UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended ~~March~~September 3130, 2018

Commission File Number: 001-33540

EnSync, Inc.

(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)

N88 W13901 Main Street, Suite 200 Menomonee Falls, Wisconsin	53051
(Address of principal executive offices)	(Zip Code)

(262) 253-9800
(Registrant’s telephone number, including area code)

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. þ Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate website, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (~~Section~~§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the ~~Registrant~~registrant was required to submit ~~and post~~ such files). þ Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer ¨þ ~~(Do not check if a smaller reporting company)~~ Smaller reporting company þ Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) ¨ Yes þ No

As of ~~May~~November 1513, 2018, the Company had 5668,~~609~~088,~~115~~ 055 shares of its Common Stock, par value $0.01 per share, issued and outstanding.

ENSYNC, INC.

TABLE OF CONTENTS

		Page
~~PART I. FINANCIAL INFORMATION~~	PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	2
	Condensed Consolidated Balance Sheets	2
	Condensed Consolidated Statements of Operations	3
	Condensed Consolidated Statements of Comprehensive Loss	4
	Condensed Consolidated Statements of Changes in Equity	5
	Condensed Consolidated Statements of Cash Flows	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3024
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3527
Item 4.	Controls and Procedures	3527
~~PART II. OTHER INFORMATION~~	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	3629
Item 1A.	Risk Factors	3629
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3629
Item 3.	Defaults Upon Senior Securities	3629
Item 4.	Mine Safety Disclosures	3629
Item 5.	Other Information	3629
Item 6.	Exhibits	3729
Signatures		3831

PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

EnSync, Inc.

Condensed Consolidated Balance Sheets

	(Unaudited)
	March 31, 2018			June 30, 2017
	September 30, 2018			June 30, 2018
Assets
Current assets:
Cash and cash equivalents	$	52,~~349~~981,~~640~~785		$	112,~~782~~984,~~962~~532
Accounts receivable, net		117,~~512,630~~504			~~469~~215,~~906~~009
Inventories, net		1,~~448~~487,~~797~~477			21,~~482~~220,~~013~~448
Costs and estimated earnings in excess of billings		~~248~~863,~~156~~841			87528,~~318~~266
Prepaid expenses and other current assets		1482,~~041,849~~129			~~630~~929,~~998~~379
Total current assets		95,~~601~~832,~~072~~736			155,~~453~~877,~~197~~634
Long-term assets:
Property, plant and equipment, net		664,515			3,446,253
Property and equipment, net		812,886			775,545
Investment in investee company		1,~~562~~624,~~285~~108			1,~~947~~640,~~728~~054
Goodwill		809,363			809,363
Right of use assets-operating leases		1,~~135~~011,~~174~~620			~~150~~1,~~214~~087,249
Other assets		9391,~~862~~087			791,~~502~~087
Total assets	$	1310,~~866~~181,~~271~~800		$	2110,~~814~~280,~~257~~932
Liabilities and Equity
Current liabilities:
Current maturities of long-term debt	$	47,272		$	726,256
Accounts payable	$	877,913		$	1,142,256
Accounts payable		1,564,475			487,185
Billings in excess of costs and estimated earnings		258,257			176,294
Billings in excess of costs and estimated earnings		39,740			456,950
Accrued expenses		1,027,702			1,236,680
Accrued expenses		1,153,947			1,231,714
Total current liabilities		2,163,872			2,555,230
Total current liabilities		2,805,434			2,902,105
Long-term liabilities:
Long-term debt, net of current maturities		331,827			331,827
Long-term debt		331,827			331,827
Deferred revenue		~~538~~711,~~937~~359			~~422~~538,~~638~~937
Other long-term liabilities		1,~~106~~029,~~117~~766			~~249~~1,~~920~~072,120
Total liabilities		4,~~782~~236,~~315~~824			34,~~906~~498,~~490~~114
Commitments and contingencies		-			-
Equity
Series B redeemable convertible preferred stock ($0.01 par value, $1,000 face value), 3,000 shares authorized and issued, 2,300 shares outstanding, preference in liquidation of $5,887,217 and $5,631,086 as of March 31, 2018 and June 30, 2017, respectively		23			23
Series B redeemable convertible preferred stock ($0.01 par value,
Series C convertible preferred stock ($0.01 par value, $1,000 face value), 28,048 shares authorized, issued, and outstanding, preference in liquidation of $3,196,739 and $12,276,682 as of March 31, 2018 and June 30, 2017, respectively		280			280
$1,000 face value), 3,000 shares authorized and issued, 2,300 shares outstanding		23			23
Common stock ($0.01 par value), 300,000,000 authorized, 56,405,507 and 55,200,963 shares issued and outstanding as of March 31, 2018 and June 30, 2017, respectively		1,272,370			1,260,324
Series C convertible preferred stock ($0.01 par value, $1,000 face
Additional paid-in capital		142,664,782			141,822,317
value), 28,048 shares authorized, issued, and outstanding		280			280
Accumulated deficit		(134,000,565	)		(124,639,644	)
Common stock ($0.01 par value), 300,000,000 authorized,
Accumulated other comprehensive loss		(1,584,646	)		(1,584,578	)
68,014,385 and 56,609,115 shares issued and outstanding as of
Total EnSync, Inc. equity		8,352,244			16,858,722
September 30, 2018 and June 30, 2018, respectively		1,388,458			1,274,406
Noncontrolling interest		731,712			1,049,045
Additional paid-in capital		145,911,154			143,008,995
Total equity		9,083,956			17,907,767
Accumulated deficit		(140,381,353	)		(137,609,659	)
Total liabilities and equity	$	13,866,271		$	21,814,257
Accumulated other comprehensive loss		(1,587,702	)		(1,587,702	)
Total EnSync, Inc. equity		5,330,860			5,086,343
Noncontrolling interest		614,116			696,475
Total equity		5,944,976			5,782,818
Total liabilities and equity	$	10,181,800		$	10,280,932

See accompanying notes to condensed consolidated financial statements.

EnSync, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

	Three months ended March 31,						Nine months ended March 31,
	Three months ended September 30,
	2018			2017			~~2018~~			~~2017~~
Revenues	$	32,~~073~~738,~~078~~206		$	502,~~505~~362,048		$	~~10,281,833~~		$	~~9,443,635~~
Costs and expenses
Cost of product sales		2,238,445			206,157			7,977,861			9,703,858
Cost of sales		2,377,268			2,066,910
Cost of engineering and development		-			-			-			937,725
Advanced engineering and development		1,242,446			1,447,947
Advanced engineering and development		1,184,427			1,414,858			3,470,355			3,493,326
Selling, general and administrative		1,927,308			2,303,671
Selling, general and administrative		2,482,084			2,743,618			7,561,435			8,331,773
Depreciation and amortization		38,344			97,392
Depreciation and amortization		63,516			98,318			246,926			454,387
Impairment of long-lived assets		-			447,000
Impairment of long-lived assets		-			-			447,000			-
Total costs and expenses		5,585,366			6,362,920
Total costs and expenses		5,968,472			4,462,951			19,703,577			22,921,069
Loss from operations		(2,847,160	)		(4,000,872	)
Loss from operations		(2,895,394	)		(4,412,446	)		(9,421,744	)		(13,477,434	)
Other income (expense)
Other income (expense)
Equity in loss of investee company		(15,946	)		(50,025	)
Equity in loss of investee company		(246,980	)		(170,084	)		(385,443	)		(171,816	)
Interest income		483			7,133
Interest income		5,918			10,809			19,913			33,436
Interest expense		(2,559	)		(11,258	)
Interest expense		(8,795	)		(11,115	)		(30,970	)		(37,219	)
Other income		11,129			69,998
Other income		61,509			-			138,034			8,432
Total other income (expense)		(6,893	)		15,848
Total other income (expense)		(188,348	)		(170,390	)		(258,466	)		(167,167	)
Loss before benefit for income taxes		(2,854,053	)		(3,985,024	)
Loss before benefit for income taxes		(3,083,742	)		(4,582,836	)		(9,680,210	)		(13,644,601	)
Benefit for income taxes		-			-
Benefit for income taxes		-			-			-			-
Net loss		(2,854,053	)		(3,985,024	)
Net loss		(3,083,742	)		(4,582,836	)		(9,680,210	)		(13,644,601	)
Net loss attributable to noncontrolling interest		82,359			93,230
Net loss attributable to noncontrolling interest		150,298			128,722			319,289			271,061
Net loss attributable to EnSync, Inc.		(2,771,694	)		(3,891,794	)
Net loss attributable to EnSync, Inc.		(2,933,444	)		(4,454,114	)		(9,360,921	)		(13,373,540	)
Preferred stock dividend		(91,922	)		(83,277	)
Preferred stock dividend		(87,495	)		(79,264	)		(256,131	)		(232,040	)
Net loss attributable to common shareholders	$	(2,863,616	)	$	(3,975,071	)
Net loss attributable to common shareholders	$	(3,020,939	)	$	(4,533,378	)	$	(9,617,052	)	$	(13,605,580	)
Net loss per share
Net loss per share
Basic and diluted	$	(0.05	)	$	(0.07	)
Basic and diluted	$	(0.05	)	$	(0.09	)	$	(0.17	)	$	(0.28	)
Weighted average shares - basic and diluted		59,758,292			55,550,492
Weighted average shares - basic and diluted		56,077,230			48,010,347			55,825,507			47,870,082

See accompanying notes to condensed consolidated financial statements.

EnSync, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited)

	Three months ended March 31,						Nine months ended March 31,
	Three months ended September 30,
	2018			2017			~~2018~~			~~2017~~
Net loss	$	(32,~~083~~854,~~742~~053	)	$	(43,~~582~~985,~~836~~024	)	$	~~(9,680,210~~	)	$	~~(13,644,601~~	)
Foreign exchange translation adjustments		~~(477~~-	)		~~1,636~~632			~~(68~~	)		~~886~~
Comprehensive loss		(32,~~084~~854,~~219~~053	)		(43,~~581~~984,~~200~~392	)		~~(9,680,278~~	)		~~(13,643,715~~	)
Net loss attributable to noncontrolling interest		~~150~~82,~~298~~359			~~128~~93,~~722~~230			~~319,289~~			~~271,061~~
Comprehensive loss attributable to EnSync, Inc.	$	(2,~~933~~771,~~921~~694	)	$	(43,~~452~~891,~~478~~162	)	$	~~(9,360,989~~	)	$	~~(13,372,654~~	)

See accompanying notes to condensed consolidated financial statements.

EnSync, Inc.

Condensed Consolidated Statements of Changes in Equity

(Unaudited)

	Series B				Series C								Additional						Accumulated Other
	Series B Preferred Stock				Series C Preferred Stock				Common Stock				Additional			Accumulated			Accumulated Other Comprehensive			Noncontrolling
	Preferred Stock				Preferred Stock				Common Stock				Paid-in			Accumulated			Comprehensive			Noncontrolling
	Shares		Amount		Shares		Amount		Shares		Amount		Paid-in Capital			Deficit			Loss			Interest
	Shares		Amount		Shares		Amount		Shares		Amount		Capital			Deficit			Income (Loss)			Interest
Balance: July 1, 2017		2,300	$	23		28,048	$	280		55,200,963	$	1,260,324	$	141,822,317		$	(124,639,644	)	$	(1,584,578	)	$	1,049,045
Balance: July 1, 2016		2,300	$	23		28,048	$	280		47,752,821	$	1,185,843	$	137,585,233		$	(120,550,108	)	$	(1,585,583	)	$	1,401,372
Net loss		-		-		-		-		-		-		-			(12,970,015	)		-			(354,526	)
Net loss		-		-		-		-		-		-		-			(4,089,536	)		-			(352,327	)
Net currency translation adjustment		-		-		-		-		-		-		-			-			(3,124	)		-
Net currency translation adjustment		-		-		-		-		-		-		-			-			1,005			-
Issuance of common stock, net of costs and underwriting fees		-		-		-		-		7,150,000		71,500		2,024,340			-			-			-
Stock-based compensation		-		-		-		-		144,728		1,447		2,144,318			-			-			-
Exercise of stock options		-		-		-		-		124,252		1,242		68,718			-			-			-
Exercise of warrants		-		-		-		-		29,162		292		(292	)		-			-			-
Balance: June 30, 2017		2,300		23		28,048		280		55,200,963		1,260,324		141,822,317			(124,639,644	)		(1,584,578	)		1,049,045
Net loss		-		-		-		-		-		-		-			(9,360,921	)		-			(319,289	)
Net currency translation adjustment		-		-		-		-		-		-		-			-			(68	)		-
Issuance of common stock, net of costs and underwriting fees		-		-		-		-		367,000		3,670		93,004			-			-			-
Contribution of capital from noncontrolling interest		-		-		-		-		-		-		-			-			-			1,956
Stock-based compensation		-		-		-		-		~~837~~1,~~544~~041,152		810,~~376~~412		~~749~~1,~~461~~093,674			-			-			-
Balance: March 31, 2018		2,300	$	23		28,048	$	280		56,405,507	$	1,272,370	$	142,664,782		$	(134,000,565	)	$	(1,584,646	)	$	731,712
Balance: June 30, 2018		2,300		23		28,048		280		56,609,115		1,274,406		143,008,995			(137,609,659	)		(1,587,702	)		696,475
Net loss		-		-		-		-		-		-		-			(2,771,694	)		-			(82,359	)
Issuance of common stock, net of costs		-		-		-		-		11,334,616		113,346		2,588,223			-			-			-
Stock-based compensation		-		-		-		-		70,654		706		313,936			-			-			-
Balance: September 30, 2018		2,300	$	23		28,048	$	280		68,014,385	$	1,388,458	$	145,911,154		$	(140,381,353	)	$	(1,587,702	)	$	614,116

See accompanying notes to condensed consolidated financial statements.

EnSync, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Nine months ended March 31,
	Three months ended September 30,
	2018			2017
Cash flows from operating activities
Net loss	$	(92,~~680~~854,~~210~~053	)	$	(133,~~644~~985,~~601~~024	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation of property, plant and equipment		~~238~~38,~~677~~344			~~379~~97,~~450~~392
Amortization of customer intangible assets		8,249			68,044
Stock-based compensation, net		314,642			435,608
Stock-based compensation, net		796,500			1,554,567
Equity in loss of investee company		15,946			50,025
Equity in loss of investee company		385,443			171,816
Provision for inventory reserve		57,265			54,928
Provision for inventory reserve		57,988			234,675
Gain on sale of property, plant and equipment		(11,124	)		(70,000	)
Gain on sale of property, plant and equipment		(137,650	)		(8,432	)
Interest accreted on note receivable		-			(3,024	)
Interest accreted on note receivable		(9,008	)		(3,008	)
Impairment of long-lived assets		-			447,000
Impairment of long-lived assets		447,000			-
Changes in assets and liabilities
Accounts receivable		(1197,~~042,724~~505	)		~~(64~~265,~~632~~250	)
Inventories		~~975~~(324,~~228~~294	)		~~(312~~84,~~715~~523	)
Costs and estimated earnings in excess of billings		(~~160~~335,~~838~~575	)		-(504,873	)
Prepaids and other current assets		~~(428~~447,~~077~~250	)		~~859~~(151,~~670~~826	)
Deferred PPA project costs		-			5,690,307
Accounts payable		(264,343	)		1,003,940
Other assets		(86,360	)		(4,727	)
Billings in excess of costs and estimated earnings		81,963			(331,603	)
Accounts payable		1,077,290			60,895
Accrued expenses		(175,958	)		(184,366	)
Billings in excess of costs and estimated earnings		(417,210	)		-
Deferred revenue		172,422			-
Accrued expenses		(207,259	)		(120,754	)
Net cash used in operating activities		(2,640,010	)		(2,792,050	)
Deferred revenue		116,299			422,638
Other long-term liabilities		-			137,983
Net cash used in operating activities		(8,066,662	)		(4,578,824	)
Cash flows from investing activities
Expenditures for property and equipment		(3475,~~377~~430	)		~~(46,364~~-	)
Proceeds from sale of property, plant and equipment		211,~~268,817~~124			1570,~~325~~000
Payments from note receivable		~~18,000~~-			-6,000
Net cash provided by (used in) investing activities		2(64,~~252,440~~306	)		~~(31~~76,~~039~~000	)
Cash flows from financing activities
Repayments of long term debt		~~(678,984~~-	)		(~~248~~84,~~533~~348	)
Proceeds from issuance of common stock		96,674			-
Net proceeds from issuance of common stock		2,701,569			119,459
Proceeds from the exercise of stock options		-			68,400
Contribution of capital from noncontrolling interest		-			1,956
Payments of tax withholding related to stock-based compensation		(38,663	)		-
Net cash provided by financing activities		2,701,569			37,067
Contribution of capital from noncontrolling interest		1,956			-
Net decrease in cash and cash equivalents		(2,747	)		(2,678,983	)
Net cash used in financing activities		(619,017	)		(180,133	)
Cash and cash equivalents - beginning of period		2,984,532			11,782,962
Effect of exchange rate changes on cash and cash equivalents		(83	)		578
Cash and cash equivalents - end of period	$	2,981,785		$	9,103,979
Net decrease in cash and cash equivalents		(6,433,322	)		(4,789,418	)
Cash and cash equivalents - beginning of period		11,782,962			17,189,089
Cash and cash equivalents - end of period	$	5,349,640		$	12,399,671
Supplemental disclosures of cash flow information:
Cash paid for interest	$	332,~~294~~559		$	3711,~~612~~452
Supplemental noncash information:
Right of use asset obtained in exchange for new operating lease		~~984~~(75,~~960~~629	)		~~178~~(19,~~124~~467	)

See accompanying notes to condensed consolidated financial statements.

EnSync, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

EnSync, Inc. and its subsidiaries, ~~which are often referenced as EnSync Energy for marketing and branding purposes~~ (“EnSync Energy,” “EnSync”, “we,” “us,” “our,” or the “Company”) is ana renewable energy ~~innovation~~systems and services company whose innovative and differentiated technologies and capabilities are designed to to deliver the least expensive, highest value and most reliable electricity. With the Company’s May 2018 announcement of the EnSync Home Energy System, the Company now serves all three major markets in the renewable energy space: Residential Energy Systems, Commercial Energy Systems and Independent Utility Energy Systems. The Company’s ~~modular~~systems ~~technologies~~utilize ~~and~~highly ~~services~~configurable modules ~~synchronize~~that, ~~power~~together ~~sources~~with tothe ~~meet~~Auto-Sync ~~dynamic~~DC Bus and ~~evolving~~DER FlexTM internet of energy ~~environments~~control platform, enable ~~real~~simple design, configuration and deployment of mass-~~time~~customized ~~prioritization~~systems that meet the specific needs of ~~distributed~~each ~~energy~~project with the best possible economics ~~resources~~in ~~and~~a ~~provide~~highly ~~grid~~dynamic ~~stability~~environment ~~and~~with multiple economic ~~optimization~~value streams. ~~EnSync~~The ~~Energy~~Company ~~offers~~is vertically integrated, ~~solutions~~ from ~~concept~~lead ~~through~~generation to system design, ~~project~~and ~~finance~~deployment, ~~commissioning,~~to warranty and operating and maintenance, ~~serving~~services. ~~the~~The ~~commercial~~Company ~~and~~typically ~~industrial~~utilizes a 20-year power purchase agreement (“~~C&I~~PPA”) ~~and~~ ~~multi-tenant~~structure ~~building,~~where ~~utility~~the ~~and~~ off-~~grid~~taker ~~markets.~~contracts ~~Incorporated~~to inpurchase ~~1998,~~electricity ~~EnSync~~from ~~Energy~~a iscompleted system ~~headquartered~~owned inby ~~Menomonee~~a ~~Falls, Wisconsin,~~third-party ~~USA,~~that ~~with~~acquires ~~offices~~the inPPA ~~Madison,~~from ~~Wisconsin,~~the ~~Petaluma,~~Company. ~~California,~~The ~~Honolulu,~~Company ~~Hawaii~~also ~~and~~sells ~~Shanghai,~~systems ~~China~~directly to the end customer or through its channel partners.

~~EnSync~~Incorporated ~~Energy~~in ~~develops~~1998, ~~and commercializes product and service solutions for~~ the ~~distributed~~Company ~~energy~~is ~~generation~~headquartered in ~~market~~Menomonee Falls, ~~including energy management systems~~Wisconsin, ~~energy storage systems~~USA, ~~applications and internet of energy platforms that link distributed energy resources~~ with ~~the~~offices ~~grid~~in ~~network.~~Madison, ~~These~~Wisconsin, ~~solutions are~~Petaluma, ~~critical~~California, ~~to the transition from a “coal-centric economy” to one reliant on renewable energy sources. EnSync Energy synchronizes conventional utility~~Honolulu, ~~distributed~~Hawaii ~~generation~~ and ~~storage assets to seamlessly ensure the least expensive and most reliable electricity available~~Shanghai, ~~thus enabling the future of energy networks~~China.

EnSync Energy delivers fully integrated systems utilizing proprietary direct current power control hardware, energy management software and extensive experience with energy storage technologies. Our internet of energy control platform adapts to ever-changing generation and load variables, as well as changes in utility prices and programs, aiming to ensure the means to make and/or save money behind-the-meter while concurrently providing utilities the opportunity to use distributed energy resource systems for various grid enhancing services.

EnSync Energy’s systems can easily integrate distributed energy resources with the grid, island from the grid and serve as a microgrid, and be deployed as self-contained microgrids, delivering electricity to sites for which no grid exists. EnSync Energy brings vital power control and energy storage solutions to problems caused by the incorporation of increasingly pervasive renewable energy generating assets that are part of the grid power transmission and distribution network used in commercial, industrial and multi-tenant buildings. In addition to ensuring resilient and high-value electricity to off-takers, utilities can benefit from EnSync Energy’s systems by relying on such assets for visibility, aggregation and control as they begin to use distributed energy resources to ensure a more fortified grid via grid services. The Company also develops and commercializes energy management systems for off-grid applications such as island or remote power.

Power Purchase Agreements

We are addressing our target markets as a developer and a financial packager primarily through the use of power purchase agreements (“PPAs”). Navigant Research forecasts the annual market for solar plus energy storage distributed energy systems to grow to nearly $50 billion by 2026, with a compound annual growth rate of more than 40 percent in such period. Under this PPA structure, we agree to develop and supply a system that uses our and other companies’ products and the offtaker agrees to purchase electricity from the completed system at a fixed rate for typically a 20-year period. Through these arrangements, the offtaker receives the benefit of a low and fixed price for electricity without incurring the capital expenditures required to develop and build the system.

Because building these PPA projects requires significant long-term capital outlays, we do not intend to own the PPA systems and seek to sell them to third parties once we have completed the site development process. Site development activities include: (i) finalizing the engineering design of the system, (ii) applying for and receiving the necessary permits for construction of the system and (iii) negotiation of an interconnection agreement with the local utility. This site development process typically takes three to four months.

We typically do not begin construction of a specific project until it has been sold to a third party. Accordingly, during the site development process, we engage in a sale process and provide interested purchasers with information related to the system. The purchase price for a particular system is determined through a formula that we believe is customary in the solar industry that takes into account the revenue stream to be received from the offtaker discounted to present value based on customary internal rates of return for similar projects, the costs of completing, maintaining and administering the system and certain other factors.

Once the system has been sold, we begin construction which includes procurement of the necessary equipment, physical construction and commissioning of the system. The construction period varies based on many internal and external factors, but is typically completed within six to nine months.

Our sales agreement with the buyer of the system typically provides for us to receive an upfront payment and additional progress payments to be made based upon achievement of certain key procurement, construction and commissioning milestones.

We recognize revenue from these PPA arrangements on a percentage of completion basis as we build out and commission the system. Any excess cash received from the system purchaser in excess of recognized revenue is recorded as billings in excess of costs and estimated earnings and carried as a liability on our condensed consolidated financial statements. Based on our experience to date, we expect to recognize all revenue from a particular PPA system typically within 12 months of the signing of the related PPA agreement.

We may also enter into a service agreement with the owner of a PPA system pursuant to which we provide ongoing administrative, operating and maintenance services. These agreements usually have a term which matches the PPA term. We recognize revenue from a service agreement ratably over the life of the related agreement.

The condensed consolidated financial statements include the accounts of the Company and those of its wholly-owned subsidiaries, various PPA project subsidiaries, its eighty-five percent owned subsidiary Holu Energy LLC (“Holu”), and its sixty percent owned subsidiary ZBB PowerSav Holdings Limited (“Holdco”) located in Hong Kong, which was formed in connection with the Company’s investment in a China joint venture.

Interim Financial Data

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial data and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by US GAAP for complete financial statements. In the opinion of management, all adjustments (consisting only of adjustments of a normal and recurring nature) considered necessary for fair presentation of of the results of operations have been included. Operating results for the three ~~and nine~~ months ended ~~March~~September 3130, 2018 are not necessarily indicative of the results that might be expected for the year ending June 30, ~~2018~~2019.

The condensed consolidated balance sheet at at June 30, ~~2017~~2018 has been derived from audited financial statements at that date, but does not include all of the information and disclosures required by US GAAP. For a more complete discussion of accounting policies and certain other information, refer to the Company’s Annual Report filed on Form 10-K for the fiscal year ended June 30, ~~2017~~2018 filed with the Securities and Exchange Commission (“SEC”) on September 2725, ~~2017~~2018.

Basis of Presentation and Consolidation

The accompanying condensed consolidated ~~financial~~ financial statements include the accounts of the Company and its wholly and majority-owned subsidiaries and have been prepared in accordance with US GAAP and are reported in USU.S. dollars. For subsidiaries in which the Company’s ownership interest is less than 100%, the noncontrolling interests are reported in stockholders’ equity in the condensed consolidated balance sheets. The noncontrolling interests in net income (loss), net of tax, are classified separately in the condensed consolidated statements of operations. All significant intercompany accounts and transactions have been eliminated in consolidation. The Company’s fiscal year end is June 30.

Use of Estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. It is reasonably possible that the estimates we have made may change in the near future. Significant estimates underlying the accompanying condensed consolidated financial statements include those related to:

going concern assessment;

the timing of revenue recognition;

~~· allocation of purchase price in a business combination;~~7

the allowance for doubtful accounts;

provisions for excess and obsolete inventory;

the lives and recoverability of property, plant and equipment and other long-lived assets, including the testing for impairment;

testing of goodwill for impairment;

contract costs, losses and reserves;

warranty obligations;

income tax valuation allowances;

discount rates for finance and operating lease liabilities;

stock-based compensation; and

valuation of equity instruments and warrants.

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, a note receivable, accounts payable, bank loans, notes payable, equipment financing, equity instruments and warrants. The carrying amounts of the Company’s financial instruments approximate their respective fair values due to the relatively short-term nature of these instruments, except for the bank loans, notes payable, equipment financing, equity instruments and warrants. The carrying amounts of the bank loans and notes payable approximate fair value due to the interest rate and terms approximating those available to usthe Company for similar obligations. The interest rate on the equipment financing obligation was imputed based on the requirements described in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 842-40-30-6. The fair value of the nonconvertible attribute and conversion option of the Series C convertible preferred stock (the “Series C Preferred Stock”) and related warrant was determined using the Option-Pricing Method (“OPM”) as described in the AICPA Accounting and Valuation Guide entitled Valuation of Privately-Held-Company Equity Securities Issued as Compensation and a “with” and “without” methodology to bifurcate the Series C Preferred Stock conversion feature. The OPM model treats the various equity securities as call options on the total equity value contingent upon each security’s strike price or participation rights. The Black-Scholes inputs utilized for the OPM model were: (i) an aggregate equity value estimated based on the back-solve methodology to reconcile the closing common stock price as of the valuation date; (ii) a term in alignment with the terms of our supply agreement with SPI Energy Co., LTD. (“SPI”) (formerly known as Solar Power, Inc.); (iii) a risk free rate from the Federal Reserve Board’s H.15 release as of the transaction date; (iv) the volatility of the price of the Company’s publicly traded stock; and (v) the performance vesting requirements of the equity instruments that were expected to be met.

The Company accounts for the fair value of of financial instruments in accordance with FASB ASC Topic 820, “– Fair Value Measurements and Disclosures.” Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between ~~market~~ market participants at the measurement date. The degree of judgment utilized in measuring the fair value of assets and liabilities ~~generally~~ generally correlate to the level or pricing observability. FASB ASC Topic 820 describes a fair value hierarchy based on the following ~~three~~ three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure ~~fair~~ fair value:

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can access at the measurement date.

Level 2 inputs are inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly, for similar assets or liabilities in active markets.

Level 3 inputs are unobservable inputs for the asset or liability. As such, the prices or valuation techniques require inputs that are both significant to the fair value measurement and are unobservable.

Cash and Cash Equivalents

The Company considers all highly liquid ~~investments~~ investments with maturities of three months or less to be cash equivalents. The Company maintains its cash deposits at financial ~~institutions~~ institutions predominately in the ~~United States~~U.S., ~~Australia~~Philippines, Hong Kong and China. The Company has not experienced any material losses in such accounts.

Accounts Receivable

Credit is extended based on an evaluation of a customer’s financial condition. Accounts receivable are stated at the amount the Company expects to collect from outstanding balances. The Company records allowances for doubtful accounts based on customer-specific analysis and general matters such as current assessments of past due balances and economic conditions. The Company writes off accounts receivable against the allowance when they become uncollectible. ~~The Company had no allowance for doubtful accounts as of March 31, 2018. Accounts receivable are stated net of an allowance for doubtful accounts of $47,307 as of June 30, 2017.~~

Inventories

Inventories are stated at the lower of cost or net realizable value, defined as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Cost is computed using standard cost, which approximates actual cost, on a first-in, first-out basis. The Company provides inventory write-downs on excess and obsolete inventories based on historical usage. The write-down is measured as the difference between the cost of the inventory and net realizable value based upon assumptions about usage and charged to the provision for inventory, which is a component of cost of sales.

Costs and Estimated Earnings in Excess of Billings/Billings in Excess of Costs and Estimated Earnings

Costs and estimated earnings in excess of of billings represent amounts earned and reimbursable under contracts accounted for under the percentage of completion method. ~~The~~ The timing of when wethe ~~bill~~Company ~~our~~bills its customers is generally dependent upon advance billing terms, milestone billings based on the completion of certain phases of the work, or when services are provided. Based on ~~our~~the Company’s historical experience, the weCompany generally ~~consider~~considers the collection risk related to these amounts to be low. When events or conditions indicate that the amounts outstanding may become uncollectible, an allowance is estimated and recorded. WeThe ~~anticipate~~Company anticipates that substantially all of such amounts will be billed and collected over the next twelve months.

Billings in excess of costs and estimated earnings represents amounts billed to customers in advance of being earned under contracts accounted for under the percentage of of completion method. WeThe ~~anticipate~~Company anticipates that substantially all such amounts will be earned over the next twelve months.

Other Current Assets

Note Receivable

The Company has a note receivable from an unrelated party. We regularly evaluate the financial condition of the borrower to determine if any reserve for an uncollectible amount should be established. To date, no such reserve is required.

Deferred Customer Project Costs

Deferred customer project costs consist primarily of the costs of products delivered and services performed that are subject to additional performance obligations or customer acceptance. These deferred customer project costs are expensed at the time the related revenue is recognized.

Project Assets

Project assets consist primarily of capitalized costs which are incurred by the Company prior to the sale of the photovoltaic, storage or energy management systems and PPA to a third-party. These costs are typically for the construction, installation and development of these projects. Construction and installation costs include primarily material and labor costs. Development fees can include legal, consulting, permitting and other similar costs.

Property, Plant and Equipment

Land, building, equipment, computers, furniture and fixtures are recorded at cost. Maintenance, repairs and betterments are charged to expense as incurred. Depreciation is provided for all plant and equipment on a straight-line basis over the estimated useful lives of the assets. The estimated useful lives used for each class of depreciable asset are:

		Estimated Useful Lives
Manufacturing equipment		3 - 7 years
Office equipment		3 - 7 years
Building and improvements		7 - 40 years

The Company completed a review of the estimated useful lives of specific assets for the ~~nine~~three months ended ~~March~~September 3130, 2018 and determined that there were no changes in the ~~estimated~~ estimated useful lives of assets.

Impairment of Long-Lived Assets

In accordance with FASB ASC Topic 360, – "Impairment or Disposal of Long-Lived Assets," the Company assesses potential impairments to its long-lived assets including property, plant and equipment and intangible assets when there is evidence that events or changes in circumstances indicate that the carrying value may not be recoverable.

If such an indication exists, the recoverable amount of the asset is compared to the asset’s carrying value. Any excess of the asset’s carrying value over its recoverable amount is expensed in the ~~statement~~condensed consolidated statements of operations. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate.

10On October 12, 2017, the Company accepted an offer to sell its corporate headquarters for $2,340,000, less commissions and other customary closing costs. As a result, the Company recorded an impairment charge of $447,000 on the building and land in its condensed consolidated statements of operations during the three months ended September 30, 2017. The sale of the Company’s corporate headquarters closed on January 31, 2018, pursuant to which the Company received net proceeds of $2,187,317 and recorded a gain on sale of $61,129.

On October 12, 2017, the Company accepted an offer to sell its corporate headquarters for $2,340,000, less commissions and other customary closing costs. As a result, we recorded an impairment charge of $447,000 on the building and land in our condensed consolidated statements of operation during the three months ended September 30, 2017. The sale of the Company’s corporate headquarters closed on January 31, 2018, pursuant to which we received net proceeds of $2,187,317 and recorded a gain on sale of $61,129.

Investment in Investee Company

Investee companies that are not consolidated, but over which the Company exercises significant influence, are accounted for under the equity method of accounting. Whether or not the Company exercises significant influence with respect to an investee depends on an evaluation of several factors including, among others, representation on the investee company’s board of directors and ownership level, which is generally a 20% to to 50% interest in the voting securities of the investee company. Under the equity method of accounting, an investee company’s accounts are not reported in the Company’s condensed consolidated balance sheets and statements of operations; however, ~~the~~ the Company’s share of the earnings or losses of the investee company is reflected in the caption ‘‘Equity in ~~gain~~ (loss) of investee company” in the condensed consolidated statements of operations. The Company’s carrying value in an equity method investee company is reported in the caption ‘‘Investment in investee company’’ in the Company’s condensed consolidated balance sheets.

When the Company’s carrying value in an equity method investee company is reduced to zero, no further losses are recorded in the Company’s condensed consolidated financial statements unless the Company guaranteed obligations of the investee company or has committed additional funding. When the investee company subsequently reports income, the Company will not record its share of such income until it equals or exceeds the amount of its share of losses not previously recognized.

Goodwill

Goodwill is recognized as the excess cost of an acquired entity over the net amount assigned to assets acquired and liabilities assumed. Goodwill is not amortized but reviewed for impairment annually as of June 30 or more frequently if events or changes in circumstances indicate that its carrying value may be impaired. These conditions could include a significant change in the business climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant portion of a reporting unit. The Company has one reporting unit.

The first step of the impairment test requires ~~the~~ comparing of a reporting unit’s fair value to its carrying value. If the carrying value is less than the fair value, no impairment exists and the second step is not performed. If the carrying value is higher than the fair value, there is an indication ~~that~~ that impairment may exist and the second step must be performed to compute the amount of the impairment. In the second step, the ~~impairment~~ impairment is computed by estimating the fair values of all recognized and unrecognized assets and liabilities of the reporting unit and comparing the implied fair value of reporting unit goodwill with the carrying amount of that unit’s goodwill. The ~~Company~~ Company determined fair value as evidenced by market capitalization, and concluded that there was no need for an impairment charge as as of ~~March~~September 3130, 2018 and June 30, ~~2017~~2018.

Warranty Obligations

The Company typically warrants its products for the shorter of twelve months after installation or eighteen months after date of shipment. Warranty costs are provided for estimated claims and charged to cost of ~~product~~ sales as revenue is recognized. Warranty obligations are also evaluated quarterly to determine a reasonable estimate for the replacement of potentially defective materials of all energy storage systems that have been shipped to customers within the warranty period.

While the Company actively engages in monitoring and improving its ~~evolving battery and production~~ technologies, there is only a limited product history and relatively short time frame available to test and evaluate the rate of product failure. Should actual product failure rates differ from the Company’s estimates, revisions are made to the estimated rate of product failures and resulting changes to the liability for warranty obligations. In addition, from time to time, specific warranty accruals may be made if unforeseen technical problems arise.

The following is a summary of accrued warranty activity:

	Three months ended March 31,						Nine months ended March 31,
	Three months ended September 30,
	2018			2017			~~2018~~			~~2017~~
Beginning balance	$	~~181~~121,~~625~~699		$	38239,~~154~~173		$	~~239,173~~		$	~~27,207~~
Accruals for warranties during the period		184			8,334			10,376			35,473
Accruals for warranties		-			852
Net settlements during the period		(55,869	)		(25,564	)		(120,609	)		(196,244	)
Net settlements		(113,825	)		(34,610	)
Adjustments relating to preexisting warranties		2893,~~564~~449			13(8,~~400~~724	)		~~25,564~~			~~167,888~~
Ending balance	$	~~154~~101,~~504~~323		$	34196,~~324~~691		$	~~154,504~~		$	~~34,324~~

The Company offers extended warranty contracts to its customers. These contracts typically cover a period up to twenty years and include advance payments that are recorded initially as long-term deferred revenue. Revenue is recognized in the same manner as the costs incurred to perform under the extended warranty contracts. Costs associated with these extended warranty contracts are expensed to cost of ~~product~~ sales as incurred. A summary of changes to long-term deferred revenue for extended warranty contracts is as follows:

	Three months ended March 31,						Nine months ended March 31,
	Three months ended September 30,
	2018			2017			~~2018~~			~~2017~~
Beginning balance	$	~~429~~544,~~825~~249		$	~~422~~431,~~638~~700		$	~~431,700~~		$	-
Deferred revenue for new extended warranty contracts		~~116~~172,~~299~~422			-			~~116,299~~			~~422,638~~
Deferred revenue recognized		(938	)		-(938	)		~~(2,813~~	)		-
Ending balance		~~545~~715,~~186~~733			~~422~~430,~~638~~762			~~545,186~~			~~422,638~~
Less: current portion of deferred revenue for extended warranty contracts		64,~~249~~374			-8,124			~~6,249~~			-
Long-term deferred revenue for extended warranty contracts	$	~~538~~711,~~937~~359		$	422,638		$	~~538,937~~		$	~~422,638~~

Revenue Recognition

Revenues are recognized when persuasive evidence of a contractual arrangement exists, delivery has occurred or services have been rendered, the seller’s price to buyer is fixed and determinable and collectability is reasonably assured. The portion of revenue related to installation and final acceptance, is deferred until such installation and final customer acceptance are completed.

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

Our collaboration agreements typically involve multiple elements or deliverables, including upfront fees, contract research and development, milestone payments, technology licenses or options to obtain technology licenses and royalties. For ~~these~~ arrangements, revenues are recognized in accordance with FASB ASC Topic 605-25, “Revenue Recognition – Multiple Element Arrangements.” The Company’s revenues associated with multiple element contracts is based on the selling price hierarchy, which utilizes vendor-specific objective evidence (“VSOE”) when available, third-party evidence (“TPE”) if VSOE is not available, and if neither is available then the best estimate of the selling price is used. The Company utilizes best estimate for its multiple deliverable transactions as VSOE and TPE do not exist. To be considered a separate element, the product or service in question must represent a separate unit under SEC Staff Accounting Bulletin 104, and fulfill the following criteria: the delivered item(s) has value to the customer on a standalone basis; there is objective and reliable evidence of the fair value of the undelivered item(s); and if the arrangement includes a general right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially in our control. For arrangements containing multiple elements, revenue from time and materials based service arrangements is recognized as the service is performed. Revenue relating to undelivered elements is deferred at the estimated fair value until delivery of the deferred elements. If the arrangement does not meet all criteria above, the entire amount of the transaction is deferred until all elements are delivered.

12For PPA projects with an identified buyer, the Company recognizes revenue for the sales of PPA projects using the percentage of completion method for recording revenues on long term contracts under FASB ASC Topic 606 – Revenue from Contracts with Customers, measured by the percentage of cost incurred to date to estimated total cost for each contract. That method is used because management considers total cost to be the best available measure of progress on contracts. Because of inherent uncertainties in estimating costs, it is at least reasonably possible that the estimates used will change within the near term.

The ~~portion~~Company ofcharges ~~revenue~~shipping ~~related~~and ~~to engineering~~handling ~~and~~fees ~~development~~when isproducts ~~recognized~~are ~~ratably~~shipped ~~upon~~or ~~delivery~~delivered ofto ~~the~~a ~~goods~~customer, orand ~~services~~includes ~~pertaining~~such toamounts ~~the~~in ~~underlying~~product ~~contractual~~revenues ~~arrangement or~~and ~~revenue~~shipping iscosts ~~recognized~~in cost asof ~~certain~~product ~~activities~~sales. ~~are~~The ~~performed~~Company byreports ~~the~~its ~~Company~~revenues ~~over~~net ~~the~~of estimated ~~performance~~returns ~~period~~and allowances.

~~For~~Revenues ~~PPA~~for ~~projects with no identified buyer until at or near~~ the ~~completion~~three ofmonths ~~the~~ended ~~project~~September 30, ~~the~~2018 ~~Company~~were ~~recognizes~~comprised ~~revenue for the sales~~ of ~~PPA~~four ~~projects~~significant ~~following~~customers ~~the~~(87% ~~guidance in FASB ASC Topic 360, “Accounting for Sales~~ of ~~Real Estate~~revenues).” WeRevenues ~~record~~for the ~~sale~~three asmonths ~~revenue~~ended ~~after~~September ~~the initial and continuing investment requirements have been met and whether collectability from the buyer is reasonably assured~~30, ~~which generally occurs at~~2017 ~~the~~were ~~end~~comprised of athree ~~project.~~significant Wecustomers ~~may~~(90% ~~align our revenue recognition and release our project assets or deferred PPA project costs to cost~~ of ~~sales with the receipt of payment from the buyer if the sale has been consummated and we have transferred the usual risks and rewards of ownership to the buyer~~revenues).

~~For~~The ~~PPA~~Company ~~projects~~had ~~with~~two ansignificant ~~identified buyer,~~customers ~~the~~with ~~Company~~an ~~recognizes~~outstanding ~~revenue~~receivable ~~for~~balance ~~the sales~~ of ~~PPA~~$173,849 ~~projects~~(81% ~~using the percentage~~ of ~~completion~~accounts ~~method for recording revenues on long term contracts under FASB ASC Topic 605-35~~receivable, ~~“Construction-Type~~net) ~~and~~as ~~Production-Type Contracts,” measured by the percentage~~ of ~~cost~~June incurred to date to estimated total cost for each contract. That method is used because management considers total cost to be the best available measure of progress on contracts. Because of inherent uncertainties in estimating costs30, ~~it is at least reasonably possible that the estimates used will change within the near term~~2018.

The Company charges shipping and handling fees when products are shipped or delivered to a customer, and includes such amounts in product revenues and shipping costs in cost of sales. The Company reports its revenues net of estimated returns and allowances.11

Revenues for the three and nine months ended March 31, 2018 were comprised of two significant customers (71% of revenues) and four significant customers (86% of revenues), respectively. Revenues for the three and nine months ended March 31, 2017 were comprised of five significant customers (90% of revenues) and four significant customers (93% of revenue), respectively.

The Company had three significant customers with an aggregate outstanding receivable balance of $1,312,136 (87% of accounts receivable, net) as of March 31, 2018. The Company had three significant customers with an aggregate outstanding receivable balance of $336,685 (72% of accounts receivable, net) as of June 30, 2017.

Engineering, Development, and License Revenues

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

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

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

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

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

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

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

The Company recorded Engineering and development costs for a total of $0 and $937,725 related to a Research and Development Agreement (the “R&D Agreement”) with Lotte Chemical Corporation (“Lotte”) for the three and nine months ended March 31, 2017. Pursuant to the R&D Agreement, the Company agreed to develop and provide to Lotte a 500kWh zinc bromide flow battery system, including a zinc bromide chemical flow battery module and related software, on the terms and conditions set forth in the R&D Agreement. The Company does not expect to receive any additional cash payments under the R&D Agreement and Amended License Agreement with Lotte. As of March 31, 2018, and June 30, 2017, the Company had no billed or unbilled amounts from engineering and development contracts in process.

Advanced Engineering and Development Expenses

In accordance with FASB ASC Topic 730, – “Research and Development,” the Company expenses advanced engineering and development costs as incurred. These costs consist primarily of materials, labor and allocable indirect costs incurred to design, build and test prototype units, as well as the development of manufacturing processes for these units. Advanced engineering and development costs also include consulting fees and other costs.

To the extent these costs are separately identifiable, incurred and funded by advanced engineering and development type agreements with outside parties, they are shown separately on the condensed consolidated statements of operations as a “Cost of engineering and development.”

Stock-Based Compensation

The Company measures all “Share-Based Payments," including grants of stock options, restricted shares and restricted stock units (“RSUs”) in its condensed consolidated statements of operations based on their fair values on the grant date, which is consistent with FASB ASC Topic 718, “ – Stock Compensation,” guidelines.

Accordingly, the Company measures share-based compensation cost for all share-based awards at the fair value on the grant date and recognizes share-based compensation over ~~the~~ the service period for awards that are expected to vest, net of estimated forfeitures. The fair value of stock options is determined based on the number of shares granted and the price of the shares at grant, and is calculated based on the Black-Scholes valuation model.

The Company compensates its outside directors with RSUs and cash. The grant date fair value of the RSU awards is determined using the closing stock price of the Company’s common stock (the “Common Stock”) on the day prior to the date of the grant, with the compensation expense amortized over the vesting period of RSU awards, net of estimated forfeitures.

The Company only recognizes expense for ~~those~~ those options or shares that are expected ultimately to vest, using two attribution methods to record expense, the straight-line ~~method~~ method for grants with only service-based vesting or the graded-vesting method, which considers each performance period, for all ~~other~~ other awards. ~~See further discussion of stock-based compensation in Note 10.~~

Advertising Expense

Advertising costs were charged to selling, general, and administrative expenses as incurred. Advertising costs of $36,203 and $157,824 were incurred for the three and nine months ended March 31, 2018, respectively. Advertising costs of $32,605 and $88,211 were incurred for the three and nine months ended March 31, 2017, respectively.

Income Taxes

The Company records deferred income taxes in accordance with FASB ASC Topic 740, “– Accounting for Income Taxes.” FASB ASC Topic 740 requires recognition of deferred income tax assets and liabilities for temporary differences between the tax basis of assets and liabilities and the amounts at which they are carried in the consolidated financial statements, based upon the enacted tax rates in effect for the year in which the differences are expected to reverse. In addition, a valuation allowance is recognized if it is more likely than not that some or all of the deferred income tax assets will not be realized in the foreseeable future. Deferred income tax assets are reviewed for recoverability based on historical taxable income, the expected reversals of existing temporary differences, tax planning strategies and projections of future taxable income. As a result of this analysis, the Company has provided for a ~~valuation~~full valuation allowance against its net deferred income tax assets as of ~~March~~September 3130, 2018 and June 30, ~~2017~~2018.

The Company applies a more-likely-than-not recognition threshold for all tax uncertainties as required under FASB ASC Topic 740, which only allows the recognition of those tax benefits that have a greater than fifty percent likelihood of being sustained upon examination by the taxing authorities.

The Company’s U.S. ~~Federal~~federal income ~~tax~~ tax returns for the years ended June 30, 2014 through June 30, 2017 and the Company’s Wisconsin income tax returns for the ~~years~~ years ended June 30, 2013 through June 30, 2017 are subject to examination by taxing authorities. OnAs ~~August 2, 2017, the United States Internal Revenue Service (“IRS”) notified the Company~~ of anSeptember ~~income tax audit for the tax period ended June~~ 30, ~~2015.~~ ~~On March 15,~~ 2018, ~~the~~there ~~audit~~were no ~~was~~examinations ~~completed by the IRS resulting~~ in ~~no changes to U~~progress.~~S. Federal income tax returns.~~

Foreign Currency

The Company uses the ~~United~~U.S. ~~States~~ dollar as its functional and reporting currency, while the ~~Australian~~Philippines ~~dollar~~peso and Hong Kong dollar are the functional currencies of its foreign subsidiaries. Assets and liabilities of the Company’s foreign subsidiaries are translated into ~~United~~U.S. ~~States~~ dollars at exchange rates that are in effect at the balance sheet date while equity accounts are translated at historical exchange rates. Income and expense items are translated at average exchange rates which were applicable during the reporting period. Translation adjustments are recorded in accumulated other comprehensive loss as a separate component of equity in the condensed consolidated balance sheets.

1412

Loss per Share

The Company follows the FASB ASC Topic 260, “– Earnings per Share,” provisions which require the reporting of both basic and diluted earnings (loss) per share. Basic earnings (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings (net loss) per share reflect the potential dilution that could ~~occur~~ occur if securities or other contracts to issue common stock were exercised or converted into common stock. In accordance with the FASB ASC Topic 260, any anti-dilutive effects on net income (loss) per share are excluded.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, accounts receivable and costs and estimated earnings in excess of billings.

The Company maintains significant cash ~~deposits~~ deposits primarily with one financial institution. The Company has not previously experienced any material losses on such deposits. Additionally, the Company performs periodic evaluations of the relative credit rating of the institution as part of its banking strategy.

Concentrations of credit risk with respect to accounts receivable and costs and estimated earnings in excess of billings are limited due to accelerated payment terms in current customer contracts and creditworthiness of the current customer base.

Reclassifications

Certain amounts previously reported have been reclassified to conform to the current presentation. The reclassifications did not impact prior period results of operations, cash flows, total assets, total liabilities, or total equity.

Segment Information

The Company has determined that it operates as one reportable segment.

Reclassifications

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective and not included below will not have a material impact on ~~our~~the Company’s financial position or results of operations upon adoption.

In ~~February~~August 2018, the FASB issued Accounting Standard Update (“ASU”) 2018-0213 – ~~Comprehensive~~Fair ~~Income~~Value Measurement (Topic ~~220~~820): ~~Reclassification~~Disclosure ofFramework ~~Certain~~– ~~Tax~~Changes ~~Effects from~~to ~~Accumulated~~the ~~Other~~Disclosure ~~Comprehensive~~Requirements ~~Income.~~for ~~Under~~Fair ~~the~~Value ~~new~~Measurement: ~~guidance,~~This ~~entities~~amendment ~~will~~modifies ~~have~~ the ~~option~~disclosure torequirements ~~reclassify tax~~used ~~effects within~~in the fair value ~~other~~measurement ~~comprehensive~~of ~~income~~financial ~~(referred~~instruments toin ~~as stranded~~assets ~~tax~~and ~~effects)~~liabilities toheld ~~retained~~as ~~earnings~~of inthe ~~each~~balance ~~period~~sheet indate which ~~the effect of~~are categorized within ~~the~~Level ~~change~~3 inof the Ufair value hierarchy.S. ~~federal~~ASU ~~corporate~~2018-13 ~~income tax~~also ~~rate~~imposes additional disclosure requirement relating to changes in ~~the Tax Cuts~~unrealized gain and ~~Jobs~~losses ~~Act~~as ofa ~~2017~~result ~~(the~~of ~~“Tax~~level ~~Act”) is~~input ~~recorded~~transfer. ~~The~~ASU ~~amendments~~2018-13 inis ~~this~~effective ~~update~~for ~~are~~all ~~effective~~entities for fiscal years beginning after December 15, ~~2018~~2019, including interim periods within those annual periods. The Company does not expect adoption of this guidance to have a significant impact on its condensed consolidated financial statements.

In ~~May~~July ~~2017~~2018, the FASB issued ASU ~~2017~~2018-0910 – ~~Compensation~~ – ~~Stock~~Codification ~~Compensation~~improvements (to Topic ~~718): Scope~~842, ofLeases. ~~Modification~~The ~~Accounting.~~amendment ~~Under~~in ~~the~~ASU ~~new~~2018-10 ~~guidance,~~replace ~~modification accounting~~existing islease ~~required~~guidance ~~only~~under ifASU 2016-02 ~~the~~– Leases ~~fair~~(Topic ~~value~~842), which the ~~vesting~~Company ~~conditions,~~early oradopted ~~the~~effective ~~classification~~January of1, ~~the~~2016. ~~award~~ASU ~~(as~~2018-10 ~~equity~~is oreffective ~~liability)~~on ~~changes~~issuance asfor aearly ~~result~~adopters of ~~the~~ASU ~~change in terms or conditions~~2016-02. The ~~guidance~~Company iswas ~~effective~~required ~~prospectively~~to ~~for~~adopt ~~all~~this ~~companies~~standard ~~for annual periods~~ beginning onJuly ~~or after December 15~~1, ~~2017, including interim periods within those annual periods~~2018. The ~~Company does not expect~~ adoption of this guidance todid not have a ~~significant~~material impact on ~~its~~the Company’s condensed consolidated financial statements.

In ~~January~~February ~~2017~~2018, the FASB issued ASU ~~No. 2017~~2018-0402 – ~~Intangibles~~Comprehensive –Income ~~Goodwill and Other~~ (Topic ~~350~~220): ~~Simplifying~~Reclassification ~~the Test for Goodwill Impairment. To simplify the subsequent measurement~~ of ~~goodwill,~~Certain ~~the~~Tax ~~amendments~~Effects ~~eliminate Step 2~~ from ~~the~~Accumulated ~~goodwill~~Other ~~impairment~~Comprehensive ~~test, under which in computing~~Income. Under the ~~implied~~new ~~fair value of goodwill under Step 2~~guidance, anentities ~~entity~~will ~~had~~have tothe ~~perform~~option ~~procedures~~ to ~~determine~~reclassify tax ~~the~~effects within ~~fair~~other ~~value~~comprehensive atincome ~~the impairment~~(referred ~~testing~~to ~~date~~as stranded oftax ~~its assets and liabilities (including unrecognized assets and liabilities~~effects) ~~following~~to ~~the~~retained ~~procedure~~earnings ~~that~~in ~~would~~each ~~be required~~period in ~~determining~~which the ~~fair value~~ effect of ~~assets~~the ~~acquired~~change ~~and liabilities assumed~~ in ~~a business combination. Under~~ the ~~amendments in ASU 2017-04, the annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount~~U.S. ~~An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting~~federal ~~unit’s~~corporate ~~fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In addition,~~ income tax ~~effects~~rate ~~from~~in ~~any tax deductible goodwill on~~ the Tax Cuts ~~carrying~~and ~~amount~~Jobs Act of ~~the~~2017 ~~reporting unit should be considered when measuring~~ (the ~~goodwill~~“Tax ~~impairment~~Act”) ~~loss,~~is ~~if applicable~~recorded. The amendments ~~also eliminate the requirements for any reporting unit~~ ~~with~~in athis ~~zero~~update orare ~~negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. The guidance is~~ effective ~~prospectively~~ for ~~annual or any interim goodwill impairment tests in~~ fiscal years beginning after December 15, ~~2019.~~2018, ~~Early~~including ~~adoption is permitted for~~ interim orperiods ~~annual~~within ~~goodwill~~those ~~impairment tests~~annual ~~performed on testing dates after January 1, 2017~~periods. The Company does not expect adoption of this guidance to have a significant impact on its condensed consolidated financial statements.

In May 2017, the FASB issued ASU 2017-09 – Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. The guidance is effective prospectively for all companies for annual periods beginning on or after December 15, 2017, including interim periods within those annual periods. The Company was required to adopt this standard beginning July 1, 2018. The adoption of this guidance did not have a material impact on the Company’s condensed consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15 – Statement of Cash Flows (Topic 230) – Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force). The amendments in ASU 2016-15 addresses eight specific cash flow issues and is intended to reduce diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The guidance is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. Early adoption is permitted. The Company does not expect adoption of this guidance to have a significant impact on its condensed consolidated financial statements.13

In ~~May~~January ~~2016~~2017, the FASB issued ASU ~~2016~~No. 2017-1104 – ~~Revenue~~Intangibles ~~Recognition~~– ~~(Topic~~Goodwill ~~605)~~ and ~~Derivatives~~Other ~~and Hedging~~ (Topic ~~815~~350): ~~Rescission~~Simplifying ofthe ~~SEC~~Test ~~Guidance~~for ~~Because~~Goodwill ofImpairment. ~~Accounting Standards~~To ~~Updates~~simplify ~~2014-09~~the ~~and~~subsequent measurement ~~2014-16~~of ~~Pursuant~~goodwill, tothe ~~Staff~~amendments ~~Announcements~~eliminate atStep 2 from the ~~March~~goodwill 3impairment test, ~~2016~~under ~~EITF~~which ~~Meeting~~in ~~(SEC~~computing ~~Update).~~the ~~ASU 2016-11~~implied ~~rescinds~~fair ~~the~~value ~~certain~~of ~~SEC~~goodwill ~~Staff~~under ~~Observer~~Step ~~comments~~2, ~~that~~an ~~are~~entity ~~codified~~had into ~~Topic~~perform ~~605,~~procedures ~~Revenue~~to ~~Recognition,~~determine ~~and~~the ~~Topic~~fair ~~932,~~value ~~Extractive~~at the impairment testing ~~Activities~~date –of ~~Oil~~its assets and ~~Gas,~~liabilities ~~effective~~(including ~~upon~~unrecognized ~~the~~assets ~~adoption~~and ofliabilities) ~~Topic~~following ~~606.~~the ~~Specifically,~~procedure ~~registrants~~that ~~should~~would ~~not~~be ~~rely~~required in ondetermining the ~~following SEC~~fair ~~Staff~~value ~~Observer~~of ~~comments~~assets ~~upon~~acquired ~~adoption~~and ofliabilities ~~Topic~~assumed ~~606:~~in (a) ~~Revenue~~business ~~and~~combination. ~~Expense~~Under ~~Recognition~~the ~~for~~amendments ~~Freight Services~~ in ~~Process~~ASU 2017-04, ~~(b) Accounting~~the ~~for~~annual ~~Shipping~~or ~~and~~interim, ~~Handling~~goodwill ~~Fees~~impairment ~~and~~test ~~Costs,~~is ~~(c)~~performed ~~Accounting~~by ~~for~~comparing ~~Consideration~~the ~~Given~~fair byvalue of a ~~Vendor~~reporting tounit awith ~~Customer (including~~its ~~Reseller~~carrying ofamount. ~~the~~An ~~Vendor’s~~impairment ~~Products),~~charge ~~(d)~~should ~~Accounting~~be recognized for ~~Gas-Balancing~~the ~~Arrangements~~amount ~~(that~~by ~~is,~~which ~~use~~the ofcarrying amount exceeds the ~~“entitlements~~reporting unit’s ~~method”).~~fair Invalue; ~~addition~~however, asthe aloss ~~result~~recognized ofshould ~~the~~not ~~amendments~~exceed inthe ~~Update~~total ~~2014-16,~~amount ~~the~~of ~~SEC~~goodwill ~~staff~~allocated isto ~~rescinding~~that ~~its~~reporting ~~SEC~~unit. ~~Staff~~In ~~Announcement~~addition, ~~“Determining~~income ~~the~~tax ~~Nature~~effects offrom aany ~~Host~~tax-deductible ~~Contract~~goodwill ~~Related~~on tothe acarrying ~~Hybrid~~amount ~~Instrument~~of ~~Issued in~~ the ~~Form~~reporting ofunit ashould ~~Share~~be ~~under~~considered ~~Topic~~when ~~815,”~~measuring ~~effective~~the ~~concurrently~~goodwill ~~with~~impairment ~~ASU~~loss, ~~2014-16~~if applicable. The ~~effective~~amendments ~~dates~~also ineliminate ~~ASU~~the ~~2016-11~~requirements ~~coincide~~for ~~with~~any ~~the~~reporting ~~effective~~unit ~~dates~~with ofa ~~Topic 606 (ASU~~zero ~~2014-09)~~or ~~and~~negative ~~ASU~~carrying ~~2014-16.~~amount ~~The~~to ~~Company~~perform ~~previously~~a ~~reviewed~~qualitative ~~ASU~~assessment ~~2014-16~~ and, ~~determined~~if it fails that itqualitative istest, ~~not~~to ~~applicable.~~perform AsStep 2 of ~~March 31,~~the ~~2018,~~goodwill ~~and~~impairment ~~subject~~test. toThe ~~the~~guidance ~~potential~~is ~~effects~~effective ofprospectively for annual or any ~~new~~interim ~~related~~goodwill ~~ASUs~~impairment ~~issued~~tests byin ~~the~~fiscal years ~~FASB~~beginning after December 15, as2019. ~~well~~Early asadoption ~~the~~is ~~Company’s~~permitted ~~ongoing~~for ~~evaluation~~interim or annual goodwill impairment tests performed ofon ~~transactions~~testing ~~and~~dates ~~contracts~~after January 1, ~~the~~2017. The Company does not expect adoption of this guidance to have a significant impact on its condensed consolidated financial statements.

In ~~March~~August 2016, the FASB issued ASU 2016-0915 – ~~Compensation~~Statement –of ~~Stock~~Cash ~~Compensation~~Flows (Topic ~~780~~230): ~~Improvements~~– toClassification ~~Employee~~of ~~Share-Based~~Certain ~~Payment~~Cash ~~Accounting.~~Receipts ~~ASU 2016-09 modifies US GAAP by requiring the following, among others: (1) all excess tax benefits~~ and ~~tax~~Cash ~~deficiencies~~Payments ~~are to be recognized as income tax expense or benefit on the income statement~~ (~~excess~~a ~~tax~~consensus ~~benefits are recognized regardless~~ of ~~whether~~ the ~~benefit reduces~~Emerging ~~taxes~~Issues ~~payable~~Task ~~in the current period~~Force);. ~~(2)~~The ~~excess~~amendments ~~tax~~in ~~benefits~~ASU ~~are~~2016-15 toaddresses beeight ~~classified~~specific ~~along with other income tax~~ cash ~~flows as~~flow anissues ~~operating~~and ~~activity~~is inintended ~~the~~to ~~statement~~reduce diversity ~~of cash flows; (3)~~ in ~~the area of forfeitures, an entity can still follow the current US GAAP~~ practice ofin ~~making~~how ancertain ~~entity-wide~~cash ~~accounting~~receipts ~~policy~~and ~~election~~cash topayments ~~estimate the number of awards that~~ are ~~expected~~presented ~~to vest or may instead account for forfeitures when they occur;~~ and ~~(4)~~classified ~~classification as a financing activity~~ in the statement of cash ~~flows~~ ~~of cash paid by an employer to the taxing authorities when directly withholding shares for tax withholding purposes~~flows. ~~ASU~~ ~~2016-09~~The guidance is effective for annual periods beginning after ~~January~~December 115, 2017, including interim periods within those annual periods. Early adoption is permitted. The Company was required to adopt this standard beginning July 1, ~~2017~~2018. The adoption of this guidance did not have a material impact on the Company’s condensed consolidated financial statements.

In ~~July~~May ~~2015~~2016, the FASB issued ASU ~~2015~~2016-11 – Revenue ~~Inventory~~Recognition (Topic ~~330~~605) and Derivatives and Hedging (Topic 815): ~~Simplifying~~Rescission ~~the~~of ~~Measurement~~SEC Guidance Because of ~~Inventory.~~Accounting ~~The~~Standards Updates ~~amendment~~2014-09 ~~was~~and ~~issued~~2014-16 Pursuant to ~~modify~~Staff Announcements at the ~~process~~March in3, ~~which entities~~2016 ~~measure~~EITF ~~inventory~~Meeting (SEC Update). ~~The~~ASU ~~amendment~~2016-11 ~~does~~rescinds the ~~not~~certain ~~apply~~SEC toStaff ~~inventory~~Observer ~~measured~~comments ~~using~~that ~~last-~~are codified in, ~~first-out~~Topic ~~(“LIFO”)~~605, ~~or the~~Revenue ~~retail~~Recognition, ~~inventory~~and ~~method.~~Topic ~~This~~932, ~~amendment~~Extractive ~~requires~~Activities ~~entities~~– toOil ~~measure~~and ~~inventory~~Gas, ateffective upon the ~~lower~~adoption of ~~cost~~Topic ~~and~~606. ~~net~~Specifically, ~~realizable~~registrants ~~value. Net~~should ~~realizable~~not ~~value~~rely ison the ~~estimated~~following ~~selling~~SEC Staff ~~prices~~Observer incomments ~~the~~upon ~~ordinary~~adoption ~~course~~ of ~~business,~~Topic ~~less~~606: ~~reasonably~~(a) ~~predictable~~Revenue ~~costs~~and ofExpense ~~completion~~Recognition for Freight Services in Process, (b) Accounting ~~disposal~~for Shipping and ~~transportation.~~Handling ~~Subsequent~~Fees ~~measurement~~and isCosts, ~~unchanged~~(c) Accounting for ~~inventory~~Consideration ~~measured~~Given ~~using~~by ~~LIFO~~a orVendor to a Customer (including Reseller of the ~~retail~~Vendor’s ~~inventory~~Products), (d) Accounting for Gas-Balancing Arrangements (that is, use of the “entitlements method”). ~~The~~In ~~amendments~~addition, ~~are~~as ~~effective~~a ~~for~~result ~~fiscal~~of ~~years~~the ~~beginning~~amendments ~~after~~in ~~December~~Update 312014-16, ~~2016,~~the ~~including~~SEC ~~interim~~staff ~~periods~~is ~~within~~rescinding ~~those~~its ~~annual~~SEC Staff Announcement, “Determining ~~periods~~the onNature of a ~~prospective~~Host ~~basis~~Contract ~~with~~Related ~~earlier~~to ~~application~~a ~~permitted~~Hybrid asInstrument ofIssued in the ~~beginning~~Form of ana ~~interim~~Share orunder ~~annual~~Topic ~~reporting~~815,” ~~period.~~effective concurrently ~~The~~with ~~Company~~ASU ~~was~~2014-16. ~~required~~The toeffective ~~adopt~~dates ~~this~~in ~~standard~~ASU ~~beginning~~2016-11 ~~July~~coincide 1,with ~~2017.~~the ~~The~~effective ~~adoption~~dates of ~~this~~Topic ~~guidance~~606 ~~did~~(ASU ~~not~~2014-09) ~~have~~and aASU ~~material impact~~2014-16. onThe ~~the~~ Company’s ~~condensed~~previously ~~consolidated~~reviewed ~~financial~~ASU ~~statements~~2014-16 and determined that it is not applicable.

In ~~August~~May 2014, the FASB issued ASU 2014-15 09 – Revenue ~~Disclosure~~from ofContracts ~~Uncertainties~~with ~~about~~Customers an(Topic ~~Entity’s~~606). ~~Ability~~The toamendment ~~Continue~~outlines as a ~~Going~~single ~~Concern~~comprehensive ~~(Subtopic~~model ~~205-40).~~for ~~The~~entities ~~update requires~~to ~~management~~use toin ~~perform~~accounting for arevenue ~~going~~arising ~~concern~~from ~~assessment~~contracts ifwith ~~there~~customers isand ~~substantial~~supersedes ~~doubt~~most ~~about~~current anrevenue ~~entity’s~~recognition ~~ability~~guidance, toincluding ~~continue~~industry asspecific aguidance. ~~going~~Additional ~~concern~~ASUs ~~within~~have ~~one~~also ~~year~~been issued as part of the ~~financial~~overall ~~statement~~new ~~issuance~~revenue ~~date~~guidance. ~~Under~~The ~~the~~core ~~new~~principle ~~standard,~~of the revenue ~~definition~~model ofis ~~substantial doubt~~that ~~incorporates~~an aentity ~~likeliness~~recognizes ~~threshold~~revenue to depict the transfer of ~~“probable”~~promised ~~that~~goods isor ~~consistent~~services ~~with~~to customers in an amount that reflects the ~~current~~consideration ~~use~~to ofwhich the ~~term~~entity ~~defined in~~expects USto ~~GAAP~~be ~~for~~entitled ~~loss~~in ~~contingencies~~exchange ~~(Topic~~for ~~450~~those –goods ~~Contingencies)~~or services. ~~Management~~In ~~will~~applying the ~~need~~revenue model to ~~consider~~contracts ~~conditions~~within ~~that~~its ~~are~~scope, ~~known and~~an ~~reasonably~~entity ~~knowable~~identifies at the ~~financial~~contract(s) ~~statement~~with ~~issuance~~a ~~date~~customer, ~~and~~identifies ~~determine~~the ~~whether~~performance obligations in the ~~entity~~contract, ~~will~~determines bethe ~~able~~transaction price, allocates the transaction price to ~~meet~~the ~~its~~performance obligations in ~~within~~the contract and recognizes revenue when the ~~one-year~~entity ~~period~~satisfies a performance obligation. ~~Additional~~The guidance also requires expanded disclosures relating ~~are~~to ~~required~~the ifnature, itamount, istiming ~~probable~~and ~~that~~uncertainty ~~the~~of ~~entity~~revenue ~~will~~and becash ~~unable~~flows toarising ~~meet~~from ~~its~~contracts ~~current obligations~~with customers. ~~The~~Public business ~~amendments~~entities inshould ~~this~~apply ~~ASU~~the ~~will~~guidance bein ~~effective~~ASU ~~for~~2014-09 to annual reporting periods ~~ending~~beginning after December 15, ~~2016~~2017, including interim periods within those annual periods. ~~Early~~Earlier ~~adoption~~application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim periods within those annual periods. The guidance permits companies to either apply the requirements retrospectively to all prior periods presented, or apply the requirements in the year of adoption, through a cumulative adjustment. The Company was required to adopt this standard beginning July 1, ~~2017~~2018, and elected the full retrospective approach. The adoption of this guidance did not have a material impact on the Company’s condensed consolidated financial statements. The effect was not significant because the Company’s analysis of contracts under the new revenue standard supports the recognition of revenue over time, or on a percentage of completion basis, for the majority of contracts, which is consistent with the Company’s historical revenue recognition model. Where a performance obligation is satisfied over time, the related revenue is also recognized over time.

1614

In May 2014, the FASB issued ASU 2014-09 – Revenue from Contracts with Customers (Topic 606). The amendment outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In applying the revenue model to contracts within its scope, an entity identifies the contract(s) with a customer, identifies the performance obligations in the contract, determines the transaction price, allocates the transaction price to the performance obligations in the contract and recognizes revenue when the entity satisfies a performance obligation. ASU 2014-09 also includes additional disclosure requirements regarding revenue, cash flows and obligations related to contracts with customers. In addition, the FASB issued ASU 2015-14 – Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date (issued August 2015); ASU 2016-08 – Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) (issued March 2016); ASU 2016-10 – Revenue from Contracts with Customers – Identifying Performance Obligations and Licensing (issued April 2016); ASU 2016-12 – Revenue from Contracts with Customers – Narrow-Scope Improvements and Practical Expedients (issued May 2016); ASU 2016-20 – Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers (issued December 2016); and ASU 2017-13 - Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842) Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments (issued September 2017), which deferred the effective date of ASU 2014-09 for all entities by one year and clarified the guidance on certain items such as reporting revenue as a principal versus agent, identifying performance obligations, accounting for intellectual property licenses, assessing collectability, presentation of sales taxes, impairment testing for contract costs, disclosure of performance obligations, and provided additional implementation guidance. Public business entities should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim periods within those annual periods. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim periods within those annual periods. The guidance permits companies to either apply the requirements retrospectively to all prior periods presented, or apply the requirements in the year of adoption, through a cumulative adjustment. The Company has begun the assessment of this guidance through review of customer contracts and identification of any performance obligations. Based on our preliminary results as of March 31, 2018, and subject to the potential effects of any new related ASUs issued by the FASB, as well as the Company’s ongoing evaluation of transactions and contracts, the Company does not expect adoption of this guidance to have a significant impact on its condensed consolidated financial statements. The Company anticipates adopting this guidance at the beginning of fiscal 2019 using the full retrospective approach.

NOTE 2 - MANAGEMENT'S PLANS AND FUTURE OPERATIONS

The accompanying condensed consolidated ~~financial~~ financial statements have been prepared on the basis of a going concern which contemplates that the Company will be able to realize ~~assets~~ assets and discharge its liabilities in the normal course of business. Accordingly, they do not give effect to any adjustments that would be necessary should the Company be required to liquidate its assets. The Company incurred a net loss of $2,~~933~~771,~~444~~694 ~~and $9,360,921~~ attributable to EnSync, Inc. for the three ~~and nine~~ months ended ~~March~~September 3130, 2018, ~~respectively,~~ and as of ~~March~~September 3130, 2018 has an accumulated deficit of $~~134~~140,~~000~~381,~~565~~ 353 and total equity of $95,~~083~~944,~~956~~976. The ability of the Company to settle its total liabilities of $4,~~782~~236,~~315~~824 and to continue as a going concern is dependent upon raising additional investment capital to fund ~~our~~the Company’s business plan, increasing revenues and achieving profitability. The accompanying condensed consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

WeThe ~~believe~~Company believes that cash and cash equivalents on hand at ~~March~~September 3130, 2018, and other potential sources of cash, including net cash weit ~~generate~~generates from closing projects in ~~our~~ backlog and pipeline, and potential financing options, will be sufficient to fund ~~our~~the Company’s current operations through the ~~fourth~~ second quarter of fiscal ~~2019~~ 2020. While wethe ~~believe~~Company ~~our~~believes its pipeline of projects is deep, there can be no assurances that projects will close in a timely manner to meet ~~our~~the Company’s cash requirements. WeThe ~~are~~Company is also working to improve operations and enhance cash balances by continuing to drive cost improvements and reducing ~~our~~its spend on research and development. Also, wethe Company ~~are~~is currently exploring potential financing options that may be available to usthe Company, including strategic partnership transactions, PPA project financing facilities, ~~and~~working ifcapital ~~necessary~~lines of credit, and additional sales of Common Stock or other debt or equity securities. However, wethe ~~have~~Company has no commitments to obtain any additional funds, and there can be no assurance such funds will be available on acceptable terms or at all. If the Company is unable to increase revenues and achieve profitability in a timely fashion or obtain additional required funding, the Company’s financial condition and results of operations may be materially adversely affected and the Company may not be able to continue operations, execute ~~our~~its growth plan, take advantage of future opportunities or respond to customers and competition.

NOTE 3 - CHINA JOINT VENTURE

On August 30, 2011, the Company entered ~~into~~ into agreements providing for the establishment of a joint venture to develop, produce, sell, distribute and service advanced storage batteries and power electronics in China (the “China Joint Venture”). The China Joint Venture was established upon receipt of certain governmental approvals from China which were received in November 2011. China Joint Venture partners include the Company’s sixty percent owned subsidiary, ZBB PowerSav Holdings Limited (“Holdco”), AnHui XinLong Electrical Co., Wuhu Huarui Power Transmission and Transformation Engineering Co. and Wuhu Fuhai-Haoyan Venture Investment, L.P., a branch of Shenzhen Oriental Fortune Capital Co., Ltd.

The China Joint Venture operates through a a jointly-owned Chinese company located in Wuhu City, Anhui Province named Anhui Meineng Store Energy Co., Ltd. (“Meineng Energy”). Meineng Energy manufactures certain products for the Company pursuant to a supply agreement under which the Company pays Meineng Energy 120% of its direct costs incurred in manufacturing such products. In addition, pursuant to a License Agreement (as amended on July 1, 2014) between Holdco and Meineng Energy, Meineng Energy assembles and manufactures certain of the Company’s products for sale in the power management industry on an exclusive, royalty-free basis in mainland China and on a non-exclusive, royalty-free basis in Hong Kong and Taiwan. InPursuant ~~addition,~~to a Research and Development Agreement with Meineng Energy, ~~manufactures~~Meineng Energy ~~certain~~may ~~products~~request ~~for~~the ~~EnSync~~Company ~~pursuant~~ to aprovide ~~supply~~research ~~agreement~~and ~~under~~development ~~which~~services weupon ~~pay~~commercially ~~Meineng~~reasonable terms and conditions. Meineng Energy ~~120%~~would ofpay ~~its~~the ~~direct~~Company’s fully-loaded costs and expenses incurred in ~~manufacturing~~providing such ~~products~~services. The Company has the right to appoint a majority of the members of the Board of Directors of Holdco and Holdco has the right to appoint a majority of the members of the Board of Directors of Meineng Energy.

Pursuant to a Joint Venture Agreement between Holdco and Anhui Xinrui Investment Co., Ltd, a Chinese limited liability company, and subsequent investment agreements, Meineng Energy has been capitalized with approximately $14.8 million of equity capital as of ~~March~~September 3130, 2018 and June 30, ~~2017~~2018.

The Company’s investment in Meineng Energy was made through Holdco. Pursuant to a Limited Liability Company Agreement of Holdco between ZBB Cayman Corporation, the Company’s wholly-owned subsidiary, and PowerSav New Energy Holdings Limited (“PowerSav”), the Company contributed technology to Holdco via a license agreement with an agreed upon value of approximately $4.1 million and $200,000 in cash in exchange for a 60% equity interest. The Company’s basis in the technology contributed to Holdco was $0 due to US GAAP requirements related to research and development expenditures. The difference between the Company’s basis in this technology and the valuation of the technology by Meineng Energy of approximately $4.1 million is accounted for by the Company through the elimination of the amortization expense recognized by Meineng Energy related to the technology. PowerSav agreed to contribute to Holdco $3.3 million in cash in exchange for a 40% equity interest. 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 condensed consolidated financial statements as a noncontrolling interest. As of ~~March 31~~September 30, 2018, and June 30, ~~2017~~2018, the Company’s indirect investment in Meineng Energy, after accounting for the Company’s share of the earnings or losses, was $~~733~~870,~~386~~001 and $~~814~~831,~~546~~433, respectively. As of ~~March~~September 3130, 2018, and June 30, ~~2017~~2018, the Company’s indirect investment percentage in Meineng Energy equals approximately 30%.

The Company’s basis in the technology contributed to Holdco was $0 due to US GAAP requirements related to research and development expenditures. The difference between the Company’s basis in this technology and the valuation of the technology by Meineng Energy of approximately $4.1 million is accounted for by the Company through the elimination of the amortization expense recognized by Meineng Energy related to the technology.15

The Company’s President and Chief Executive Officer (“President and CEO”) has served as the Chief Executive Officer of Meineng Energy since December 2011. The President and CEO owns an indirect 6% equity interest in Meineng Energy.

The Company has the right to appoint a majority of the members of the Board of Directors of Holdco and Holdco has the right to appoint a majority of the members of the Board of Directors of Meineng Energy.

Pursuant to a Management Services Agreement between Holdco and Meineng Energy (the “Management Services Agreement”), Holdco will provide certain management services to Meineng Energy in exchange for a management services fee equal to five percent of Meineng Energy’s net sales for the five year period beginning on the first day of the first quarter in which the Meineng Energy achieves operational breakeven results, and three percent of Meineng Energy’s net sales for the subsequent three years, provided the payment of such fees will terminate upon Meineng Energy completing an initial public offering on a nationally recognized securities exchange. To date, no management service fee revenues have been recognized by Holdco under the Management Services Agreement.

Pursuant to a License Agreement (as amended on July 1, 2014) between Holdco and Meineng Energy, Holdco granted to Meineng Energy (1) an exclusive royalty-free license to manufacture and distribute the Company’s ZBB EnerStore, zinc bromide flow battery, version three (V3) (50KW) (and any other zinc bromide flow battery product developed internally by us based on the V3 EnerStore, ranging from 50kWh to 500kWh module design) and ZBB EnerSection, power and energy control center (up to 250KW) (the “Products”) in mainland China in the power supply management industry and (2) a non-exclusive royalty-free license to manufacture and distribute the Products in Hong Kong and Taiwan in the power supply management industry.

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

Activity with Meineng Energy is summarized as follows:

Three months ended March 31,

Nine months ended March 31,

Three months ended September 30,

2018

2017

~~2018~~

~~2017~~

Product sales to Meineng Energy

~~2,072~~-

~~360~~13,008

~~25,373~~

~~68,954~~

Cost of product sales to Meineng Energy

~~2,125~~-

~~343~~11,211

~~21,336~~

~~72,399~~

Product purchases from Meineng Energy

~~397~~54,561

~~168~~12,~~044~~900

~~198,998~~

~~920,233~~

The total amount due to Meineng Energy is as follows:

	March 31, 2018			June 30, 2017
	September 30, 2018			June 30, 2018
Net amount due to Meineng Energy	$	(2019,~~817~~527	)	$	(1233,~~299~~822	)

The operating results for Meineng Energy are summarized as follows:

	Three months ended March 31,						Nine months ended March 31,
	Three months ended September 30,
	2018			2017			~~2018~~			~~2017~~
Revenues	$	23,~~868~~170		$	794,~~986~~646		$	~~469,700~~		$	~~1,218,817~~
Gross profit (loss)		(2,446	)		10,156			(64,026	)		119,008
Gross loss		(1,116	)		(1,086	)
Loss from operations		(~~768~~277,~~599~~767	)		(~~585~~373,~~748~~926	)		~~(1,581,126~~	)		~~(1,089,799~~	)
Net loss		(~~754~~273,~~502~~663	)		(~~580~~346,~~152~~905	)		~~(1,527,521~~	)		~~(1,059,162~~	)

NOTE 4 - ~~BUSINESS COMBINATIONS~~INVENTORIES

DCfusion

On February 28, 2017, EnSync formed and became the controlling owner of DCfusion, LLC (“DCfusion”), partnering with two industry veteran consultants (the “DCfusion Founders”) who are highly regarded leaders in direct current (“DC”) system engineering design and consulting. Each DCfusion Founder became an employee of DCfusion upon the closing of the DCfusion transaction on February 28, 2017. The transaction was accounted for as a business combination under US GAAP. The primary reason for the business acquisition was to benefit from the DCfusion Founders’ decades of customer applied DC system design and consulting experience, which complements EnSync Energy's application engineering. DCfusion also brings a unique and substantial pipeline of potential projects in vertical markets that rely on the consultative expertise of the DCfusion Founders, and the authoritative voice of policies, programs and standards shaping the DC-centric technical and market landscape.

No cash was required to complete the transaction. The Company incurred approximately $31,700 of advisory and legal costs in connection with the business acquisition of DCfusion during the third quarter of fiscal 2017. DCfusion operates as a subsidiary of EnSync, Inc.

NOTE 5 - INVENTORIES

Net inventories are comprised of the following as of:

	March 31, 2018			June 30, 2017
	September 30, 2018			June 30, 2018
Raw materials and subassemblies	$	1,~~448~~904,~~797~~486		$	21,~~477~~587,~~418~~454
Work in progress		-			4,595
Less: inventory reserve		(417,009	)		(367,006	)
Total	$	1,~~448~~487,~~797~~477		$	21,~~482~~220,~~013~~448

~~NOTE 6 - NOTE RECEIVABLE~~16

OnNOTE ~~September~~5 ~~23,~~- ~~2014,~~PROPERTY ~~the~~& Company was issued a $150,000 convertible promissory note, as amended, from an unrelated party. The note accrues interest at 8% per annum on the outstanding principal amount. On January 27, 2017, the Company negotiated new repayment terms with the unrelated party and extended the maturity date to the earlier of (a) the date on which the borrower has secured a total of $500,000 or more in additional financing from any source or (b) December 31, 2022. If at the maturity date the note and accrued interest has not been paid in full, the Company may convert the principal and interest outstanding into shares of the unrelated party’s convertible preferred stock at the then-current valuation.EQUIPMENT

19Property and equipment are comprised of the following:

NOTE 7 - PROPERTY, PLANT & EQUIPMENT

	September 30, 2018			June 30, 2018
Leasehold improvements	$	44,975		$	44,975
Manufacturing equipment		2,977,107			2,977,579
Office equipment		470,730			470,731
Construction in process		303,604			227,702
Total, at cost		3,796,416			3,720,987
Less: accumulated depreciation		(2,983,530	)		(2,945,442	)
Property and equipment, net	$	812,886		$	775,545

~~Property,~~The ~~plant~~Company ~~and~~recorded ~~equipment~~depreciation ~~are comprised~~expense of $38,344 and $97,392 for the ~~following:~~three months ended September 30, 2018 and September 30, 2017, respectively.

	March 31, 2018			June 30, 2017
Land	$	-		$	217,000
Building and improvements		18,209			3,532,375
Manufacturing equipment		3,153,426			4,255,385
Office equipment		470,731			454,562
Total, at cost		3,642,366			8,459,322
Less: accumulated depreciation		(2,977,851	)		(5,013,069	)
Property, plant and equipment, net	$	664,515		$	3,446,253

The Company recorded depreciation expense of $58,597 and $238,677 for the three and nine months ended March 31, 2018, respectively. The Company recorded depreciation expense of $98,318 and $379,450 for the three and nine months ended March 31, 2017, respectively.

See Impairment of Long-Lived Assets under Note 1 of the Notes to Condensed Consolidated Financial Statements for a discussion of the impairment charge related to the sale of the Company’s corporate headquarters.

NOTE 86 - ACCRUED EXPENSES

Accrued expenses are comprised of the following as of:

	March 31, 2018		June 30, 2017
	September 30, 2018		June 30, 2018
Accrued compensation and benefits	$	~~297~~350,~~245~~305	$	~~403~~441,~~140~~222
Accrued warranty		~~154~~101,~~504~~323		~~239~~121,~~173~~699
Right of use liability		194,496		65,004
Right of use liability-operating leases		164,597		197,616
Customer deposits		~~204~~63,~~224~~386		90104,~~877~~724
Other		~~303~~348,~~478~~091		~~433~~371,~~520~~419
Total	$	1,~~153~~027,~~947~~702	$	1,~~231~~236,~~714~~680

20NOTE 7 - LONG-TERM DEBT

~~NOTE~~During 9the year ended June 30, 2016, the Company entered into a sales-leaseback ~~LONG~~transaction with a non-~~TERM~~related ~~DEBT~~party, the net consideration received was $331,827 with interest payable in quarterly installments ranging between $1,510 and $2,555 at an imputed interest rate of approximately 2.44% over 20 years ending March 31, 2036.

~~The~~NOTE ~~Company’s~~8 ~~long~~-~~term~~ ~~debt~~EMPLOYEE ~~consisted~~AND DIRECTOR ofEQUITY ~~the~~INCENTIVE ~~following:~~PLANS

	March 31, 2018			June 30, 2017
Note payable to Wisconsin Econcomic Development Corporation payable in monthly installments of $23,685, including interest at 2%, with the final payment due May 1, 2018; collateralized by equipment purchased with the loan proceeds and substantially all assets of the Company not otherwise collateralized.	$	47,272		$	257,959
Bank loan payable in fixed monthly installments of $6,800 of principal and interest at a rate of 0.25% below prime, as defined, subject to a floor of 5%; collateralized by the building and land. Outstanding mortgage balance of $434,184 plus accrued interest was paid in full in connection with the sale of the Company's corporate headquarters on January 31, 2018. Refer to Note 1 of the Notes to Condensed Consolidated Financial Statements for further detail related to the sale of the Company’s headquarters.		-			468,297
Equipment finance obligation under sale-leaseback, interest payable in quarterly installments ranging between $1,510 and $2,555 at an imputed interest rate of approximately 2.44% over 20 years ending March 31, 2036.		331,827			331,827
Long-term debt		379,099			1,058,083
Less: current maturities of long-term debt		(47,272	)		(726,256	)
Long-term debt, net of current maturities	$	331,827		$	331,827

The Company previously adopted the 2007 Equity Incentive Plan (“2007 Plan”) that authorized the board of directors or a committee to grant up to 300,000 shares to employees and directors of the Company. Unless defined in an employment agreement or otherwise determined, the stock options vest ratably over a three-year period. Stock options expire 10 years after the date of grant. No shares are available to be issued for future awards under the 2007 Plan.

~~Maximum~~In ~~aggregate~~November ~~annual~~2010, ~~principal~~the ~~payments~~Company asadopted the 2010 Omnibus Long-Term Incentive Plan (“2010 Omnibus Plan”), which authorizes a committee of ~~March~~the 31board of directors to grant stock options, stock appreciation rights, restricted stock, RSUs, unrestricted stock, other stock-based awards and cash ~~2018~~awards. ~~are~~The 2010 Omnibus Plan, as ~~follows:~~amended, authorizes up to 13,950,000 shares plus shares of Common Stock underlying any outstanding stock option of other awards granted by any predecessor employee stock plan of the Company that is forfeited, terminated, or cancelled without issuance of shares, to employees, officers, non-employee members of the board of directors, consultants and advisors. Unless otherwise determined, options vest ratably over a three-year period and expire eight years after the date of grant. At the annual meeting of shareholders held on December 19, 2017, the Company’s shareholders approved an amendment of the 2010 Omnibus Plan which increased the number of shares of the Company’s Common Stock available for issuance pursuant to awards under the 2010 Omnibus Plan by 2,000,000 to 13,950,000.

2018	$	47,272
2019		-
2020		-
2021		-
2022		-
Thereafter		331,827
	$	379,099

In November 2012, the Company adopted the 2012 Non-Employee Director Equity Compensation Plan, as amended (“2012 Director Equity Plan”), under which the Company may issue up to 4,400,000 RSUs and other equity awards to our non-employee directors pursuant to the Company’s director compensation policy. At the annual meeting of shareholders held on November 14, 2016, the Company’s shareholders approved an amendment of the 2012 Director Equity Plan which increased the number of shares of the Company’s Common Stock available for issuance pursuant to awards under the 2012 Director Equity Plan by 1,200,000 to 4,400,000.

~~NOTE 10 - EMPLOYEE AND DIRECTOR EQUITY INCENTIVE PLANS~~17

~~The~~As ~~Company~~of ~~previously~~September ~~adopted~~30, ~~the~~2018, ~~2002 Stock~~there ~~Option~~were ~~Plan (“2002 Plan”) in which~~ a ~~stock~~total of ~~option committee could grant up to~~ 1,~~000~~350,~~000~~217 shares available to ~~key~~be ~~employees or~~issued ~~non-employee~~for ~~members~~future ofawards under the ~~board~~2010 ofOmnibus ~~directors.~~Plan ~~The options vest in accordance with specific terms~~ and ~~conditions contained in an employment agreement. If vesting terms and conditions are not defined in an employment agreement~~298,375 then the options vest as determined by the stock option committee. If the vesting period is not defined in an employment agreement or by the stock option committee, then the options immediately vest in full upon death, disability, or termination of employment. Vested options expire upon the earlier of either the five-year anniversary of the vesting date or termination of employment. No shares ~~are~~ available to be issued for future awards under the ~~2002~~2012 Director Equity Plan.

21Stock Options

The ~~Company~~fair ~~also~~value ~~previously~~of ~~adopted~~each ~~the~~stock option granted ~~2007~~is ~~Equity~~estimated ~~Incentive~~on ~~Plan~~the ~~(“2007~~date ~~Plan”)~~of ~~that~~grant ~~authorized~~using the ~~board~~Black-Scholes ofoption-pricing ~~directors~~method. orThe aCompany ~~committee~~uses historical data to ~~grant~~estimate the upexpected toprice ~~300~~volatility,~~000 shares~~ tothe ~~employees~~expected ~~and~~option ~~directors~~life ofand the ~~Company~~expected forfeiture rate. ~~Unless~~The ~~defined~~Company inhas annot ~~employment~~made ~~agreement~~any ordividend payments ~~otherwise~~nor ~~determined,~~does ~~the~~it ~~options vest~~have ~~ratably~~plans ~~over~~to apay ~~three-year~~dividends ~~period~~in the foreseeable future. ~~Options~~The ~~expire~~following 10assumptions ~~years~~were ~~after~~used to estimate the fair ~~date~~value of ~~grant.~~stock Nooptions ~~shares~~granted ~~are~~during ~~available~~the tothree bemonths ~~issued~~ended ~~for future~~September ~~awards~~30, ~~under~~2018 and September 30, 2017 using the ~~2007~~Black-Scholes option-pricing ~~Plan.~~model:

In November 2010, the Company adopted the 2010 Omnibus Long-Term Incentive Plan (“2010 Omnibus Plan”) which authorizes a committee of the board of directors to grant stock options, stock appreciation rights, restricted stock, restricted stock units, unrestricted stock, other stock-based awards and cash awards. The 2010 Omnibus Plan, as amended, authorizes up to 13,950,000 shares plus shares of Common Stock underlying any outstanding stock option of other awards granted by any predecessor employee stock plan of the Company that is forfeited, terminated, or cancelled without issuance of shares, to employees, officers, non-employee members of the board of directors, consultants and advisors. Unless otherwise determined, options vest ratably over a three-year period and expire 8 years after the date of grant. At the annual meeting of shareholders held on December 19, 2017, the Company’s shareholders approved an amendment of the 2010 Omnibus Plan which increased the number of shares of the Company’s Common Stock available for issuance pursuant to awards under the 2010 Omnibus Plan by 2,000,000 to 13,950,000.

	Three months ended September 30,
	2018	2017
Expected life of option (years)	N/A	4
Risk-free interest rate	N/A	1.66 - 1.69%
Assumed volatility	N/A	113.62 - 113.75%
Expected dividend rate	N/A	0.00%
Expected forfeiture rate	N/A	6.15 - 6.72%

InTime-vested ~~November~~and ~~2012,~~performance-based ~~the~~stock ~~Company~~options are ~~adopted~~accounted ~~the 2012~~for ~~Non-Employee~~at ~~Director~~fair ~~Equity~~value ~~Compensation~~at ~~Plan,~~date asof ~~amended~~grant. ~~(“2012~~Total ~~Director~~fair ~~Equity~~values ~~Plan”),~~of ~~under~~stock ~~which~~options ~~the~~granted ~~Company may~~for ~~issue~~the upthree tomonths 4ended September 30,~~400,000~~ ~~restricted~~2018 ~~stock~~and ~~unit~~September ~~awards~~30, ~~and~~2017 ~~other~~were ~~equity~~$0 ~~awards~~and to$9,319 ~~our~~respectively. ~~non-employee~~Compensation ~~directors~~expense ~~pursuant~~is torecognized over the ~~Company’s~~requisite service ~~director~~and ~~compensation~~performance ~~policy~~periods. AtThe amounts recognized in the ~~annual~~condensed ~~meeting~~consolidated offinancial ~~shareholders~~statements ~~held~~related onto ~~November~~stock 14options were $11,300 ~~2016~~and $188,439, based on the ~~Company’s~~amortized ~~shareholders approved~~grant andate ~~amendment~~fair value of ~~the~~stock ~~2012~~options ~~Director~~granted ~~Equity~~under ~~Plan~~its ~~which~~various ~~increased~~equity incentive plans, during the ~~number~~three ofmonths ~~shares~~ended ofSeptember ~~the~~30, ~~Company’s~~2018 ~~Common~~and ~~Stock available~~September ~~for~~30, ~~issuance~~2017, ~~pursuant~~respectively. toAt ~~awards~~September ~~under~~30, ~~the~~2018, ~~2012~~there ~~Director~~was $314,235 ~~Equity~~in ~~Plan~~unrecognized bycompensation ~~1,200,000~~cost related to 4unvested stock options,~~400,000~~ which is expected to be recognized over a weighted average period of 1.3 years.

As of March 31, 2018, there were a total of 2,706,093 shares available to be issued for future awards under the 2010 Omnibus Plan and 566,095 shares available to be issued for future awards under the 2012 Director Equity Plan.

The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing method. The Company uses historical data to estimate the expected price volatility, the expected option life and the expected forfeiture rate. The Company has not made any dividend payments nor does it have plans to pay dividends in the foreseeable future. The following assumptions were used to estimate the fair value of options granted during the nine months ended March 31, 2018 and March 31, 2017 using the Black-Scholes option-pricing model:

	Nine months ended March 31,
	2018			2017
Expected life of option (years)		4			4
Risk-free interest rate		1.59 - 2.38	%		0.85 - 1.7	%
Assumed volatility		108.66 - 113.98	%		101.06 - 110.31	%
Expected dividend rate		0.00	%		0.00	%
Expected forfeiture rate		6.15 - 12.73	%		7.20 - 9.18	%

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

During the three and nine months ended March 31, 2018 and March 31, 2017, the Company’s results of operations include compensation expense for stock options and RSUs granted under its various equity incentive plans. The amount recognized in the condensed consolidated financial statements related to stock-based compensation was $195,028 and $796,500, based on the amortized grant date fair value of options and RSUs, during the three and nine months ended March 31, 2018, respectively. The amount recognized in the condensed consolidated financial statements related to stock-based compensation was $499,462 and $1,554,567 based on the amortized grant date fair value of options and RSUs, during the three and nine months ended March 31, 2017, respectively.

Information with respect to stock option activity is as follows:

	Number of Options			Weighted Average Exercise Price		Average Remaining Contractual Life (in years)
Balance at June 30, 2016		6,111,360		$	0.88		6.96
Balance at June 30, 2017		8,249,298		$	0.71		6.50
Options granted		21,~~654~~407,~~100~~000			0.5940
Options exercised		(124,252	)		0.56
Options forfeited		(2,781,483	)		0.71
Options forfeited		(391,910	)		2.55
Balance at June 30, 2018		6,874,815			0.65		5.87
Balance at June 30, 2017		8,249,298			0.71		6.50
Options forfeited		(677,217	)		0.54
Options granted		1,158,000			0.41
Balance at September 30, 2018		6,197,598			0.66		5.66
Options forfeited		(1,802,883	)		0.81
Balance at March 31, 2018		7,604,415			0.64		6.03

The following table summarizes information relating to the stock options outstanding as of ~~March~~September 3130, 2018:

	Outstanding						Exercisable
Range of Exercise Prices	Number of Options		Average Remaining Contractual Life (in years)		Weighted Average Exercise Price		Number of Options		Average Remaining Contractual Life (in years)		Weighted Average Exercise Price
$0.28 to $1.00		6,849,965		6.24	$	0.50		2,634,929		5.60	$	0.52
$0.28 to $0.50		3,313,815		6.08	$	0.39		1,596,616		5.32	$	0.40
$1.01 to $2.50		645,000		4.56		1.47		493,000		4.25		1.61
$0.51 to $1.00		2,222,983		5.64		0.68		1,437,584		5.26		0.71
$2.51 to $5.00		60,200		1.14		3.87		60,200		1.14		3.87
$1.01 to $1.50		170,000		5.41		1.02		130,000		5.23		1.02
$5.01 to $6.95		49,250		1.49		5.71		49,250		1.49		5.71
$1.51 to $2.00		400,950		3.51		1.73		400,950		3.51		1.73
Balance at March 31, 2018		7,604,415		6.03		0.64		3,237,379		5.25		0.83
$2.01 to $5.80		89,850		1.06		4.90		89,850		1.06		4.90
Balance at September 30, 2018		6,197,598		5.66		0.66		3,655,000		4.99		0.80

During the nine months ended March 31, 2018, options to purchase 1,158,000 shares were granted to employees exercisable at $0.34 to $0.51 per share based on various service-based vesting terms from July 2017 through February 2021 and exercisable at various dates through February 2026. During the nine months ended March 31, 2017, options to purchase 1,297,000 were granted to employees exercisable at $0.35 to $1.02 per share based on service-based and performance-based vesting terms from July 2016 through March 2020 and exercisable at various dates through March 2025.18

~~The~~During ~~aggregate~~the ~~intrinsic~~three ~~value~~months ofended ~~outstanding~~September ~~options totaled~~30, ~~$40~~2017,~~493~~ ~~and~~stock ~~was~~options ~~based~~to onpurchase ~~the~~27,000 ~~Company’s~~shares ~~adjusted~~were ~~closing~~granted ~~stock~~to ~~price~~employees ofexercisable at $0.3839 asto of$0.48 ~~March~~per ~~31,~~share ~~2018~~based on various service-based vesting terms from July 2017 through September 2020 and exercisable at various dates through September 2025.

There is no aggregate intrinsic value of outstanding stock options based on the Company’s adjusted closing stock price of $0.26 as of September 30, 2018.

Information with respect to unvested employee stock option activity is as follows:

	Number of Options			Weighted Average Grant Date Fair Value Per Share		Average Remaining Contractual Life (in years)
Balance at June 30, 2016		4,852,367		$	0.54		7.42
Balance at June 30, 2017		5,197,098		$	0.54		6.93
Options granted		21,~~654~~407,~~100~~000			0.5940
Options vested		(21,~~110~~581,~~085~~266	)		0.5756
Options forfeited		(~~199~~1,~~284~~840,499	)		0.8048
Balance at June 30, 2017		5,197,098			0.54		6.93
Balance at June 30, 2018		3,182,333			0.51		6.57
Options granted		1,158,000			0.41
Options vested		(362,835	)		0.71
Options vested		(671,896	)		0.62
Options forfeited		(276,900	)		0.65
Options forfeited		(1,316,166	)		0.51
Balance at September 30, 2018		2,542,598			0.47		6.63
Balance at March 31, 2018		4,367,036			0.51		6.61

23RSUs

~~Total~~The ~~fair~~Company ~~value~~compensates ofits ~~options~~directors ~~granted for~~with ~~the~~time-vested ~~nine~~RSUs ~~months~~and ~~ended~~cash. ~~March~~On 31September 24, 2018 and ~~March~~June 3126, ~~2017~~2018, ~~was $349~~148,~~804~~276 and ~~$541~~119,~~264~~444 ~~respectively.~~RSUs Atwere ~~March~~granted 31under the 2012 Director Equity Plan to the Company’s directors in lieu of cash based director’s fee payments of $43,000 for services rendered during each of the first quarter of fiscal 2019 and fourth quarter of fiscal 2018, ~~there~~respectively. ~~was~~The ~~$533,499~~RSUs vested immediately on inthe ~~unrecognized~~date ~~compensation~~of ~~cost~~grant. ~~related~~On toNovember ~~unvested~~14, ~~stock~~2017, ~~options~~1,163,075 ~~which~~RSUs iswere ~~expected~~granted to bethe ~~recognized~~Company’s ~~over~~directors ain ~~weighted~~partial ~~average period~~payment of 1director’s fees through November 2018 under the 2012 Director Equity Plan.5 ~~years~~As of September 30, 2018, all of the RSUs from the November 14, 2017 grant had vested.

The Company compensates its directors with RSUs and cash. On November 14, 2017, 1,163,075 RSUs were granted to the Company’s directors in partial payment of director’s fees through November 2018 under the 2012 Director Equity Plan. As of March 31, 2018, 581,540 of the RSUs from the November 14, 2017 grant had vested.

On November 14, 2016, 581,816 RSUs were granted to the Company’s directors in partial payment of director’s fees through November 2017 under the 2012 Director Equity Plan. As of September 30, 2017, 563,635 of the RSUs from the November 14, 2016 grant had vested and 18,181 had forfeited.

OnThe ~~November~~Company ~~17,~~also ~~2015,~~compensates ~~864,000~~its ~~RSUs~~key ~~were~~employees ~~granted~~with totime-vested ~~the~~and ~~Company's~~performance-based ~~directors~~RSUs. inNo ~~partial~~RSUs ~~payment~~were ofgranted ~~director's~~to ~~fees~~the ~~through~~Company’s ~~November~~employees ~~2016~~ under the ~~2012~~2010 ~~Director~~Omnibus ~~Equity~~ Plan. Asand ofinducement ~~September~~awards ~~30,~~during ~~2016, all of~~ the ~~RSUs~~three ~~from~~months ~~the~~ended ~~November~~September 1730, ~~2015~~2018 ~~grant~~and ~~had~~September ~~vested~~30, 2017.

Time-vested and performance-based RSUs are accounted for at fair value at date of grant. Total fair value of RSUs granted for the three months ended September 30, 2018 and September 30, 2017 was $43,000 and $0, respectively. Compensation expense is recognized over the requisite service and performance periods. The amount recognized in the condensed consolidated financial statements related to RSUs was $303,342 and $247,169, based on the amortized grant date fair value of RSUs granted under its various equity incentive plans, during the three months ended September 30, 2018 and September 30, 2017, respectively. As of ~~March~~September 3130, 2018, there were 3,~~851~~855,~~535~~ 000 of unvested RSUs and $1,~~803~~487,~~734~~ 901 in unrecognized compensation cost. Generally, shares of Common Stock related to vested RSUs are to be issued six months after the holder’s separation from service with the Company.

Information with respect to RSU activity is as follows:

	Number of Restricted Stock Units			Weighted Average Valuation Price Per Unit
Balance at June 30, 2016		4,029,244		$	1.03
Balance at June 30, 2017		5,556,332		$	1.07
RSUs granted		14,~~671~~342,~~816~~519			10.1541
Shares issued		(144,728	)		0.75
RSUs forfeited		(1,147,231	)		0.75
Balance at June 30, 2017		5,556,332			1.07
Shares issued		(1,041,152	)		1.42
RSUs granted		3,523,075			0.42
Balance at June 30, 2018		7,710,468			0.70
RSUs forfeited		(1,032,231	)		0.79
RSUs granted		148,276			0.29
Shares issued		(~~837~~70,~~544~~654	)		10.5740
Balance at March 31, 2018		7,209,632			0.74
Balance at September 30, 2018		7,788,090			0.69

NOTE 119 - WARRANTS

On August 7, 2017, 220,000 warrants were issued in connection with a professional services agreement. The warrants are exercisable at $0.40 per share and vest upon the satisfaction of certain performance targets prior to March 31, 2018. As of March 31, 2018, 40,000 warrants vested and expire in March 2021, and the remaining 180,000 warrants did not vest as the result of not achieving certain performance targets, and therefore expired in March 2018.

On June 22, 2017, 357,500 warrants were issued in connection with the Underwriting Agreement entered into with Roth Capital Partners, LLC as part of underwriting compensation which provided for the sale of $2.5 million of Common Stock on June 22, 2017. The warrants are exercisable at $0.42 per share and expire in June 2022.

On February 28, 2016, 45,000 warrants were issued as partial payment for services. The warrants are exercisable at $0.37 per share and expire in February 2019. In October 2016, 45,000 warrants were exercised via a cashless exercise resulting in the issuance of 29,162 shares of Common Stock of the Company.

On June 19, 2012, 579,061 warrants were issued in connection with the Underwriting Agreement entered into with MDB Capital Group, LLC as part of underwriting compensation which provided for the sale of $12 million of Common Stock on June 19, 2012. The warrants were exercisable at $2.375 per share and the remaining unexercised warrants of 306,902 expired in June 2017.

On May 1, 2012, 511,604 warrants were issued in connection with Securities Purchase Agreements entered into with certain investors providing for the sale of a total of $2,465,000 of Zero Coupon Convertible Subordinated Notes on May 1, 2012. The warrants were exercisable at $2.65 per share and expired in May 2017.

On September 26, 2013, 3,157,894 warrants were issued in connection with Securities Purchase Agreements entered into with certain investors providing for the sale of a total of $3.0 million of Series B Convertible Preferred Stock (the “Series B Preferred Stock”) on September 26, 2013. The warrants were exercisable at $0.95 per share and the remaining unexercised warrants of 1,710,525 expired in September 2016.

On September 26, 2013, 81,579 warrants were issued as placement agent’s compensation in connection with the sale of $3.0 million of Series B Preferred Stock on September 26, 2013. The warrants were exercisable at $0.95 per share and expired in September 2016.

Information with respect to warrant activity is as follows:

	Number of Warrants			Weighted Average Exercise Price Per Share
Balance at June 30, 2016		2,655,610		$	1.43
Balance at June 30, 2017		357,500		$	0.42
Warrants granted		357,500			0.42
Warrants exercised		(45,000	)		0.37
Warrants expired		(2,610,610	)		1.45
Balance at June 30, 2017		357,500			0.42
Warrants granted		220,000			0.40
Warrants expired		(180,000	)		0.40
Balance at March 31, 2018		397,500			0.42
Balance at June 30, 2018 and September 30, 2018		397,500			0.42

NOTE 1210 - BASIC AND DILUTED NET LOSS PER SHARE

Basic net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding for the period reported. Diluted net loss per common share is computed giving effect to all dilutive potential common shares that were outstanding for the period reported. Diluted potential common shares consist of incremental shares issuable upon exercise of stock options and warrants and conversion of preferred stock and RSUs. In computing diluted net loss per share for the three ~~and nine~~ months ended ~~March~~September 3130, 2018 and ~~March~~September 3130, 2017, no adjustment has been made to the weighted average outstanding common shares as the assumed ~~exercise~~ exercise of outstanding stock options, RSUs and warrants and conversion of preferred stock is anti-dilutive.

Potential common shares not included in calculating diluted net loss per share are as follows:

	March 31, 2018		March 31, 2017
	September 30, 2018		September 30, 2017
Stock options and restricted stock units		14,814,047		12,633,946
Stock options and RSUs		13,985,688		13,551,752
Stock warrants		397,500		~~818~~577,~~506~~500
Series B preferred shares		3,~~776~~967,~~018~~176		3,~~420~~594,~~885~~065
Total		18,~~987~~350,~~565~~364		1617,~~873~~723,~~337~~317

~~NOTE 13 - EQUITY~~20

NOTE 11 - EQUITY

Series B Convertible Preferred Stock

On September 26, 2013, the Company entered into a Securities Purchase Agreement with certain investors providing for the sale of 3,000 shares of Series B ~~Preferred~~Convertible ~~Stock.~~Preferred ~~Certain~~Stock ~~Directors of~~ (the ~~Company purchased 500 shares. 700 shares of the~~ “Series B Preferred Stock”). ~~have~~Certain ~~been~~Directors ~~converted into 822,867 shares~~ of ~~Common~~the ~~Stock~~Company ofpurchased ~~the~~500 ~~Company~~shares. Shares of Series B Preferred Stock ~~were~~have ~~sold~~a ~~for~~ $1,000 per share stated value (the “Stated Value”) and accrue dividends on the Stated Value at an annual rate of 10%. ~~The net proceeds to the Company were $2,909,873, after deducting offering expenses.~~ At ~~March~~September 3130, 2018, 2,300 shares of Series B Preferred Stock remain outstanding and were convertible, along with accrued and unpaid dividends, into 3,~~776~~967,~~018~~ 176 shares of Common Stock of the Company at a conversion price equal to $0.95. Upon any liquidation, dissolution or winding up of the Company, holders of the Series B Preferred Stock are entitled to receive out of the assets of the Company an amount equal to two times the Stated Value, plus any accrued and unpaid dividends thereon. At ~~March~~September 3130, 2018, ~~the~~and ~~liquidation~~June ~~preference~~30, ~~of the Preferred Stock was $5~~2018,~~887,217.~~ ~~In connection with~~ the ~~purchase~~liquidation preference of the Series B Preferred Stock, ~~investors~~was ~~received warrants to purchase a total of 3~~$6,~~157~~068,~~895~~818 ~~shares~~and ~~of Common Stock at an exercise price of~~ $~~0.95. These warrants expired on September 27~~5, ~~2016~~976,896, respectively.

Series C Convertible Preferred Stock

On July 13, 2015, wethe Company entered into a Securities Purchase Agreement with SPI Energy Co., LTD. (“SPI”) in connection with entering into a global strategic partnership, which included a Securities Purchase Agreement, a Supply Agreement and a Governance Agreement. Pursuant to the Securities Purchase Agreement, wethe Company sold to SPI for an aggregate purchase price of $33,390,000 a total of (i) 8,000,000 shares of Common Stock based on a purchase price per share of $0.6678 and (ii) 28,048 shares Series C convertible preferred stock (the “Series C Preferred Stock”) based on a price of $0.6678 per common equivalent. ~~The~~At ~~Series~~the Cclosing ~~Preferred Stock~~of ~~were~~the ~~potentially~~SPI ~~convertible~~transaction, ~~subject~~the toCompany recognized the ~~completion~~fair ofvalue ~~projects under our Supply Agreement with SPI, into a total~~ of up to(i) 42$6,~~000~~800,~~600~~000 ~~shares~~for ofthe Common Stock. ~~Pursuant~~(determined by reference to the ~~Securities~~closing ~~Purchase~~price ~~Agreement,~~of the Company’s Common ~~also~~Stock ~~issued~~on tothe ~~SPI~~NYSE aAmerican) ~~warrant~~ as an increase to ~~purchase~~equity; 50(ii) $13,~~000~~300,000 ~~shares~~for ofthe ~~Common~~Series C Preferred Stock, ~~for~~ignoring the contingent convertibility on the closing date, as an ~~aggregate~~increase ~~purchase~~to ~~price~~equity; ofand (iii) $3613,~~729~~290,000 ~~(the~~as ~~“Warrant”),~~deferred atrevenue ~~a per~~for ~~share~~the ~~exercise~~cash ~~price~~received by ofthe ~~$0.7346.~~Company ~~The~~in ~~Warrant~~excess ~~would~~of ~~have~~the ~~become~~fair ~~exercisable~~value ~~only~~of ~~once~~the ~~SPI~~Common ~~purchased~~Stock and ~~paid~~the ~~for~~nonconvertible 40attribute ~~megawatts~~ of ~~projects~~the Series C Preferred Stock, which aswas ~~defined~~allocated into the Supply Agreement.

AtAs ~~closing~~the result of ~~the~~ SPI’s ~~transaction~~failure onto ~~July~~perform ~~13,~~any ~~2015, the Company recognized the fair value~~ of ~~$6.8~~its ~~million~~purchase ~~for~~obligations under the ~~Common~~Supply ~~Stock~~Agreement, ~~(determined~~on byMay ~~reference~~4, to2017, the ~~closing price of the~~ Company’s ~~Common~~terminated ~~Stock on~~ the ~~NYSE~~Supply ~~American) as an increase to equity~~Agreement. ~~The~~As ~~Company~~a result ~~also~~of ~~recognized as equity~~ the ~~fair value~~termination of ~~$13.3~~the ~~million~~Supply ~~for~~Agreement, ~~the~~it ~~Series~~is Cno ~~Preferred~~longer ~~Stock~~possible ~~ignoring~~for ~~the~~SPI ~~contingent~~to ~~convertibility~~satisfy on the ~~closing~~conditions ~~date.~~that ~~This~~would ~~price~~have ~~was~~enabled ~~determined~~it ~~using the OPM model and a “with” and “without” methodology~~ to ~~bifurcate~~convert the Series C Preferred Stock ~~conversion~~into ~~feature.~~a ~~The OPM model treats the various equity securities as call options on the~~ total ~~equity~~of ~~value~~up ~~contingent upon~~to ~~each~~42,000,600 ~~securities~~shares ~~strike price or participation rights. The cash received by the Company in excess~~ of ~~the fair value of the~~ Common Stock ~~and~~or ~~the~~exercise ~~nonconvertible attribute of~~ the ~~Series~~warrant to Cpurchase ~~Preferred Stock of $13~~50,~~290~~000,000 ~~was~~shares ~~recorded~~of asCommon ~~deferred~~Stock ~~revenue. This~~issued ~~amount~~pursuant ~~was allocated~~ to the ~~Supply~~Securities Purchase Agreement, ~~under~~and ~~which~~for the Company ~~expected~~ to ~~perform in the future and would be recognized~~recognize as revenue as sales occurred under the Supply Agreement.

~~Pursuant~~Additionally, toon ~~the~~May ~~Supply~~8, ~~Agreement~~2018, the Company ~~agreed~~filed toa ~~sell~~lawsuit ~~and~~against SPI ~~agreed~~in tothe ~~purchase~~Circuit ~~products~~Court for Waukesha County in the State of Wisconsin seeking a declaratory judgment releasing the Company from its obligations under the Governance Agreement between the Company and ~~services~~SPI ~~offered~~dated byJuly 13, 2015 (the “SPI Dispute”). The Company’s complaint in the SPI Dispute asserted, among other things, that the Company should be released from ~~time~~its obligations under the Governance Agreement due to ~~time,~~the ~~including~~Doctrine ~~energy~~of ~~management~~Frustration of Purpose. As detailed ~~system~~in ~~solutions~~the complaint, the basis for ~~solar~~this ~~projects.~~claim ~~Under~~was that the ~~Supply~~Company’s principle purpose for entering into the Governance Agreement, was ~~SPI~~as ~~agreed~~a condition and inducement to ~~purchase~~SPI ~~energy~~to ~~storage~~enter ~~systems~~into ~~with~~the aSupply ~~total~~Agreement ~~combined power~~between ~~output~~the ofCompany 40and ~~megawatts~~SPI ~~over~~dated aJuly ~~four-year~~13, ~~period~~2015, asand that ~~provided~~due ~~for~~to inSPI’s failure to perform its obligations under the Supply Agreement, that purpose was frustrated.

~~SPI~~On ~~never~~June ~~made any purchases under the Supply Agreement. Due to SPI’s failure to meet its purchase obligations~~19, ~~on May 4~~2018, ~~2017~~ the ~~Company~~Circuit ~~terminated~~Court ~~the~~for ~~Supply~~Waukesha ~~Agreement.~~County Asin ~~a result of~~ the ~~termination~~State of ~~the~~Wisconsin ~~Supply~~granted ~~Agreement, it is no longer possible for SPI to satisfy~~ the ~~conditions~~Company’s ~~that would~~motion ~~have enabled it to convert the Series C Preferred Stock or exercise the Warrant, and~~ for ~~the~~a ~~Company~~default tojudgment ~~recognize~~in ~~revenue as sales occurred under~~ the ~~Supply~~SPI ~~Agreement~~Dispute. ~~Applying guidance from ASC 405-20, liabilities should be derecognized only when the~~ Pursuant ~~obligor~~to isthis ~~legally~~default ~~released from the obligation~~judgment, ~~which occurred for~~ the ~~Company~~Court ~~upon~~ordered ~~the~~that ~~exercise of~~ the ~~termination~~Governance ~~rights. Since the Supply~~ Agreement ~~termination~~ was ~~not~~terminated ~~standard~~and ~~operating~~unenforceable, ~~revenues~~and of the Company, ~~the~~was completely ~~derecognition~~and offully ~~the~~released ~~deferred~~from ~~revenue liability~~its ~~of $13~~obligations,~~290,000~~ ~~resulted~~covenants ~~in a gain~~ and ~~was~~agreements ~~recorded as other income in the fourth quarter of fiscal 2017~~thereunder.

The Series C Preferred Stock are non-voting, are perpetual, are not eligible for dividends, and are not redeemable. While the Series C Preferred Stock is outstanding, the Company may not pay dividends on its Common Stock and may not redeem more than $100,000 in Common Stock per year. Upon any liquidation, dissolution, or winding up of the Company (a “Liquidation”) or a Fundamental Transaction (as defined in the Certificate of Designation for the Series C Preferred Stock), holders of the Series C Preferred Stock are entitled to receive out of the assets of the Company an amount equal to the higher of (1) the ~~Stated~~stated ~~Value~~value, which was $28,048,000 as of ~~March~~September 3130, 2018 and (2) the amount payable to the holder if it had converted the shares into Common Stock immediately prior to the Liquidation or Fundamental Transaction, for each share of the Series C Preferred Stock after any distribution or payment to the holders of the Series B Preferred Stock and before any distribution or payment shall be made to the holders of the Company’s existing Common Stock, and if the assets of the Company shall be insufficient to pay in full such amounts, then the entire assets to be distributed shall be ratably distributed in accordance with respective amount that would be payable on such shares if all amounts payable thereon were paid in full,. ~~which~~At ~~was~~September $330,~~196,739 as~~ of2018 ~~March~~and 31June 30, 2018., ~~While~~ the ~~Series~~liquidation Cpreference ~~Preferred~~of ~~Stock is outstanding,~~ the ~~Company~~Series ~~may~~C ~~not~~Preferred ~~pay dividends on its Common~~ Stock ~~and~~ ~~may~~was ~~not redeem more than~~ $~~100,000 in Common Stock per year~~0.

In connection with the closing of the SPI transaction and pursuant to the Securities Purchase Agreement, the Company entered into the Governance Agreement. Under the Governance Agreement, for so long as SPI holds at least 10,000 Series C Preferred Stock or 25 million shares of Common Stock or Common Stock equivalents (the “Requisite Shares”), SPI has certain governance rights.21

The Governance Agreement provides that for so long as SPI holds the Requisite Shares, the Company will not take any of the following actions without the affirmative vote of SPI: (a) change the conduct by the Company’s business; (b) change the number or manner of appointment of the directors on the board; (c) cause the dissolution, liquidation or winding-up of the Company or the commencement of a voluntary proceeding seeking reorganization or other similar relief; (d) other than in the ordinary course of conducting the Company’s business, cause the incurrence, issuance, assumption, guarantee or refinancing of any debt if the aggregate amount of such debt and all other outstanding debt of the Company exceeds $10 million; (e) cause the acquisition, repurchase or redemption by the Company of any securities junior to the Series C Preferred Stock; (f) cause the acquisition of an interest in any entity or the acquisition of a substantial portion of the assets or business of any entity or any division or line of business thereof or any other acquisition of material assets, in any such case where the consideration paid exceeds $2 million, or cause the Company to engage in other Fundamental Transactions (as defined in the Certificate of Designation of Preferences, Rights and Limitations of the Series C Convertible Preferred Stock); (g) cause the entering into by the Company of any agreement, arrangement or transaction with an affiliate that calls for aggregate payments (other than payment of salary, bonus or reimbursement of reasonable expenses) in excess of $120,000; (h) cause the commitment to capital expenditures in excess of $7 million during any fiscal year; (i) cause the selection or replacement of the auditors of the Company; (j) enter into of any partnership, consortium, joint venture or other similar enterprise involving the payment, contribution, or assignment by the Company or to the Company of money or assets greater than $5 million; (k) amend or otherwise change its Articles of Incorporation or By-Laws or equivalent organizational documents of the Company or any subsidiary in any manner that materially and adversely affects any rights of SPI; (l) amend or otherwise change the Articles of Incorporation or By-Laws or equivalent organizational documents of any Subsidiary in any manner; (m) grant, issue or sell any equity securities (with certain limited exceptions); (n) declare, set aside, make or pay any dividend or other distribution, payable in cash, stock, property or otherwise, with respect to any of its capital stock; provided, however, that the dividends called for by Section 3(b) of the Certificate of Designation of Preferences, Rights and Limitations of the Company’s Series B Convertible Preferred Stock shall nonetheless continue to accrue and accumulate on each share of the Company’s Series B Preferred Stock; (o) reclassify, combine, split or subdivide, directly or indirectly, any of its capital stock; (p) permit any item of material intellectual property to lapse or to be abandoned, dedicated, or disclaimed, fail to perform or make any applicable filings, recordings or other similar actions or filings, or fail to pay all required fees and taxes required or advisable to maintain and protect its interest in such intellectual property; or (q) enter into any contract, arrangement, understanding or other similar agreement with respect to any of the foregoing. Additionally, the Governance Agreement provides a preemptive right to SPI in the case of certain issuances of equity securities. On May 8, 2018, the Company filed a lawsuit against SPI in the Circuit Court, Waukesha County of the State of Wisconsin seeking a declaratory judgment releasing the Company from its obligations under the Governance Agreement. See further discussion of lawsuit in Note 18 – Subsequent Event.

On August 30, 2016, SPI entered into a Share Purchase Agreement with Melodious Investments Company Limited (“Melodious”) pursuant to which SPI sold to Melodious the 8,000,000 outstanding shares of Common Stock.

Common Stock

~~June~~September 225, ~~2017~~2018 ~~Underwritten~~Registered ~~Public~~Direct Offering

On ~~June~~September 225, ~~2017~~2018, the Company completed ana ~~underwritten~~registered ~~public~~direct offering, ofpursuant ~~its~~to ~~Common Stock at~~ a ~~price~~Registration toStatement ~~the~~on ~~public~~Form ~~of $0.35 per share. The Company sold a total of 7~~S-3,~~150,000 shares~~ of ~~its Common Stock in the offering for net proceeds of $2~~11,~~073~~334,~~055,~~616 ~~after deducting the underwriting discount and expenses. The Company granted the underwriter an option to purchase up to 1,072,500 additional~~ shares of Common Stock toat ~~cover~~a ~~over-allotments,~~price ifof ~~any~~$0.26 Inper ~~July~~share ~~2017, the Company sold an additional 367,000 shares of its Common Stock under the over-allotment option~~ for net proceeds of $~~119~~2,~~459~~701,569, after deducting ~~the~~customary ~~underwriting discount and~~ expenses.

NOTE 1412 - COMMITMENTS

Leasing Activities

Operating Leases

Operating lease expense recognized during the three ~~and nine~~ months ended ~~March~~September 3130, 2018 ~~was $47,726~~ and ~~$89,346~~September ~~respectively. Operating lease expense recognized during the three and nine months ended March 31~~30, 2017 was $1652,~~642~~670 and $4521,~~739~~264, respectively. Operating lease expense is included in operating expenses in the condensed consolidated statements of operations.

In December 2017, the Company entered into a seven-year office lease agreement to replace the Company’s former headquarters, which was sold on January 31, 2018. Monthly rent for the first twelve months of the lease is $13,845 and increases by approximately 1.5% for each succeeding 12 -month period. Refer to Note 1 of the Notes to Condensed Consolidated Financial Statements for further detail related to the sale of the Company’s headquarters.

As of ~~March~~September 3130, 2018, and June 30, ~~2017~~2018, the carrying value of the right of use asset was $1,~~135~~011,~~174~~620 and $~~150~~1,~~214~~087,249, respectively, and is separately stated on the condensed consolidated balance sheets. The related short-term and long-term liabilities as of ~~March~~September 3130, 2018 were $~~194~~164,~~496~~597 and $~~940~~847,~~678 and~~023 and as of June 30, ~~2017~~2018 were $65197,~~004~~616 and $85889,~~210~~633, respectively. The short-term and long-term liabilities are included in “Accrued expenses” and “Other long-term liabilities,” respectively, in the condensed consolidated balance sheets.

Information regarding the weighted-average remaining lease term and the weighted-average discount rate for operating leases are summarized below:

	March 31, 2018			June 30, 2017
	September 30, 2018			June 30, 2018
Weighted-average remaining lease term (in years)		6.01			6.05
Operating leases		6.24			2.37
Weighted-average discount rate		5.0	%		5.0	%
Weighted-average discount rate
Operating leases		5.0	%		5.0	%

The table below reconciles the undiscounted cash flows for the first five years and total of the remaining years to the operating lease liabilities recorded in the condensed consolidated balance sheet as of ~~March~~September 3130, 2018:

2018	$	61,679
2019	$	157,677
2019		248,148
2020		210,260
2020		210,260
2021		172,317
2021		172,317
2022		174,873
2022		174,873
2023		177,429
Thereafter		~~463~~285,~~275~~846
Total undiscounted lease payments		1,~~330~~178,~~552~~402
Present value adjustment		(~~195~~166,~~378~~782	)
Net operating lease liabilities	$	1,~~135~~011,~~174~~620

Short-term Leases

The Company leases facilities in Honolulu, Hawaii, Milwaukee and Madison, Wisconsin, Petaluma, California and Shanghai, China from unrelated parties under lease terms that will expire over the next twelve months. Monthly rent for the twelve-month rental periods is between $400 and $23,~~010~~150 per month. Rent expense of $1723,~~068~~ 864 and $388,~~203~~922 was recognized during the three ~~and nine~~ months ended ~~March~~September 3130, 2018, ~~respectively. Rent expense of $22,497~~ and ~~$66,122 was~~September ~~recognized during the three and nine months ended March 31~~30, 2017, respectively. Short-term rent expense is included in operating expenses in the condensed consolidated ~~statement~~statements of operations.

NOTE 1513 - RETIREMENT PLANS

The Company sponsors a defined contribution retirement plan under Section 401(k) of the Internal Revenue Code, the EnSync, Inc. 401(k) Savings Plan. Employees may elect to contribute up to the ~~IRS~~Internal Revenue Service annual contribution limit. The Company matches employees’ contributions up to 4% of eligible compensation and Company contributions are limited in any year to the amount allowable by government tax authorities. Eligible employees are 100% immediately vested. Total employer contributions recognized in the condensed consolidated statements of operations under this plan were $49,589 and $51,753 for the three months ended September 30, 2018 and September 30, 2017, respectively.

Total employer contributions recognized in the condensed consolidated statements of operations under this plan were $50,518 and $151,431 for the three and nine months ended March 31, 2018, respectively. Total employer contributions recognized in the condensed consolidated statements of operations under this plan were $61,448 and $146,005 for the three and nine months ended March 31, 2017, respectively.22

NOTE 1614 - INCOME TAXES

The Company had no current or deferred ~~provision~~ provision (benefit) for income taxes for the three ~~and nine~~ months ended ~~March~~September 3130, 2018 orand ~~March~~September 3130, 2017. The income tax provision ~~for~~ for the three ~~and nine~~ months ended ~~March~~September 3130, 2018 and ~~March~~September 3130, 2017 was determined by applying an estimated annual effective ~~tax~~ tax rate of 0.0% to the loss before income taxes. The estimated effective income tax rate was determined by applying statutory ~~tax~~ tax rates to pretax loss adjusted for certain permanent book to tax differences and tax credits, and the continuing assessment of of a valuation allowance against all of the deferred income tax assets that will not be realized in the foreseeable future. Deferred income tax assets are reviewed for recoverability based on historical taxable income, the expected reversals of existing temporary differences, tax planning strategies and projections of future taxable income. As a result of this analysis, the Company has provided for a valuation allowance against all of its net deferred income tax assets as of ~~March~~September 3130, 2018 and June 30, ~~2017~~2018.

On December 22, 2017, the President of of the U.S. signed the Tax Act into law. The Tax Act includes several changes to existing tax law, including a permanent reduction in the U.S. federal statutory tax rate from 35% to 21%, further limitations on the deductibility of interest expense and certain executive compensation, repeal of the corporate Alternative Minimum Tax and imposition of a territorial tax system. While some of the new provisions of the Tax Act will impact the Company in fiscal 2019 and beyond, the change in the U.S. federal statutory tax rate was effective January 1, 2018. During the second quarter of fiscal 2018, the Company was required to revalue its U.S. federal deferred tax assets and liabilities at the new U.S. federal statutory tax rate in the period of enactment., Asand ~~the~~as the Company has provided for a full valuation allowance against all of its net deferred income taxes, the revaluation resulted in no charge to income tax expense ~~for the three and six months ended December 31, 2017~~.

2823

NOTE 17 - RELATED PARTY TRANSACTIONS

On September 7, 2016, the Company entered into a Membership Interest Purchase Agreement (“MIPA”) with Theodore Peck, the CEO of the Company’s 85% owned subsidiary, Holu. Pursuant to the MIPA, the Company will sell to Theodore Peck all of the issued and outstanding membership interests of a PPA entity for $592,000, subject to the terms of a Promissory Note, a Security Agreement and a Pledge Agreement. The transaction is considered to be executed upon terms that are in the normal course of operations. Revenues for the total contract of $592,000 and expenses of $573,353 was recognized in the Company’s condensed consolidated statement of operations for third quarter of fiscal 2017.

NOTE 18 - SUBSEQUENT EVENT

On May 8, 2018, the Company filed a lawsuit against SPI in the Circuit Court, Waukesha County of the State of Wisconsin seeking a declaratory judgment releasing the Company from its obligations under the Governance Agreement (the “SPI Dispute”). The complaint in the SPI Dispute asserts, among other things, that the Company should be released from its obligations under the Governance Agreement due to the Doctrine of Frustration of Purpose. As detailed in the complaint, the basis for this claim is that the Company’s principle purpose for entering into the Governance Agreement was as a condition and inducement to SPI to enter into the Supply Agreement, and that due to SPI’s failure to perform its obligations under the Supply Agreement, that purpose was frustrated.

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial position and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and notes thereto included elsewhere in this Form 10-Q, as well as our audited consolidated financial statements and notes thereto included in the Company’s Annual Report filed on Form 10-K for the fiscal year ended June 30, ~~2017~~2018.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are intended to be covered by the “safe harbor” created by those sections. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, can generally be identified by the use of forward-looking terms such as “believe,” “expect,” “may,” “will,” “should,” “could,” “seek,” “intend,” “plan,” “goal,” “estimate,” “anticipate” or other comparable terms. All statements other than statements of historical facts included in this Quarterly Report on Form 10-Q regarding our strategies, prospects, financial condition, operations, costs, plans and objectives are forward-looking statements. Examples of forward-looking statements include, among others, statements we make regarding project completion timelines, our ability to monetize our PPA assets, statements regarding the sufficiency of our capital resources, expected operating losses, expected revenues, expected expenses and our expectations concerning our business strategy. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following: our historical and anticipated future ~~operation~~operational losses and our ability to continue as a going concern; our ability to raise the necessary capital to fund our operations and the risk of dilution to shareholders from capital raising transactions; our ability to remain listed on the NYSE American; the effects of a sale or transfer of a large number of shares of our ~~common~~Common ~~stock~~Stock; the ~~competiveness~~competitiveness of the industry in which we compete; our ability to successfully commercialize new products, including our EnSync Home Energy System, MatrixTM Energy Management, DER FlexTM, DER SupermoduleTM System and AgileTM Hybrid Storage Systems; our ability to lower our costs and increase our margins; the failure of our products to perform as planned; our ability to improve the performance of our products; our ability to build quality and reliable products and market perception of our products; our ability to grow rapidly while successfully managing our growth; our ability to maintain our current strategic partnerships and establish new strategic partnerships; our dependence on sole source and limited source suppliers; our limited experience manufacturing our products on a large-scale basis; our product, customer and geographic concentration, and lack of revenue diversification; the ~~ability~~potential of ~~SPI~~Melodious toInvestments ~~influence~~Company ~~key~~Limited ~~decision~~and its ~~making;~~affiliates ~~the potential of Melodious~~ to acquire complete control; the effect laws and regulations of the Chinese government may have on our China ~~Joint Venture~~joint venture; our ability to enforce our agreements in Asia; our ability to retain our managerial personnel and to attract additional personnel; our ability to manage our international operations; the length and variability of our sales cycle; our increased emphasis on larger and more complex system solutions; our lack of experience in the PPA business; our reliance ofon third-party suppliers and contractors when developing and constructing systems for our PPA business; our dependence on governmental mandates and the availability of rebates, tax credits and other economic incentives related to alternative energy resources and the regulatory treatment of third-party owned solar energy systems; our ability to protect our intellectual property and the risk we may infringe on the intellectual property of others; the cost of protecting our intellectual property; future acquisitions could disrupt our business and dilute our stockholders; and the other risks and uncertainties discussed in the Risk Factors and in Management's Discussion and Analysis of Financial Condition and Results of Operations sections ofon ~~the~~our ~~Company’s~~most recently filed Annual Report on Form 10-K for the fiscal year ended June 30, ~~2017~~2018 and our subsequently filed Quarterly Report(s) on Form 10-Q. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.

OVERVIEW

~~EnSync~~We isare ana renewable energy systems ~~innovation~~and services company whose innovative and differentiated technologies and capabilities are designed to deliver the least expensive, highest value and most reliable electricity. With the Company's May 2018 announcement of the EnSync Home Energy System, we now serve all three major markets in the renewable energy space: Residential Energy’s ~~modular~~Systems, ~~technologies~~Commercial Energy Systems and Independent ~~services~~Utility ~~synchronize~~Energy ~~power~~Systems. ~~sources~~Our tosystems ~~meet~~utilize ~~dynamic~~highly configurable modules, that together with our Auto-Sync DC Bus and DER ~~evolving~~FlexTM internet of energy ~~environments~~control platform, enable ~~real~~ simple design, configuration and deployment of mass-~~time~~customized systems ~~prioritization~~that meet the specific needs of ~~DERs~~each ~~and~~project ~~provide~~with ~~grid~~the ~~stability~~best ~~and~~possible economics in a highly dynamic environment with multiple economic ~~optimization~~value streams. ~~EnSync~~We ~~Energy~~are ~~offers~~vertically integrated, ~~solutions~~ from ~~concept~~lead ~~through~~generation to system design, ~~project~~and ~~finance~~deployment, ~~commissioning,~~to warranty and operating and maintenance, ~~serving~~services. We typically utilize a 20-year PPA structure where the ~~C&I~~offtaker ~~and~~contracts ~~multi~~to purchase electricity from a completed system owned by a third-~~tenant~~party that acquires the PPA from us. We recognize revenue from these PPA arrangements on a ~~building,~~percentage ~~utility~~of completion basis as we build out and ~~off-grid~~commission ~~markets~~the system. We also sell systems directly to the end customer or through our channel partners.

EnSync develops and commercializes product and service solutions for the distributed energy generation market, including energy management systems, energy storage systems, applications and internet of energy platforms that link distributed energy resources with the grid network. These solutions are critical to the transition from a “coal-centric economy” to one reliant on renewable energy sources. EnSync synchronizes conventional utility, distributed generation and storage assets to seamlessly ensure the least expensive and most reliable electricity available, thus enabling the future of energy networks.

EnSync delivers fully integrated systems utilizing proprietary direct current power control hardware, energy management software and extensive experience with energy storage technologies. Our internet of energy control platform adapts to ever-changing generation and load variables, as well as changes in utility prices and programs, aiming to ensure the means to make and/or save money behind-the-meter while concurrently providing utilities the opportunity to use distributed energy resource systems for various grid enhancing services.

Power Purchase Agreements

We are addressing our target markets as a developer and a financial packager primarily through the use of PPAs. Navigant Research forecasts the annual market for solar plus energy storage distributed energy systems to grow to nearly $50 billion by 2026, with a compound annual growth rate of more than 40 percent in such period. Under this PPA structure, we agree to develop and supply a system that uses our and other companies’ products and the offtaker agrees to purchase electricity from the completed system at a fixed rate for typically a 20-year period. Through these arrangements, the offtaker receives the benefit of a low and fixed price for electricity without incurring the capital expenditures required to develop and build the system.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

There have been no material changes in the Company’s critical accounting policies and estimates since the September 27, 2017 filing of its Annual Report on Form 10-K for the fiscal year ending June 30, 2017.

As discussed in our annual report, the preparation of our financial statements conforms to US GAAP, which requires management, in applying our accounting policies, to make estimates and assumptions that have an important impact on our reported amounts of assets, liabilities, revenue, expenses and related disclosures at the date of our financial statements.

On an on-going basis, management evaluates its estimates and bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from management’s estimates.

The most significant accounting estimates inherent in the preparation of the Company's financial statements include revenue recognition, estimates as to the realizability of our inventory assets, impairment of long lived assets, goodwill assessment, warranty obligations, stock-based compensation and going concern assessment.

Refer to Note 1 of the Notes to Condensed Consolidated Financial Statements for further detail of our significant accounting estimates inherent in the preparation of our financial statements.

NEW ACCOUNTING PRONOUNCEMENTS

Refer to Note 1 of the Notes to Condensed Consolidated Financial Statements for a discussion of recently issued accounting pronouncements.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

There have been no material changes in the Company’s critical accounting policies and estimates since the filing of its Annual Report on Form 10-K for the fiscal year ending June 30, 2018.

On an on-going basis, management evaluates and bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from management’s estimates.

The most significant accounting estimates inherent in the preparation of the Company's financial statements include revenue recognition, estimates as to the realizability of our inventory assets, impairment of long-lived assets, goodwill assessment, warranty obligations, stock-based compensation and going concern assessment.

Refer to Note 1 of the Notes to Condensed Consolidated Financial Statements for further detail about our significant accounting estimates inherent in the preparation of our financial statements.

RESULTS OF OPERATIONS

Three months ended ~~March~~September 3130, 2018, as compared with the three months ended ~~March~~September 3130, 2017

Revenue

Our revenues for the three months ended ~~March~~ 31September 30, 2018 increased $3376,~~022~~158,~~573~~ or 15.9%, to $32,~~073~~738,~~078~~206, as compared to the three months ended ~~March~~September 3130, 2017. The increase in ~~revenues~~ revenues in the three months ended ~~March~~September 3130, 2018 was principally the result of an increase in revenues recognized under the ~~percentage~~ percentage of completion method from our existing PPA ~~systems~~projects and the sale of ~~three~~two new PPA ~~systems~~projects. The Company had 10 PPA ~~systems contribute~~projects contribute to revenues in the three months ended ~~March~~September 3130, 2018, as compared to 7 projects in the three months ended September 30, 2017.

Costs and Expenses

Total costs and expenses for the three ~~months~~ months ended ~~March~~September 3130, 2018 ~~increased~~decreased $1777,~~505~~554,~~521,~~ or 3312.72%, to $5,~~968~~585,~~472~~366, as compared to the three months ended ~~March~~September 3130, 2017. This ~~increase~~decrease in total costs and expenses were primarily due to the following factors:

· $2205,~~032,288~~501 ~~increase~~decrease in ~~costs~~advanced ofengineering ~~product~~and ~~sales~~development expense, principally due to ~~the~~a ~~cost~~reduction in stock compensation expense of ~~product~~$91,167, ~~sales~~the ~~associated~~completion ~~with~~of the ~~increase~~EnSync inHome ~~revenues~~Energy ~~recognized~~System ~~under~~in the ~~percentage~~fourth quarter of ~~completion~~fiscal ~~method~~2018 ~~from~~and ~~our~~corresponding ~~PPA~~reduction ~~systems;~~in research and development, and other cost saving initiatives.

· $~~230~~376,~~431~~363 decrease in ~~advanced~~selling, ~~engineering~~general and ~~development~~administrative expenses, principally due to ~~the~~a ~~winding~~reduction ~~down~~in oflegal aand ~~R&D~~consulting ~~project~~services ~~and~~of ~~lower~~$215,809 ~~wages~~ and ~~benefits;~~other ~~and~~cost saving initiatives.

· $~~261~~447,~~534~~000 ~~decrease~~impairment incharge ~~selling,~~on ~~general~~the building and ~~administrative~~land ~~expenses principally due to a $305,758 decrease~~ in ~~stock~~the ~~compensation~~three ~~expense~~months ~~and~~ended aSeptember ~~$120~~30,~~735~~ ~~decrease~~2017 inrelated ~~accruals~~to ~~for~~the ~~annual~~sale ~~performance-based~~of ~~cash~~our ~~incentives,~~corporate ~~offset by $103,036 increase in consulting services~~headquarters.

Gross margin improved to 27.2% percent during the three months ended March 31, 2018, as compared to a negative margin in the three months ended March 31, 2017, principally due to the continued efficiencies in the procurement, construction and sale process for PPA systems.25

32Gross margin improved to 13.2% during the three months ended September 30, 2018, as compared to 12.5% in the three months ended September 30, 2017.

Other Income (Expense)

Total other income (expense) for the three months ended ~~March~~September 3130, 2018 ~~increased~~decreased by $1722,~~958~~741, to an expense of $~~188~~6,~~348~~893, as compared to an ~~expense~~income of $~~170~~15,~~390~~848 for the three months ended ~~March~~September 3130, 2017. The decrease in other income (expense) was attributable to ana ~~equity~~gain inon ~~loss~~sale of ~~investee~~property, ~~company related~~plant toand ~~our~~equipment ~~China Joint Venture of $246,980~~ in the three months ended ~~March~~September 3130, ~~2018, as compared to $170,084 in the three months ended March 31,~~ 2017~~; offset by an increase in other income of $61,509 related to the $61,129 gain recognized from the sale of the Company’s headquarters on January 31, 2018~~.

Refer to Note 1 of the Notes to Condensed Consolidated Financial Statements for further detail related to the sale of the Company’s headquarters.

Net Loss

Our net loss attributable to EnSync, Inc. for the three months ended ~~March~~September 3130, 2018 decreased by $1,~~520~~120,~~670~~100, or 3428.18%, to $2,~~933~~771,~~444~~694, ~~from~~as compared to the $43,~~454~~891,~~114~~ 794 net loss for the three months ended ~~March~~September 3130, 2017. This decrease in net loss was principally due to the increase in PPA ~~revenue~~ revenues and ~~improved~~cost ~~PPA system~~saving ~~margins~~initiatives.

Nine months ended March 31, 2018, as compared with the nine months ended March 31, 2017

Revenue

Our revenues for the nine months ended March 31, 2018 increased by $838,198, or 8.9%, to $10,281,833, as compared to the nine months ended March 31, 2017. The increase in our revenues was attributable to an increase in revenues recognized under the percentage of completion method from our existing PPA systems and the sale of seven new PPA systems in the nine months ended March 31, 2018. The Company had 11 PPA systems contribute to revenues in the nine months ended March 31, 2018.

Costs and Expenses

Total costs and expenses for the nine months ended March 31, 2018 decreased $3,217,492, or 14%, to $19,703,577, as compared to the nine months ended March 31, 2017. This decrease in total costs and expenses was primarily due to the following factors:

· $1,725,997 decrease in costs of product sales principally due to the continued efficiencies in the procurement and construction of PPA systems in the current year;

· $937,725 decrease in costs of engineering and development due to timing of costs incurred under the Lotte R&D Agreement in the prior year with no similar projects in the current year;

· $770,338 decrease in selling, general and administrative expenses principally due to a $321,838 decrease in legal expenses and $811,133 decrease in stock compensation expense, offset by $244,370 increase in consulting services; and

· $447,000 impairment charge on the building and land in the nine months ended March 31, 2018 related to the sale of our corporate headquarters.

Gross margin improved to 22.4% percent during the nine months ended March 31, 2018, as compared to a negative 2.8% in the nine months ended March 31, 2017, principally due to the continued efficiencies in the procurement, construction and sale process for PPA systems.

Other Income (Expense)

Total other income (expense) for the nine months ended March 31, 2018 increased by $91,299 to a loss of $258,466, as compared to a loss of $167,167 for the nine months ended March 31, 2017. The increase in other income (expense) was attributable to an equity in loss of investee company related to our China Joint Venture of $385,443 in the nine months ended March 31, 2018, as compared to an equity in loss of investee company of $171,816 in the nine months ended March 31, 2017; offset by an increase in other income of $129,602 related to the $61,129 gain recognized from the sale of the Company’s headquarters on January 31, 2018 and additional gains recognized on the sale of equipment in the nine months ended March 31, 2018, as compared to the nine months ended March 31, 2017.

Net Loss

Our net loss attributable to EnSync, Inc. for the nine months ended March 31, 2018 decreased by $4,012,619, or 30%, to $9,360,921 from the $13,373,540 net loss for the nine months ended March 31, 2017. This decrease in net loss was principally due to the improved PPA system margins and the decrease in costs of engineering and development related to the Lotte R&D Agreement from the nine months ended March 31, 2017.

LIQUIDITY AND CAPITAL RESOURCES

Since our inception, our research, advanced engineering and development, and operations have been primarily financed through debt and equity financings, and engineering, ~~government~~ government and other research and development contracts. Total capital stock and paid in capital as of ~~March~~September 3130, 2018 was $~~143~~147,~~937~~299,~~455~~915, as compared with $~~143~~144,~~082~~283,~~944~~704 as of June 30, ~~2017~~2018. We had an accumulated deficit of $~~134~~140,~~000~~381,~~565~~353 as of ~~March 31~~September 30, 2018, as compared to $~~124~~137,~~639~~609,~~644~~659 as of June 30, ~~2017~~2018. At ~~March~~September 3130, 2018, we had net working capital of $63,~~795~~668,~~638~~864, as compared to $123,~~551~~322,~~092~~404 as of June 30, ~~2017~~2018. Our shareholders’ equity as of ~~March~~September 3130, 2018 and June 30, ~~2017~~2018, exclusive of noncontrolling interests, was $85,~~352~~330,~~244~~860 and $165,~~858~~086,~~722~~343, respectively.

On ~~June~~January 2231, ~~2017~~2018, ~~the~~we ~~Company~~ completed an ~~underwritten~~the ~~public offering~~ sale of ~~its~~our ~~Common~~corporate ~~Stock~~headquarters atpursuant ~~a price~~ to ~~the~~which ~~public~~we ofreceived ~~$0.35~~net ~~per~~proceeds ~~share. The Company sold a total~~ of 7$1,~~517~~725,~~000 shares of its Common Stock~~326, ~~including~~after ~~over-allotments,~~payment in ~~the~~full ~~offering for net proceeds~~ of $2our mortgage,~~192,514,~~ related ~~after~~interest ~~deducting~~and ~~the~~customary ~~underwriting discount~~closing ~~and expenses~~costs.

AtOn ~~March~~September 315, 2018, ~~our~~we ~~principal~~completed ~~sources~~a registered ofdirect ~~liquidity~~offering, ~~were~~pursuant ~~our~~to ~~cash~~a ~~and~~Registration ~~cash~~Statement ~~equivalents,~~on ~~which~~Form ~~totaled $5~~S-3,~~349,640,~~ ~~accounts receivable~~ of $111,~~512~~334,~~630~~616 ~~and~~shares ~~costs~~of ~~and~~Common ~~estimated earnings~~Stock inat ~~excess~~a ofprice ~~billings~~ of $~~248,156~~0.26 ~~On January 31, 2018, we completed the sale of our corporate headquarters pursuant to~~per ~~which~~share wefor ~~received~~ net proceeds of $12,~~725~~701,~~326~~569, after ~~payment~~deducting ~~in full of our mortgage, related interest and~~ customary ~~closing costs~~expenses.

WeAt ~~believe~~September ~~that cash and cash equivalents on hand at March 31~~30, 2018, ~~and~~our ~~other~~principal ~~potential~~ sources ~~of cash, including net cash we generate from closing projects in our backlog~~ ~~and pipeline and potential financing options, will be sufficient to fund our current operations through the fourth quarter~~ of ~~fiscal 2019.~~liquidity ~~While~~were ~~we believe~~ our ~~pipeline of projects is deep, there can be no assurances that projects will close in a timely manner to meet our~~ cash ~~requirements. We are also working to improve operations~~ and ~~enhance~~ cash ~~balances by continuing to drive cost improvements and reducing our spend on research and development. Also~~equivalents, wewhich ~~are~~totaled ~~currently exploring potential financing options that may be available to us~~$2, ~~including strategic partnership transactions~~981, ~~PPA project financing facilities~~785, ~~and~~accounts ifreceivable ~~necessary, additional sales~~ of ~~Common Stock or other debt or equity securities. However~~$17,504 weand ~~have~~costs ~~no commitments to obtain any additional funds,~~ and ~~there~~estimated ~~can~~earnings ~~be no assurance such funds will be available on acceptable terms or at all. If the Company is unable to increase revenues and achieve profitability~~ in aexcess ~~timely fashion, the Company’s financial condition and results~~ of ~~operations~~billings ~~may be materially adversely affected and the Company may not be able to continue operations, execute our growth plan, take advantage~~ of ~~future opportunities or respond to customers and competition~~$863,841.

We believe that cash and cash equivalents on hand at September 30, 2018, and other potential sources of cash, including net cash we generate from closing projects in our backlog and pipeline, and potential financing options, will be sufficient to fund our current operations through the second quarter of fiscal 2020. While we believe our pipeline of projects is deep, there can be no assurances that projects will close in a timely manner to meet our cash requirements. We are also working to improve operations and enhance cash balances by continuing to drive cost improvements and reducing our spend on research and development. Also, we are currently exploring potential financing options that may be available to us, including strategic partnership transactions, PPA project financing facilities, working capital lines of credit, and additional sales of Common Stock or other debt or equity securities. However, we have no commitments to obtain any additional funds, and there can be no assurance such funds will be available on acceptable terms or at all. If the Company is unable to increase revenues and achieve profitability in a timely fashion or obtain additional required funding, the Company’s financial condition and results of operations may be materially adversely affected and the Company may not be able to continue operations, execute our growth plan, take advantage of future opportunities or respond to customers and competition.

Cash Flows

Cash decreased $62,~~433,322~~747 in the ~~nine~~three months ended ~~March~~September 3130, 2018, ending the period at $52,~~349~~981,~~640~~785. Cash decreased $42,~~789~~678,~~418~~983 in the ~~nine~~three months ended ~~March~~September 3130, 2017, ~~ending~~ ending the period at $129,~~399~~103,~~671~~979. The ~~increase~~decrease in the usage of cash in the ~~nine~~three months ended ~~March~~September 3130, 2018, as compared to the ~~prior~~ ~~year~~three months ended September 30, 2017, is due to the following:

Operating Activities

Our operating activities used cash of $82,~~066~~640,~~662~~010 for the ~~nine~~three months ended ~~March~~September 3130, 2018, as compared to cash used of $42,~~578~~792,~~824~~050 in the ~~nine~~three months ended ~~March~~September 3130, 2017. The ~~increase~~ decrease in the cash used in the ~~nine~~three months ended ~~March~~September 3130, 2018 is attributable to the ~~conversion~~reduction ~~of deferred PPA project costs into cash related to the PPA systems sold to AEP Onsite Partners~~ in ~~the~~net ~~prior year and the timing of customer collections related to PPA~~loss ~~systems~~ in the ~~nine~~three months ~~ending~~ended ~~March~~September 3130, 2018; ~~offset~~from by the ~~timing~~increase ofin ~~engineering,~~PPA ~~procurement~~revenues and ~~construction~~cost ~~vendor~~saving ~~payments in~~initiatives, ~~the~~offset ~~nine~~by ~~months~~working capital ~~ended March 31, 2018~~changes.

Investing Activities

Our investing activities ~~provided~~used cash of $264,~~252,400~~ 306 for the ~~nine~~three months ended ~~March~~September 3130, 2018, as compared to cash ~~used~~provided of $3176,~~039~~000 in the ~~nine~~three months ended ~~March~~September 3130, 2017. The increase in the cash ~~provided~~used is attributable to ~~net~~capital ~~proceeds~~expenditures ~~received~~ of $275,~~187~~430 in the three months ended September 30,~~317~~ 2018, onoffset by proceeds of $70,000 from the sale of ~~our~~property, ~~corporate~~plant ~~headquarters on~~and ~~January~~equipment 31in the three months ended September 30, ~~2018~~2017.

Financing Activities

Our financing activities ~~used~~provided cash of $~~619~~2,~~017~~ 701,569 for the ~~nine~~three months ended ~~March~~September 3130, 2018, as compared to cash ~~used~~provided of $~~180~~37,~~133~~067 in the ~~nine~~three months ended ~~March 31~~September 30, 2017. The increase in the cash ~~used~~provided is attributable to the ~~payment~~proceeds infrom ~~full~~the ofregistered ~~our~~direct ~~outstanding~~offering ~~mortgage~~of ~~balance~~11,334,616 shares of ~~$434,184~~Common inStock ~~connection~~at ~~with~~a ~~the sale~~price of ~~the~~$0.26 ~~Company's~~per ~~corporate~~share ~~headquarters~~for onnet ~~January~~proceeds 31of $2,701,569, ~~2018~~after deducting customary expenses.

Off-Balance Sheet Arrangements

We had no off-balance sheet arrangements as as of ~~March~~September 3130, 2018.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

Item 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended (Exchange Act), is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. Our disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosures. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives, and management necessarily is required to use its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

An evaluation was carried out under the ~~supervision~~ supervision and with the participation of the Company’s management, including the principal executive officer (“PEO”) ~~and~~ and principal financial officer (“PFO”), of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report as defined in Exchange Act Rule 13a-15(e) and Rule 15d-15(e). Based on that evaluation, the PEO and PFO have concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures are effective in ensuring that information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized and reported in a timely manner, and (2) accumulated and communicated to our management, including ~~the~~our PEO and PFO, as appropriate, to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)). Under the supervision and with the participation of our management, including our PEO and PFO, we conducted an evaluation of the effectiveness of our internal controls over financial reporting based on the framework in Internal Controls – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on our evaluation under the framework in Internal Control – Integrated Framework, our management concluded that our internal controls over financial reporting were effective as of ~~March~~September 3130, 2018. The Company’s internal control over financial reporting is ~~designed~~ designed to provide reasonable assurances regarding the reliability of financial reporting and the preparation of the financial ~~statements~~ statements of the Company to conform with ~~U.S.~~accounting ~~GAAP~~principles generally accepted in the United States of America. Because of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements ofor fraud. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or because the degree of compliance with the policies or procedures may deteriorate.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the three months ended ~~March~~September 3130, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

3528

PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

~~Except~~We ~~as described below we~~ are not currently a party to any pending legal proceeding that we believe will have a material adverse effect on our business, financial condition or results of operations. We may, however, be subject to various claims and legal ~~proceedings~~actions arising from the ordinary course of business from time to time.

On May 8, 2018, we filed the SPI Dispute. Our complaint in the SPI Dispute asserts, among other things, that the Company should be released from its obligations under the Governance Agreement due to the Doctrine of Frustration of Purpose. As detailed in the complaint, the basis for this claim is that the Company’s principle purpose for entering into the Governance Agreement was as a condition and inducement to SPI to enter into the Supply Agreement, and that due to SPI’s failure to perform its obligations under the Supply Agreement, that purpose was frustrated.

While no assurance can be given regarding the outcome of this matter, based on information currently available, the Company believes that the resolution of this matter will not have a material adverse effect on the financial position or results of future operations of the Company.

Item 1A. RISK FACTORS

We operate in a rapidly changing environment that involves a number of risks that could materially affect our business, financial condition or future results, some of which are beyond our control. In addition to the other information set ~~for~~forth ~~the~~ in this report, the risks and uncertainties that we believe are most important for you to consider are discussed in Part I, “Item 1A, Risk Factors,” in our most recent Annual Report on Form 10-K for the year ended June 30, 2018 and in any subsequent Quarterly Reports on Form 10-Q. ~~Other~~There ~~than the factors set forth below, there~~ have been no no material changes to the risk factors described in those reports.

The outcome of any litigation is inherently uncertain and there can be no assurance that we will prevail in the SPI Dispute. The SPI Dispute, and any counterclaims that may result from it, could result in the diversion of management’s time and attention away from business operations. While we are not seeking monetary damages from SPI at this time, SPI may assert a counterclaim against us seeking monetary damages. Our legal expenses incurred in litigating the complaint and defending against any potential counterclaims, and any other similar or related matter, could be significant, and a ruling against us, or any settlement, could have a material adverse effect on us and our business, liquidity, financial condition and results of operation. Regardless of whether the SPI Dispute or any counterclaims are resolved in our favor or against us, such claims may be expensive and time consuming to litigate and resolve.

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

Not applicable.

Item 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

Item 4. MINE SAFETY DISCLOSURES

Not applicable.

Item 5. OTHER INFORMATION

Not applicable.

Item 6. EXHIBITS

Exhibit No.	Description	Incorporated by Reference to
3.1	Articles of Incorporation of EnSync, Inc., as amended	Incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K filed on September 28, 2015
3.2	Articles of Amendment to Articles of Incorporation of EnSync, Inc.	Incorporated by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q filed on February 16, 2016
3.3	Certificate of Designation of Preferences, Rights and Limitations of Series B Convertible Stock	Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on September 27, 2013
3.4	Certificate of Designation of Preferences, Rights and Limitations of Series C Convertible Preferred Stock	Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on July 14, 2015
3.5	Amended and Restated By-laws of EnSync, Inc. (as of November 4, 2009)	Incorporated by reference to Exhibit 3.4 to the Company’s Annual Report on Form 10-K filed on September 28, 2015
4.1	Form of Stock Certificate	Incorporated by reference to Exhibit 4.1 to the Company’s Annual Report on Form 10-K filed on September 28, 2015
4.2	Form of Underwriter Warrant	Incorporated by reference to the Company’s Registration Statement on Form S-1 filed on April 10, 2012
4.3	Form of Underwriter’s Warrant	Incorporated by reference to Exhibit 10 to the Company’s Current Report on Form 8-K filed on June 23, 2017
10.1	Offer to Purchase, dated October 12, 2017, between EnSync, Inc. and CSJM LLC	Incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on February 6, 2018
10.2*	Employment Agreement, dated as of February 12, 2018, between EnSync, Inc. and William J. Dallapiazza
31.1	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101	Interactive Data Files

4.1	Form of Stock Certificate	Incorporated by reference to Exhibit 4.1 to the Company’s Annual Report on Form 10-K filed on September 28, 2015

4.2	Form of Underwriter’s Warrant	Incorporated by reference to Exhibit 10 to the Company’s Current Report on Form 8-K filed on June 23, 2017

10.1	Form of Stock Purchase Agreement	Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 6, 2018

10.2	Engagement Letter between EnSync, Inc. and Network 1 Financial Securities, Inc.	Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on September 6, 2018

10.3*	Director Compensation Policy

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

31.2	Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

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

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

101	Interactive Data Files

* Indicates a management contract or any compensatory plan, contract or arrangement.

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SIGNATURES

Pursuant to the requirements of the Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned on ~~May~~November 1513, 2018, thereunto duly authorized.

	ENSYNC, INC.

	By:	/s/ Bradley L. Hansen
	Name:	Bradley L. Hansen
	Title:	Chief Executive Officer
		and President and Director
		(Principal Executive Officer)

	By:	/s/ William J. Dallapiazza
	Name:	William J. Dallapiazza
	Title:	Chief Financial Officer
		(Principal Financial and Accounting Officer)

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