at various dates through December
2016.





The fair
value of each option granted is estimated on the date of grant using the
Black-Scholes option-pricing method. The Company uses historical data to
estimate the expected price volatility, the expected option life and the
expected forfeiture rate. The Company has not made any dividend payments nor
does it have plans to pay dividends in the foreseeable future. The following
assumptions were used to estimate the fair value of options granted during the
three months ended December 31, 2008 using the Black-Scholes option-pricing
model:





Expected
      life of option (years)
                  
                  
                  4.3Risk-free
      interest rate
                  
                  
                  1.5
                  %Assumed
      volatility
                  
                  
                  37
                  %Expected
      dividend rate
                  
                  
                  0
                  %Expected
      forfeiture rate
                  
                  
                  0
                  %





The
weighted-average fair value of options granted during the three months ended
December 31, 2008 and 2007 was $4.34 and $-0-, respectively.





-13-




ZBB
ENERGY CORPORATION




Item 2.
            MANAGEMENT’S
      DISCUSSION AND ANALYSISOF
      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,
2008.




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.




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 for the immediate
      future.


·
            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.


·
            The market for our products is
      currently evolving and a viable market may take longer
      to  develop than we
anticipate.


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


·
            We face competition from
      larger, more well-established companies and
      technologies.


·
            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 by a
      major stockholder may have an adverse effect on the market price of our
      common stock.





-14-




Overview




Company
Background




We
design, develop, manufacture and distribute renewable energy storage systems
under the recently trademarked names, ZESS 50 and ZESS 500. Our ZESS systems are
built using a proprietary process based upon our zinc-bromide rechargeable
electrical energy storage technology. The modular nature of our zinc-bromide
regenerative fuel cells allows it to be sized and packaged into fully
customized, large format energy storage systems. Our systems combine these
modules with computer hardware and software that interface with a customer’s
power source to recharge during off peak times and discharge power as
needed.





The
Company completed a public offering on the Australian Stock Exchange (the “ASX”)
in March of 2005. Our securities traded on the ASX from March 2005 to
August 9, 2007 when they were delisted in connection with our United States
public offering.





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 began trading on the NYSE Alternext US (formerly the
American Stock Exchange) under the symbol “ZBB”.





Since our
inception, until fiscal 2005, when we completed the Australian public offering
and began our first major production contract, we were primarily 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.





In 2008
we completed production under a multi-year contract with the California Energy
Commission (“CEC”) to produce the first two ZESS 500 kWh commercial energy
storage systems for utility use.  We also developed, produced, and
shipped the first ZESS 50, a smaller capacity modular version of the ZESS 500
energy storage system.





In the
current quarter we are in production on multiple ZESS 50 and ZESS 500 kWh
renewable energy systems contracted for delivery to Ireland and Australia within
the next twelve months.





Our
production capacity currently remains somewhat limited, though the delivery of
new production equipment in December 2008 has significantly increased
capacity.  Since our IPO we have commenced implementation of our
business plan including the repayment of certain indebtedness, initiating
manufacturing commercialization and capacity increases, and commenced initial
commercial marketing of our products into target markets.





We are
currently working in the California energy market, in association with the CEC,
Pacific Gas & Electric and the US Department of Energy amongst others, to
install products into the local transmission and distribution network. In
addition we are currently addressing numerous opportunities in the renewable
energy markets within the United States along with a diverse international
marketplace with the intention of introducing products and services into these
markets.





Results
of Operations





Six
months ended December 31, 2008 and 2007:





Revenue and Other
income:





Our
revenues for the six months ended December 31, 2008 and 2007 were $513,885 and
$561,681, respectively, a decrease of $47,796.  This was result of a
decrease in revenues of $121,355 from the CEC contract which was completed in
March 2008, offset by a $73,559 increase in revenues resulting from the
Australian AEST project as compared to the six month period ending December 31,
2008.  Revenues include estimates based on the
percentage-of-completion method of accounting for long-term
contracts.





Other
income for the six months ended December 31, 2008 represents interest income of
$95,341 compared to $324,924 in the six months ended December 31, 2007, which
also included $25,000 of rental income.  This decrease of $268,152 in
the six months ended December 31, 2008 resulted primarily a $25,000 reduction in
rental income and a $229,583 decrease in interest income from the investment of
proceeds from the Company’s U.S. public offering in June 2007. Interest
income is expected to continue 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.





-15-





Cost
and Expenses and Other Expense:





Total
costs and expenses for the six months ended December 31, 2008 and 2007 were
$3,162,350 and $2,562,791, respectively. This increase of $599,559 in the six
months ended December 31, 2008 was primarily due to the Australian (AEST)
contract activities which began in July 2007 resulting in increases of $522,012
in advanced engineering and development expenses compared to the six month
period ended December 31, 2007 and increases in selling, general, and
administrative costs of $198,987.  These increases in costs were
offset by a $102,975 reduction in cost of product sales and a decrease of
$18,465 in depreciation expense.





Other
expenses for the six months ended December 31, 2008 and 2007 were $73,666 and
$147,119, respectively. The decrease of $73,453 in other expenses for six month
period ending December 31, 2008 was primarily due to the decrease in finance
costs as compared to costs incurred during the comparable six month period of
the prior fiscal year which included a significant reduction of the Company’s
debt. Also, decreases in interest rates in the period ending December 31, 2008
resulting in $34,236 less interest expense, despite additional equipment
financing, than was incurred in the six months ended December 31,
2007.





Cost of product
sales.   Our cost of product sales for the six months
ended December 31, 2008 and 2007 were $-0- and $102,975,
respectively.  The decrease in expense in the six month period ended
December 31, 2008 was due to the completion of the CEC sales contract which
expired March 31, 2008.





Selling, General and
Administrative.  Our selling, general and administrative
expense for the six months ended December 31, 2008 and 2007 was $1,666,818 and
$1,467,831, respectively.  The expense during the current six month
period reflected an increase of $198,987 compared to the six month period ending
December 31, 2007.   This was primarily result of establishing a
sales and marketing department, increased investor and public relations costs,
additional financial and administrative personnel, and overall cost
increases.





Travel
costs were approximately $126,000 and $160,000 for the six month periods ending
December 2008 and 2007, respectively.  The prior period included
travel costs related to installation and testing of energy storage systems sold
in California. 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 $60,885, general insurance of
$22,971, and directors and officers insurance of $20,250.




Advanced engineering and
development.Our engineering and
development costs for the six months ended December 31, 2008 and 2007 were
$1,360,666 and $838,654, respectively.  The increase during the six
month period ending December 31, 2008 of $522,012 from the comparable 2007
period was primary due to the increase in advanced engineering and development
costs and materials consumed under the AEST project contract which commenced in
July 2007.  Expenses were partially offset by $126,997 received from
the Australian government during the six months ended December 31, 2008 as tax
concession funding for research and development expenditures.  The
costs incurred under the current AEST contract have been classified as advanced
engineering and development expenditures, and have not been specifically
identified and classified in cost of sales.





Net
Loss.  Our net loss for the six months ended December 31, 2008
and 2007 was $2,626,790 and $1,798,305, respectively, resulting in an $828,485
increase in net loss as compared to the six months ended December 31,
2007.





Three
months ended December 31, 2008 and 2007:





Revenue and Other
income:





Our
revenues for the three months ended December 31, 2008 and 2007 were $222,188 and
$175,259, respectively.  The increase of $46,929 in the three months
ended December 31, 2008 is attributable to a $59,347 increase in revenues from
the AEST project with an Australian government agency which began in July 2007
and a reduction in revenues of $12,418 in the contract with CEC was
substantially completed in prior periods.  Revenues include estimates
based on the percentage-of-completion method of accounting for long-term
contracts.





Other
income for the three months ended December 31, 2008 and 2007 was $42,951 and
$158,562, respectively.  The decrease of $115,611 in the three months
ended December 31, 2008 resulted from a decrease in interest income from the
investment of proceeds from the Company’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.





-16-





Cost
and Expenses and Other expense:





Total
operating expenses for the three months ended December 31, 2008 and 2007 were
$1,565,223 and $1,434,307, respectively. The total operating expense increase in
three months ended December 31, 2008 included increases of $29,268 in selling,
general and administrative expense, and advanced engineering and development
costs of $137,649, offset by decreases of $13,562 in cost of products sales and
$22,439 in depreciation expense.





Other
expenses for the three months ended December 31, 2008 and 2007 were $32,697 and
$41,512, respectively. The decrease of $8,815 in the three month period ending
December 31, 2008 was due to significant reductions in interest rates on
equipment and building loans.





Cost of product
sales.   Our cost of product sales for three months ended
December 31, 2008 and 2007 was $-0- and $156,782, respectively.  The
decrease in expense in the three month period ended December 31, 2008 resulted
from completion of the final tasks related to the CEC contract in prior
periods.





Selling, general and
administrative.  Our selling, general and administrative
expense for the three months ended December 31, 2008 and 2007 was $881,737 and
$852,469, respectively. This expense during the current three month period was
$29,268 higher than the three month period ending December 31, 2007 mostly
related to implementation of our sales and marketing department as well as
additional engineering personnel, and overall cost increases.





Travel
costs were approximately $60,000 and $68,000 for the three month periods ending
December 2008 and 2007, respectively. Decreases are related to reductions in
investor relations activities.  We expect travel related to marketing
and business development to increase as our sales efforts and installations
increase.





Insurance
costs include insurance benefits for employees of $30,674, general liability
insurance of $17,656 and $10,125 in directors and officers insurance during the
three months ended December 31, 2008. During the comparable three month period
ending December 31, 2007, insurance costs include insurance benefits for
employees of $33,778, general liability insurance of $16,550 and $9,875 in
directors and officers insurance costs were incurred.





Advanced engineering and
development. Our engineering and development costs for the three months
ended December 31, 2008 and 2007 were $623,521 and $485,872,
respectively.  The increase during the three month period ending
December 31, 2008 of $137,649 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 processes.    The AEST project
will continue to affect future expenditures through June 2010, the term of the
contract, to the extent the costs are allowable and required 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 months ended December 31,
2008 and 2007 was $1,332,781 and $1,141,998, respectively.  In the
three months ended December 31, 2008 there was a $190,783 increase in net loss,
resulting from a $130,916 increase in costs and expenses, a decrease of $106,796
in other income; offset by a $46,929 increase in revenues.





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 December 31, 2008 was
$45,325,340.   We had a cumulative deficit of $34,353,585 as of
December 31, 2008 compared to a cumulative deficit of $31,726,795 as of June 30,
2008.  At December 31, 2008 we had a working capital surplus of
$6,609,111 and as of June 30, 2008 a working capital surplus of
$8,611,872.  Our shareholders’ equity as of December 31, 2008 and June
30, 2008 was $9,260,466 and $12,016,118, 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).





-17-





Additional
funding continues 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 $2.2 million (A$3.1 million) in project
funding through June 2010 totaling $1.1 million in year one,
$0.9  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 $4.2
million (A$5.9 million) exclusive of any Australian taxes. The Company’s
contribution of approximately $2.0  million (A$2.8 million) is the
value of any cash and in-kind contributions to be provided to the project by the
Company (balance remaining in Company contributions is approximately $1.1
million as of December 31, 2008) in undertaking the project
activities.




We believe that we will have
sufficient capital necessary to meet our operating and capital commitments
through at least December 2009.  This is based on a conservative
business plan that does not include any new sales contracts and a rate of
expenditure that supports our current operations, including product development
and production readiness without additional funding from project financing or
equity transactions. However, if sales do increase substantially, we believe
additional capital is required in order to expand our production capacity and
inventory levels.  Conversely, under current economic conditions and
absent a substantial increase in new orders, the board of directors has
requested that management implement increased cost containment
measures.




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 in July and August 2007.  In addition, approximately $5
million in investments in plant improvements, product development and increased
capacity have occurred.  We intend to apply approximately $600,000
towards the acquisition of new vibration welding and production equipment
($400,000), infra-red welding equipment ($100,000) and other production line
tools and sundry equipment ($100,000) over the next twelve
months.





Operating
Activities





For
the six months ended December 31, 2008, net cash used in operations was
$2,486,191.  Cash used in operations resulted primarily from a net
loss of $2,626,790.  Net working capital changes increased the cash
used in operations by $540,796 resulting from decreases in accrued compensation
and benefits of $67,144, deferred revenues of $350,850; and increases to
inventory of $240,333, and an increase in accounts receivable of
$100,393.  Cash used in operations was reduced by an increase in
accounts payable of $195,975; and reductions in other receivables of $5,070, and
in and prepaid and other current assets of $16,879.  Other non-cash
adjustments to cash included equipment of $210,855 charged to advanced
engineering and development costs, $100,000 of non-cash consulting fees,
$108,942 of stock options compensation expense,  a $126,732 change in
inventory allowance, and $134,866 of depreciation expense.





For the
six months ended December 31, 2007, net cash used in operations was $2,660,215
after adding back non-cash items of $153,331 of depreciation, non-cash charges
of $100,000, and equipment of $118,000 charged to advanced engineering and
development costs.  Cash used in operations resulted from decreases in
accounts payable of $412,917, accrued expenses of $78,919, deferred revenues of
$102,937; and increases to inventory of $422,565, and in accounts receivable of
$40,700.  Cash provided from operations was generated from a decrease
in prepaid and other current assets of $87,873.





Investing
Activities





For the six months ended December 31,
2008, net cash used in investing activities was $1,580,217.  Cash used
in investing activities resulted from $580,217 in purchases of property and
equipment, and $1,000,000 in net increases in bank certificates of deposits with
maturities greater than three months.





For the six months ended December 31,
2007, net cash used in investing activities was $258,077 due to purchases of
manufacturing equipment and computer hardware.





-18-





Financing
Activities





For
the six months ended December 31, 2008, net cash used in financing activities
was $965,512 consisting of repayments of $104,488 principal on notes payable,
and $1,070,000 in additional financing on manufacturing
equipment.





For
the six months ended December 31, 2007, net cash used in financing activities
was $4,194,149 consisting primarily of $4,047,822 in repayments of principal on
notes payable, additional public offering costs of $100,000 and $46,327
reduction in principal on bank loans.





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 in North America the electric utilities markets’ increasing energy
demands on an increasingly fragile transmission and distribution network is
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 CO2 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 advance the sales and marketing process in the areas of sales
network structure, direct key accounts, strategic relationships, marketing and
industry/policy involvement.





We
continue to build a direct market pipeline of opportunities which include
several electric utilities;  companies involved in renewable energy;
large renewable energy integrators involved in on-grid and off-grid
applications, government facilities and other commercial and industrial
opportunities such as “big box” store chains.





We have
advanced the ZBB presence and awareness in the market through increased
involvement in various market conferences (energy storage, wind, and solar,
electric utility), increased direct marketing, advancing the marketing materials
and web content, as well as continued efforts in media channels and highly
visible applications such as the Future House USA installation at
the  Beijing Olympic Games in China, the LifeVillage project with
Envision Solar International for the purpose of transporting village power
systems to remote areas in Central and West Africa, and the first large scale
wind/storage test facility on a college campus at the Dundalk Institute of
Technology in the Republic of Ireland.  ZBB is in the process of
furthering these marketing and networking efforts with additional marketing
activities that will continue to raise the profile of ZBB and the ZESS
brands.





We
continue to work in the California energy and utility markets through the CEC
(under a 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 November 2008 the State
of California amended certain renewable energy rebate programs to include energy
storage systems, such as those manufactured and sold by us, when our systems are
incorporated as part of either new or existing renewable energy
installation.





We are
currently addressing opportunities and engaged in fulfilling orders targeted to
renewable energy markets in the United States, Europe, Australia, and Africa
with the intention of introducing products and services into these
markets.  The United States and governments throughout the world are
implementing renewable energy mandates, tax credits, investments, and other
incentives related to renewable energy and energy efficiency including the
energy storage sector.  As of this report, the current Senate version
of The American Recovery and Reinvestment Act of 2009 includes provisions for
over $14 billion in amounts to be available for “Energy Efficiency and Renewable
Energy” until September 30, 2010, with $2 billion targeted towards grants for
the manufacturing of advanced batteries and components.





Our
current contracts include a collaborative project (Advanced Electricity Storage
Technologies project) with the Commonwealth of Australia which commenced July
2007 and running through July 2010, which includes the payment to the Company of
$2.7 million for future development costs and which includes the production and
delivery of one 500kWh energy storage system for installation into a renewable
energy site in Australia. In December 2008 we received an order for a Zess 500
system to be installed in conjunction with existing wind energy assets as the
Centre for Renewable Energy, Dundalk Institute of Technology in the Republic of
Ireland.




-19-




In
addition to the other risk factors stated above, and other information relating
to our business as referenced in our “Company Background” section, we believe
that some of the biggest challenges we face will be gaining market acceptance
for our newer products and reaching the utility and renewable energy companies
that we target. In order to be successful we must also develop a reputation of
reliability and quality service.





Our
systems compete with both traditional energy storage technologies, such as lead
acid batteries, as well as emerging energy storage technologies, such as
vanadium redox and sodium sulfur batteries. For our target markets, we believe
our product has a significant advantage over competing products and technologies
in terms of:





•
            Superior
      technical attributes in terms of the amount of energy that can be stored
      in a system of a given weight and size or “energy density” (sometimes
      measured in Watt Hours per Kilogram or Wh/kg), recharge cycle and overall
      cycle life;





•
            Competitive
      cost, based on dollars per Kilowatt Hours (kWh), as well as life of the
      module components;





•
            Demonstrated
      commercial manufacturing capability of functioning product in the United
      States;





•
            Modular
      construction allowing portable applications of varying size, as compared
      to the large scale, fixed site emerging
  alternatives.




Off-Balance
Sheet Arrangements




We
have no off-balance sheet arrangements.




Item
3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK




Not applicable for smaller reporting
companies.




Item
4.     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, as amended
(the “Exchange Act”). 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.




PART
II




Item
1.          Legal
Proceedings




We
are not a party to, and none of our property is the subject of, any pending
legal proceedings other than routine litigation that is incidental to our
business.  To our knowledge, no governmental authority is contemplating
initiating any such proceedings.




Item
1A.      Risk Factors




Not applicable for smaller reporting
companies.





-20-




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
$8  million of the net proceeds has been used for working capital and
investments in manufacturing assets, including expanding our selling and
marketing efforts and compliance costs,  additional manufacturing
capacity, and improvements to the product and 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  -Filed herewith:




Exhibit
31.1


Certification
of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.




Exhibit
31.2


Certification
of Principal Financial and Accounting Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.




Exhibit
32.1


Certification
of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.




Exhibit
32.2


Certification
of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.





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SIGNATURES





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





ZBB
      ENERGY CORPORATIONFebruary
      12, 2009
              By:
              /s/
      Robert J. ParryName:
              Robert
      J. ParryTitle:
              Chief
      Executive Officer and(Principal
      Executive Officer)February
      12, 2009
              By:
              /s/
      Scott W. ScampiniName:
              Scott
      W. ScampiniTitle:
              Chief
      Financial Officer and(Principal
      financial officer andPrincipal
      accounting officer)




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