UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549



FORM 10-QSB

(Mark One)



[X]

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended June 30, 2007



[   ]

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



For the transition period from ____________ to ____________



|                                                                                   |  |                                             
|---------------------------------------------------------------------------------- |  | --------------------------------------------
|Commission File Number 333-127597                                                 
|                                                                                  
|Z YACHTS, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)  
|                                                                                  
|Nevada
(State or Other Jurisdiction of Incorporation or Organization)              |  | 20-2725030
(IRS Employer
Identification No.)
|                                                                                   |  |                                             
|638 Main St., Lake Geneva, WI 53147
(Address of Principal Executive Offices)      
|                                                                                  
|(877) 885-1650
(Issuers Telephone Number, Including Area Code)                   
|(Former Name, Former Address and Former Fiscal Year,
if Changes Since Last Report)



Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X ]  No [  ]



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):  Yes [   ] No [X]



As of June 30, 2007, there were outstanding 19,097,027 shares of the registrants common stock, $.001 par value per share.



Transitional Small Business Disclosure Format:  Yes [   ] No [X]







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PART I

FINANCIAL INFORMATION



Item 1.  Financial Statements.





Z YACHTS, INC.

CONDENSED BALANCE SHEETS

(unaudited)



|                                            |                                                  |  |             |           |                  |              |                  |                 
|------------------------------------------- | ------------------------------------------------ |  | ----------- | --------- | ---------------- | ------------ | ---------------- | ----------------
|                                            |                                                  |  |             |           |                  | June 30,     |                  |                 
|                                            |                                                  |  |             |           |                  | 2007         |                  | September 30,   
|                                            |                                                  |  |             |           |                  | (unaudited)  |                  | 2006            
|Assets                                      |                                                  |  |             |           |                  |              |                  |                 
|                                            | Cash                                             |  |             |           |                  | $      1,733 |                  | $         22,447
|                                            | Other current assets                             |  |             |           | 596              |              | -               
|Total current assets                        |                                                  |  |             |           | 2,329            |              | 22,447          
|                                            |                                                  |  |             |           |                  |              |                  |                 
|                                            | Fixed assets, net of accumulated depreciation    |  |             |          
|                                            | of $9,034 and $6,197, respectively               |  | 7,696       |           | 11,712          
|Total assets                                |                                                  |  |             |           | $    10,025      |              | $         34,159
|                                            |                                                  |  |             |           |                  |              |                  |                 
|                                            |                                                  |  |             |           |                  |              |                  |                 
|Liabilities and Stockholder's Deficit       |                                                  |  |             |           |                 
|                                            | Escrow liability                                 |  |             |           | $      4,321     |              | $         20,200
|                                            | Accounts payable                                 |  |             |           | 32,677           |              | 53,757          
|                                            | Accounts payable - related parties               |  | 55,659      |           | 48,365          
|                                            | Accrued Expenses                                 |  |             |           | 59,485           |              | 52,753          
|                                            | Loans from stockholders                          |  |             | 448,188   |                  | 416,984     
|                                            | Bank lines of credit                             |  |             |           | 248,615          |              | 247,516         
|Total current liabilities                   |                                                  |  |             | 848,945   |                  | 839,575     
|                                            |                                                  |  |             |           |                  |              |                  |                 
|Stockholders' deficit                       |                                                  |  |             |           |                  |             
|                                            | Common stock, $.001 par value, 50,000,000 shares |  |             |          
|                                            | authorized, 19,097,027 and 19,089,651 shares     |  |             |          
|                                            | issued and outstanding                           |  |             | 19,097    |                  | 19,090      
|                                            | Additional paid in capital                       |  |             | 802,168   |                  | 785,758     
|                                            | Accumulated deficit                              |  |             |           | (1,660,185)      |              | (1,610,264)     
|Total stockholders' deficit                 |                                                  |  |             | (838,920) |                  | (805,416)   
|                                            |                                                  |  |             |           |                  |              |                  |                 
|Total liabilities and stockholders' deficit |                                                  |  | $    10,025 |           | $         34,159
|                                            |                                                  |  |             |           |                  |              |                  |                 
|                                            |                                                  |  |             |           |                  |              |                  |                 















1



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Z YACHTS, INC.

CONDENSED STATEMENTS OF OPERATIONS

Three and Nine months Ended June 30, 2007 and 2006

(unaudited)



|                                    |                               |          |                |              |               |             |                |           |              |     
|----------------------------------- | ----------------------------- | -------- | -------------- | ------------ | ------------- | ----------- | -------------- | --------- | ------------ | ----
|                                    |                               |          |                | Three Months |               | Nine Months
|                                    |                               |          |                | Ended        |               | Ended      
|                                    |                               |          |                | June 30,     |               | June 30,   
|                                    |                               |          |                |              |               |             |                |           |              |     
|                                    |                               |          |                | 2007         |               | 2006        |                | 2007      |              | 2006
|                                    |                               |          |                |              |               |             |                |           |              |     
|Brokerage income                    |                               |          | $     96,325   |              | $   213,524   |             | $   219,976    |           | $   427,599 
|                                    |                               |          |                |              |               |             |                |           |              |     
|Operating expenses                  |                               |          |                |              |               |             |                |          
|                                    | General and administrative    | 75,187   |                | 374,129      |               | 238,522     |                | 1,122,838
|                                    | Depreciation expense          | 1,178    |                | -            |               | 4,016       |                | -        
|Total operating expenses            |                               | 76,365   |                | 374,129      |               | 242,538     |                | 1,122,838
|                                    |                               |          |                |              |               |             |                |           |              |     
|Net operating gain/(loss)           |                               | 19,960   |                | (160,605)    |               | (22,562)    |                | (695,239)
|                                    |                               |          |                |              |               |             |                |           |              |     
|Other income/(expense)              |                               |          |                |              |               |             |                |          
|                                    | Interest expense              |          | (12,249)       |              | (7,513)       |             | (37,358)       |           | (13,259)    
|                                    | Other income                  |          | -              |              | -             |             | -              |           | 380         
|                                    | Gain/(loss) on sale of assets | -        |                | (980)        |               | 10,000      |                | (980)    
|Total other income/(expense)        |                               | (12,249) |                | (8,493)      |               | (27,358)    |                | (13,859) 
|                                    |                               |          |                |              |               |             |                |           |              |     
|Net income/(loss)                   |                               |          | $      7,711   |              | $  (169,098)  |             | $    (49,920)  |           | $  (709,098)
|                                    |                               |          |                |              |               |             |                |           |              |     
|Basic and diluted loss per share    | $           -                 |          | $       (0.01) |              | $           - |             | $       (0.04)
|                                    |                               |          |                |              |               |             |                |           |              |     
|Weighted average shares outstanding | 19,097,027                    |          | 19,073,029     |              | 19,097,027    |             | 19,067,509    

































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Z YACHTS, INC.

CONDENSED STATEMENTS OF CASH FLOWS

Nine months Ended June 30, 2007 and 2006

(unaudited)



|                                     |                                                     |                               |                                    |                  |               |                  |              
|------------------------------------ | --------------------------------------------------- | ----------------------------- | ---------------------------------- | ---------------- | ------------- | ---------------- | -------------
|                                     |                                                     |                               |                                    |                  | 2007          |                  | 2006         
|                                     |                                                     |                               |                                    |                  |               |                  |              
|Cash Flows From Operating Activities |                                                     |                               |                                    |                 
|                                     | Net loss                                            |                               |                                    |                  | $    (49,920) |                  | $   (709,098)
|                                     | Adjustments to reconcile net loss to net            |                               |                                    |                 
|                                     | cash used in operating activities:                  |                               |                                    |                 
|                                     |                                                     | Depreciation expense          | 4,016                              |                  | 1,627        
|                                     |                                                     | Imputed interest              |                                    | 5,352            |               | -               
|                                     |                                                     | (Gain)/loss on sale of assets | (10,000)                           |                  | 980          
|                                     |                                                     | Changes in:                   |                                    |                  |               |                 
|                                     |                                                     |                               | Other current assets               | (596)            |               | (15,184)        
|                                     |                                                     |                               | Accounts receivable                | -                |               | (6,728)         
|                                     |                                                     |                               | Escrow liability                   | (15,879)         |               | 53,934          
|                                     |                                                     |                               | Accounts payable                   | (21,080)         |               | 37,760          
|                                     |                                                     |                               | Accounts payable - related parties | 7,294            |               | 40,778          
|                                     |                                                     |                               | Other current liabilities          | 6,734            |               | 18,619          
|                                     |                                                     |                               |                                    |                  |               |                  |              
|                                     | Net cash used in operating activities               | (74,079)                      |                                    | (577,312)       
|                                     |                                                     |                               |                                    |                  |               |                  |              
|Cash Flows From Investing Activities |                                                     |                               |                                    |                 
|                                     | Proceeds from sale of assets                        |                               | 10,000                             |                  | 1,000        
|                                     | Purchase of fixed assets                            |                               | -                                  |                  | (12,852)     
|                                     |                                                     |                               |                                    |                  |               |                  |              
|                                     | Net cash provided by/(used in) investing activities | 10,000                        |                                    | (11,852)        
|                                     |                                                     |                               |                                    |                  |               |                  |              
|Cash Flows From Financing Activities |                                                     |                               |                                    |                 
|                                     | Proceeds from shareholders' loans                   | 46,505                        |                                    | 431,754         
|                                     | Payments on shareholders' loans                     | (15,301)                      |                                    | (58,303)        
|                                     | Net change in lines of credit                       |                               | 1,099                              |                  | 173,247      
|                                     | Proceeds from sale of stock                         |                               | 11,062                             |                  | 37,502       
|                                     |                                                     |                               |                                    |                  |               |                  |              
|                                     | Net cash provided by financing activities           | 43,365                        |                                    | 584,200         
|                                     |                                                     |                               |                                    |                  |               |                  |              
|                                     | Net change in cash                                  |                               |                                    | (20,714)         |               | (4,964)         
|                                     |                                                     |                               |                                    |                  |               |                  |              
|Cash at beginning of period          |                                                     |                               | 22,447                             |                  | 18,876       
|                                     |                                                     |                               |                                    |                  |               |                  |              
|Cash at end of period                |                                                     |                               | $       1,733                      |                  | $     13,912 
|                                     |                                                     |                               |                                    |                  |               |                  |              
|Cash paid for:                       |                                                     |                               |                                    |                  |               |                 
|                                     | Income taxes                                        |                               |                                    | $              - |               | $              -
|                                     | Interest                                            |                               |                                    |                  | 25,582        |                  | 10,013       







3



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Z YACHTS, INC.

NOTES TO FINANCIAL STATEMENTS

(unaudited)



Note 1  Basis of Presentation



The accompanying unaudited interim financial statements of Z Yachts, Inc., and the information for Form 10-Q, have been prepared in accordance with the rules of the Securities and Exchange Commission, and do not include all of the information and note disclosure required by generally accepted accounting principles, and should be read in conjunction with the audited financial statements and notes thereto contained in Z Yachts latest Annual Report filed with the SEC on Form 10-KSB.  In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein.  The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.  Notes to the financial statements that would substantially duplicate the disclosures contained in the audited financial statements for the most recent fiscal year as reported in Form 10-KSB, have been omitted.



Note 2  Common Stock



During the nine months ending June 30, 2007, Z Yachts sold 7,376 shares of its common stock to several investors at $1.50 per share for total cash proceeds of $11,062.



Item 2.  Managements Discussion and Analysis or Plan of Operations.



This Quarterly Report on Form 10-QSB may include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), which can be identified by the use of forward-looking terminology such as, may, believe, expect,  intend, anticipate, estimate or continue or the negative thereof or other variations thereon or comparable terminology.  Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to have been correct.  Important factors with respect to any such forward-looking statements include, but are not limited to, weather and climatic conditions, availability and desirability of previously owned recreational vessels, changes in the taxation of vessels and vessel transactions, fuel costs and the taxation of fuel for recreational use, as well as the availability of necessary personnel and general economic conditions within the United States.  The following discussion of the results of operations and financial condition should be read in conjunction with the Financial Statements and related Notes thereto included herein and should be read in conjunction with the audited financial statements and notes thereto contained in Z Yachts latest Annual Report filed with the SEC on Form 10-KSB.



Overview



Z Yachts, Inc. was initially formed as a limited liability company in the State of Florida on December 3, 2002.  Z Yachts, LLC was converted to a corporation, Z Yachts, Inc. on April 8, 2005 in the State



4



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of Nevada.  Z Yachts is a full-service brokerage company that serves both recreational boaters and the marine industry. Our primary business is the brokerage sale of new and previously-owned recreational vessels for which we receive a commission of between 8% and 10% of the selling price. Z Yachts offers an extremely large selection of pre-owned yachts, cruisers, houseboats, sport-fishers, high performance and ski boats. Since our formation our network has grown to include 18 contract marine brokers with locations in 12 states and aggregate brokerage listings of more than $25 million.



We also provide assistance in arranging financing and insurance, sell extended service agreements and provide other services through our relationships with independent lenders, insurers and service providers.



The resale of pre-owned vessels is highly seasonal and significantly affected by general economic factors, tax laws, fuel prices, and weather.  The resale industry is highly fragmented and characterized by numerous local participants in each local market with little national market presence.  We believe we are the largest brokerage-only merchandiser of recreational vessels.



We intend to continue the acquisition or expansion of our operations into other recreational markets as opportunities become available.  We also intend to diversify our sources of revenue by offering additional services relating to purchasing and owning pre-owned vessels.



As of June 30, 2007 we had 223 vessels with an aggregate offering price of $25,771,500 listed through our brokerages.  Both sales and listings were adversely affected during the nine months ended June 30, 2007 by higher fuel prices and the housing market troubles this year.  Tightening of available credit has had negative impacts on our customer's ability to purchase new boats with traditional financing.



Our brokerage income for the nine months ended June 30, 2007 was $219,976.  This is a decrease of $207,623, or 49%, over income of $427,599 for the nine months ended June 30, 2006 and resulted from a decrease in the number of vessels sold, to 45 in the nine months ended June 30, 2007 from 89 for the nine months ended June 30, 2006, and a decrease in total vessel sales to $2,985,500 for the nine months ended June 30, 2007 from $5,045,334 in the nine months ended June 30, 2006.



General and administrative expenses for the nine months ended June 30, 2007 were $238,522.  This substantial decrease of $884,316, or 79%, over general and administrative expenses of $1,122,838 for the nine months ended June 30, 2006 is primarily the result of the winding up of expenses associated with the public offering of our common stock, a decrease in administrative costs associated with the reduction of our broker network costs, and decreased marketing costs from the decline of new geographic regions added to our broker network.



Depreciation expenses for the nine months ended June 30, 2007 were $4,016.  This is an increase of $4,016 over depreciation expenses of $0 for the nine months ended June 30, 2006. Interest expense increased for the nine months ended June 30, 2007 to $37,358 compared to $13,259 for the same period in 2006 as a result of an increase in outstanding debt.





5



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As a result of the decrease in general and administrative expenses, we reported a net loss of $49,920 for the nine months ended June 30, 2007 compared to a net loss of $709,098 for the nine months ended June 30, 2006.



Commitments and Contingencies



Z Yachts terminated all of its office leases in 2006 and no rental commitments existed as of the year-end. Z Yachts principal office now is in the office of Z Yachts president pursuant to a verbal agreement on a rent-free month-to-month basis.



Rent expense was $4,721 for the nine months ended June 30, 2007 and $28,679 for the nine months ended June 30, 2006.



Liquidity and Capital Resources



As of June 30, 2007, we had total current assets of $2,329 consisting of cash and prepaid expenses.



We had total current liabilities of $848,945, consisting of escrow liability of $4,321 relating to deposits received from buyers in connection with pending sales, accounts payable of $32,677, accounts payable to related parties of $55,659, accrued expenses of $59,485, loan from shareholders of $448,188 and a bank line of credit of $248,615. Accrued expenses consisted of sales tax payable and commissions to brokers.



We had negative working capital of $838,920 as of June 30, 2007.



Cash flows from operations were not sufficient to fund our requirements during the nine months ended June 30, 2007.  Our current cash requirements are approximately $32,000 per month.  Cash from operations contributes approximately $35,000 per month.



Net cash provided by financing activities was $43,365 for nine months ended June 30, 2007, consisting of proceeds from shareholders loans of $21,301, repayments of shareholders loans of $6,000, and bank line of credit of $1,099.



Based upon our substantial accumulated losses since inception of $1,660,185, including a loss of $22,562 for the nine months ended June 30, 2007, working capital deficiency of $798,703 and stockholders' deficit of $838,920 at June 30, 2007, our current rate of cash consumption, the uncertainty of liquidity-related initiatives described in detail below, and the reasonable possibility of on-going negative impacts on our operations from the overall economic environment for a further unknown period of time, there is substantial doubt as to our ability to continue as a going concern.



To conserve cash we no longer pay salaries and benefits for management and have frozen all increases in marketing and technology expenditures. For the next 12 months of operations we believe that cash flow from operations will be sufficient to fund our present operating requirements.  In the event that funds from operations or the proceeds from this offering are insufficient, we will seek additional and utilize available lines of credit or additional loans from our stockholders to fund any deficiency, delay or curtail planned expansion or further curtail marketing or technology budgets.  We presently have available $1,315 in committed unused credit facilities.



6



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At this time, we have not secured or identified any additional financing. We do not have any firm commitments or other identified sources of additional capital from third parties or from our officers or directors or from shareholders. There can be no assurance that additional capital will be available to us, or that, if available, it will be on terms satisfactory to us. Any additional financing may involve dilution to our shareholders. In the alternative, additional funds may be provided from cash flow in excess of that needed to finance our day-to-day operations, although we may never generate this excess cash flow. If we do not raise additional capital or generate additional funds, implementation of our plans for expansion will be delayed. If necessary we may withdraw from certain markets, terminate contract brokers, terminate certain services, or close locations to conserve cash for continued operation.



7



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Item 3.  Controls and Procedures.



(a) Evaluation of disclosure controls and procedures.



Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Our chief executive officer and chief financial officer, after evaluating the effectiveness of the Company's disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 (Exchange Act) Rules 13a-15(e) and 15d-15(e) as of June 30,  2007, have concluded that our disclosure controls and procedures are not effective in providing reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms.Our Chief Financial Officer and directors will continue to work with our auditors and other outside advisors to ensure that our controls and procedures are adequate and effective.



(b) Changes in internal control over financial reporting.



The management of the Company, with the participation of the principal executive officer and principal financial officer, has concluded there were no significant changes in the Company's internal controls over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



8



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PART II

OTHER INFORMATION



Item 1. Legal Proceedings



We are not a party to any proceedings or threatened proceedings as of the date of this filing.



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



None.



Item 3. Defaults Upon Senior Securities



None.



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



We have not submitted a matter to a vote of our shareholders during the third quarter of the 2007 fiscal year.



Item 5. Other Information



None.



Item 6.  Exhibits.



|        |  |                                                                                                   
|------- |  | --------------------------------------------------------------------------------------------------
|Exhibit |  | Description                                                                                       
|        |  |                                                                                                   
|31.1*   |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|        |  |                                                                                                   
|31.2*   |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|        |  |                                                                                                   
|32.1*   |  | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|        |  |                                                                                                   
|32.1*   |  | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



* Filed herewith



9



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SIGNATURE



In accordance with the requirements of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



|                      |  |                                                                                                                            
|--------------------- |  | ---------------------------------------------------------------------------------------------------------------------------
|                      |  | (Registrant)                                                                                                               
|Date:
August 20, 2007 |  | /s/ James G. Weller
By:
(Signature)
Name:
James G. Weller
Title:
Chief Executive Officer                                   
|                      |  |                                                                                                                            
|                      |  | /s/ Regina F. Weller
By:
(Signature)
Name:
Regina F. Weller
Title:
Principal Financial Officer
Principal Accounting Officer





10