CHINA JOINT VENTURE	6 Months Ended
Dec. 31, 2011
Notes to Financial Statements
CHINA JOINT VENTURE	NOTE 3 – CHINA JOINT VENTURE On August 30, 2011, the Company entered into agreements providing for establishment of a joint venture to develop, produce, sell, distribute and service advanced storage batteries and power electronics in China (the “Joint Venture”). Joint venture partners include PowerSav, Inc. (“Powersav”), AnHui Xinlong Electrical Co. and Wuhu Huarui Power Transmission & Transformation Engineering Co. The Joint Venture was established upon receipt of certain governmental approvals from China which were received in November 2011. The Joint Venture operates through a jointly-owned Chinese company located in Wuhu City, Anhui Province named Anhui Meineng Store Energy Co., Ltd. (“AHMN”). AHMN intends to initially assemble and ultimately manufacture the Company’s products for sale in the power management industry on an exclusive basis in mainland China and on a non-exclusive basis in Hong Kong and Taiwan. In connection with the Joint Venture, on August 30, 2011 the Company and certain of its subsidiaries entered into the following agreements: ● Joint Venture Agreement of Anhui Meineng Store Energy Co., Ltd. (the “China JV Agreement”) by and between ZBB PowerSav Holdings Limited, a Hong Kong limited liability company (“ Holdco”), and Anhui Xinrui Investment Co., Ltd, a Chinese limited liability company; and ● Limited Liability Company Agreement of ZBB PowerSav Holdings Limited by and between ZBB Cayman Corporation and PowerSav, Inc. (the “Holdco Agreement”). In connection with the Joint Venture, upon establishment of AHMN, the Company and certain of its subsidiaries entered into the following agreements: ● Management Services Agreement by and between AHMN and Holdco (the “Management Services Agreement”); ● License Agreement by and between Holdco and AHMN (the “License Agreement”); and ● Research and Development Agreement by and between the Company and AHMN (the “Research and Development Agreement”). Pursuant to the China JV Agreement, it is anticipated that AHMN will be capitalized with approximately $13.6 million of equity capital. The Company’s only capital contributions to the Joint Venture will be a contribution of technology to AHMN via the License Agreement and $200,000 in cash. The Company’s indirect interest in AHMN equals approximately 33%. The Company’s investment in AHMN will be made through Holdco, a holding company formed with PowerSav. Pursuant to the Holdco Agreement, the Company agreed to contribute to Holdco technology via a license agreement with an agreed upon value of approximately $4.4 million and $200,000 in cash in exchange for a 60% equity interest and PowerSav agreed to contribute to Holdco $3.3 million in cash in exchange for a 40% equity interest. The initial capital contributions (consisting of the Company’s technology contribution and one half of required cash contributions) were made in December 2011. For financial reporting purposes, Holdco’s assets and liabilities are consolidated with those of the Company and Powersav’s 40% interest in Holdco is included in the Company’s consolidated financial statements as a noncontrolling interest. AHMN had a net loss from continuing operations and a net loss of $171,949 of which $58,710 is attributable to the investee on the Company’s condensed consolidated statements of operations (unaudited). The Company has the right to appoint a majority of the members of the Board of Directors of Hong Kong Holdco and Hong Kong Holdco has the right to appoint a majority of the members of the Board of Directors of AHMN. Pursuant to the Management Services Agreement Holdco will provide certain management services to the AHMN in exchange for a management services fee equal to five percent of AHMN’s net sales for the first five years and three percent of AHMN’s net sales for the subsequent three years. Pursuant to the License Agreement, Holdco granted to AHMN (1) an exclusive royalty-free license to manufacture and distribute the Company’s ZBB Enerstore™, Zinc Bromide flow battery, version three (v3) battery (50KW) and ZBB Enersection™, POWR PECC (up to 250KW) (the “Products”) in mainland China in the power supply management industry and (2) a non-exclusive royalty-free license to manufacture and distribute the Products in Hong Kong and Taiwan in the power supply management industry. Pursuant to the Research and Development Agreement, AHMN may request the Company to provide research and development services upon commercially reasonable terms and conditions. AHMN would pay the Company’s fully-loaded costs and expense incurred in providing such services.

CHINA JOINT VENTURE

6 Months Ended

Dec. 31, 2011

NOTE 3 – CHINA JOINT VENTURE

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

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

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

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

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

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

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

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

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

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

The Company’s investment in AHMN will be made through Holdco, a holding company formed with PowerSav. Pursuant to the Holdco Agreement, the Company agreed to contribute to Holdco technology via a license agreement with an agreed upon value of approximately $4.4 million and $200,000 in cash in exchange for a 60% equity interest and PowerSav agreed to contribute to Holdco $3.3 million in cash in exchange for a 40% equity interest. The initial capital contributions (consisting of the Company’s technology contribution and one half of required cash contributions) were made in December 2011. For financial reporting purposes, Holdco’s assets and liabilities are consolidated with those of the Company and Powersav’s 40% interest in Holdco is included in the Company’s consolidated financial statements as a noncontrolling interest. AHMN had a net loss from continuing operations and a net loss of $171,949 of which $58,710 is attributable to the investee on the Company’s condensed consolidated statements of operations (unaudited).

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

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

Pursuant to the License Agreement, Holdco granted to AHMN (1) an exclusive royalty-free license to manufacture and distribute the Company’s ZBB Enerstore™, Zinc Bromide flow battery, version three (v3) battery (50KW) and ZBB Enersection™, POWR PECC (up to 250KW) (the “Products”) in mainland China in the power supply management industry and (2) a non-exclusive royalty-free license to manufacture and distribute the Products in Hong Kong and Taiwan in the power supply management industry.

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