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 March 31, 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 333-127597Z 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)5755 North Point Pkwy., Suite 53
Alpharetta, GA 30022
(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 March 31, 2007, there were outstanding 19,097,027 shares of the registrants common stock, $.001 par value per share.  Transitional Small Business Disclosure Format:  Yes [   ] No [X]       PART I FINANCIAL INFORMATION  Item 1.  Financial Statements.  Z YACHTS, INC. CONDENSED BALANCE SHEETS (unaudited)   March 31,2007September 30,(unaudited)2006AssetsCash$    32,657$             22,447Other current assets396-Total current assets33,05322,447Fixed assets, net of accumulated depreciationof $7,855 and $6,197, respectively8,87511,712Total Assets$    41,928$             34,159Liabilities and Stockholder's DeficitEscrow liability$    29,895$             20,200Accounts payable38,64953,757Accounts payable - related parties53,81048,365Accrued Expenses63,72052,753Loans from stockholders454,188416,984Bank lines of credit248,296247,516Total current liabilities888,558839,575Stockholders' deficitCommon stock, $.001 par value, 50,000,000 sharesauthorized, 19,097,027 and 19,089,651 sharesissued and outstanding19,09719,090Additional paid in capital802,168785,758Accumulated deficit(1,667,895)(1,610,264)Total stockholders' deficit(846,630)(805,416)Total liabilities and stockholders' deficit$    41,928$             34,159            1     Z YACHTS, INC. CONDENSED STATEMENTS OF OPERATIONS Three and Six Months Ended March 31, 2007 and 2006 (unaudited)  Three MonthsSix MonthsEndedEndedMarch 31,March 31,2007200620072006Brokerage income$     77,357$   138,346$   123,651$   214,075Operating expensesGeneral and administrative94,306350,633163,335748,709Depreciation expense1,658-2,838-Total operating expenses95,964350,633166,173748,709Net operating loss(18,607)(212,287)(42,522)(534,634)Other income/(expense)Interest expense(9,912)(4,135)(25,109)(5,746)Other income-380-380Gain on sale of asset held for investment10,000-10,000-Total other income/(expense)88(3,755)(15,109)(5,366)Net loss$    (18,519)$  (216,042)$    (57,631)$  (540,000)Basic and diluted loss per share$           -$       (0.01)$           -$       (0.03)Weighted average shares outstanding19,097,02719,065,28819,097,02719,060,921                        2     Z YACHTS, INC. CONDENSED STATEMENTS OF CASH FLOWS Six Months Ended March 31, 2007 and 2006 (unaudited)  20072006Cash Flows From Operating ActivitiesNet loss$    (57,631)$   (540,000)Adjustments to reconcile net loss to netcash used in operating activities:Depreciation expense2,8381,627Imputed interest5,352-Gain on sale of asset held for investment(10,000)-Changes in:Other current assets(396)(18,439)Accounts receivable-(6,000)Escrow liability9,695142,289Accounts payable(15,108)30,493Accounts payable - related parties5,44517,927Other current liabilities10,969(5,582)Net cash used in operating activities(48,836)(377,685)Cash Flows From Investing ActivitiesProceeds from sale of asset held for investment10,000-Purchase of fixed assets-(9,540)Net cash provided by/(used in) investing activities10,000(9,540)Cash Flows From Financing ActivitiesProceeds from shareholders' loans46,505261,160Payments on shareholders' loans(9,301)(58,304)Net change in lines of credit780177,998Proceeds from sale of stock11,06229,502Net cash provided by financing activities49,046410,356Net change in cash10,21023,131Cash at beginning of period22,44718,876Cash at end of period$     32,657$     42,007Cash paid for:Income taxes$              -$              -Interest25,1095,746       3     Z YACHTS, INC. NOTES TO CONDENSED 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 six months ending March 31, 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.  4      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 Yacht, Inc. on April 8, 2005 in the State 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 13 states and aggregate brokerage listings of more than $26 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 March 31, 2007 we had 233 vessels with an aggregate offering price of $26,596,358 listed through our brokerages.  Both sales and listings were adversely affected during the six months ended  5     March 31, 2007 by the winter season and by higher fuel prices.  We expect that higher fuel prices will continue for the foreseeable future.  Our brokerage income for the six months ended March 31, 2007 was $123,651.  This is a decrease of $90,424, or 42%, over income of $214,075 for the six months ended March 31, 2006 and resulted from a decrease in the number of vessels sold, to 24 in the six months ended March 31, 2007 from 41 for the six months ended March 31, 2006, and a decrease in total vessel sales to $1,583,550 for the six months ended March 31, 2007 from $2,511,734 in the six months ended March 31, 2006.  General and administrative expenses for the six months ended March 31, 2007 were $163,335.  This substantial decrease of $585,374, or 78%, over general and administrative expenses of $748,709 for the six months ended March 31, 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 six months ended March 31, 2007 were $2,838.  This is an increase of $2,838 over depreciation expenses of $0 for the six months ended March 31, 2006. Interest expense increased for the six months ended March 31, 2007 to $25,109 compared to $5,746 for the same period in 2006 as a result of an increase in outstanding debt.  As a result of the decrease in general and administrative expenses, we reported a net loss of $57,631 for the six months ended March 31, 2007 compared to a net loss of $540,000 for the six months ended March 31, 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 $4,346 for the six months ended March 31, 2007 and $16,319 for the six months ended March 31, 2006.  Liquidity and Capital Resources  As of December 31, 2006, we had total current assets of $33,053 consisting of cash only.  We had total current liabilities of $888,558, consisting of escrow liability of $29,895 relating to deposits received from buyers in connection with pending sales, accounts payable of $38,649, accounts payable to related parties of $53,810, accrued expenses of $63,720, loan from shareholders of $454,188 and a bank line of credit of $248,296. Accrued expenses consisted of sales tax payable and commissions to brokers.  We had negative working capital of $855,505 as of March 31, 2007. The ratio of current assets to current liabilities was 3.7% as of March 31, 2007.  6      Cash flows from operations were not sufficient to fund our requirements during the six months ended March 31, 2007.  Our current cash requirements are approximately $33,000 per month.  Cash from operations contributes approximately $22,000 per month.  To make up the short fall, we incurred a net $37,204 in additional indebtedness to our shareholders.  Net cash provided by financing activities was $49,046 for six months ended March 31, 2007, consisting of proceeds from shareholders loans of $46,505, repayments of shareholders loans of $9,301, bank line of credit of $780 and shares issued for cash of $11,062.  Based upon our substantial accumulated losses since inception of $1,655,508, including a loss of $18,519 for the six months ended March 31, 2007, working capital deficiency of $855,505 and stockholders' deficit of $846,630 at March 31, 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 $1,704 in committed unused credit facilities.  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.  Quantitative and Qualitative Disclosures about Market Risk  The Company is exposed to market risk in connection with changes in interest rates, primarily in connection with outstanding balances under its lines of credit.  Based on the Companys average outstanding balances during the six months ended March 31, 2007, a 1% change in the prime lending rate could impact the Companys financial position and results of operations by approximately $1,300 over the remainder of the fiscal year.  7     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 December  31, 2006, 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. Specifically, we identified deficiencies in our internal controls and disclosure controls related to the accounting for stock issuances, accounting for related party loans and the financial statements preparation.  We are in the process of improving our internal control over financial reporting in an effort to remediate these deficiencies through improved supervision and training of our accounting staff. These deficiencies have been disclosed to our Board of Directors. We believe that this effort is sufficient to fully remedy these deficiencies and we are continuing our efforts to improve and strengthen our control processes and procedures. 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     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 second quarter of the 2007 fiscal year.  Item 5. Other Information  None.  Item 6.  Exhibits.  ExhibitDescription31.1*Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2*Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1*Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.1*Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002  * Filed herewith  9     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:
May 21, 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