**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**







**FORM
      10-QSB**





**xQUARTERLY
      REPORT UNDER
      SECTION 13 OR 15(d) OF**


**THE
      SECURITIES EXCHANGE ACT OF 1934**





FOR
      THE
      QUARTERLY PERIOD ENDED DECEMBER 31, 2006





**oTRANSITION
      REPORT UNDER
      SECTION 13 OR 15(d) OF**


**THE
      SECURITIES EXCHANGE ACT OF 1934**





FOR
      THE
      TRANSITION PERIOD FROM _____ TO_____





Commission
      File Number: 000-28865




**YARRAMAN
      WINERY, INC.**


(Exact
      name of small business issuer in its charter)







**Nevada**
              (State
                or Other Jurisdiction of
              Incorporation
                or Organization)
            **88-0373061**
              (I.R.S.
                Employer
              Identification
                No.)**700
                Yarraman Road**
              **Wybong**
              **Upper
                Hunter Valley**
              **New
                South Wales, Australia 2333**
              (Address
                of Principal Executive Offices)




**(61)
      2 6547-8118**


(Issuer’s
      Telephone Number)




_________________________________________________


(Former
      Name and Address and Former Fiscal Year, if Changed


Since
      Last Report)




Check
      whether the issuer (1) has filed all reports required to be filed by Section
      13
      or 15(d) of the Securities 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 xNO o




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). YES oNO
x




There
      were 25,000,000 shares of the Issuer’s common stock outstanding on January 31,
      2007.




Transitional
      Small Business Disclosure Format (check one): YES oNO x




**TABLE
          OF CONTENTS**


**Page**PART
                I -
            
            FINANCIAL
                INFORMATION
            
            3**ITEM
                1.**
            
            FINANCIAL
                STATEMENTS
            
            3**ITEM
                2.**
            
            MANAGEMENT’S
                DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
            
            27**ITEM
                3.**
            
            CONTROLS
                AND PROCEDURES
            
            35PART
                II -
            
            OTHER
                INFORMATION
            
            36**ITEM
                1.**
            
            LEGAL
                PROCEEDINGS
            
            36**ITEM
                2.**
            
            UNREGISTERED
                SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
            
            36**ITEM
                3.**
            
            DEFAULTS
                UPON SENIOR SECURITIES
            
            36**ITEM
                4.**
            
            SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY HOLDERS
            
            36**ITEM
                5.**
            
            OTHER
                INFORMATION
            
            36**ITEM
                6.**
            
            EXHIBITS
            
            37




2




FINANCIAL
      INFORMATION




**ITEM
              1.**
            **FINANCIAL
                STATEMENTS**




**TABLE
      OF CONTENTS**





UnauditedConsolidated Balance Sheet
            
            4UnauditedConsolidated Statements of Operations for the three monthsand
                six months ended December 31, 2006
            
            5UnauditedConsolidated Statements of Cash Flow for thesix
                months ended December 31, 2006
            
            6Notes
                toUnauditedConsolidated
                Financial Statements
            
            7-26




3




**YARRAMAN
      WINERY, INC. AND SUBSIDIARY**


**CONSOLIDATED
      BALANCE SHEET**


**DECEMBER
        31, 2006**
 **(Unaudited)**
  **ASSETS**
  **Current
                  Assets**Cash
                  and cash equivalents
              
              $
              82,387Accounts
                  receivable, net
              
              
              654,658Inventory
              
              
              5,115,993Other
                  receivables
              
              
              200,405Other
                  assets
              
              
              261,189Total
                  Current Assets
              
              
              6,314,632**Property,
                  plant and equipment, net**
              
              
              3,985,501**Intangible
                  asset**
              
              
              280,720$
              10,580,853**LIABILITIES
                  AND STOCKHOLDERS' EQUITY****Current
                  Liabilities**Accounts
                  payable and accrued expenses
              
              $
              1,420,102Accounts
                  payable -related party
              
              
              625,980Capital
                  leases, current portion
              
              
              93,395Due
                  to related party
              
              
              749,864Total
                  Current Liabilities
              
              
              2,889,341**Long
                  Term Liabilities**Capital
                  leases, net of current portion
              
              
              69,497Related
                  party loans, net
              
              
              1,555,190Long-term
                  debt
              
              
              4,447,555Total
                  Long Term Liabilities
              
              
              6,072,242**Total
                  Liabilities**
              
              
              8,961,583**Stockholder's
                  Equity**Common
                  stock, $.001 par value,25,000,000
                  shares authorized and outstanding, respectively
              
              
              25,000Additional
                  paid in capital
              
              
              5,455,252Other
                  comprehensive income
              
              
              235,833Accumulated
                  deficit
              
              
              (4,096,815
              )**Total
                  Stockholder's Equity**
              
              
              1,619,270$
              10,580,853


The
        accompanying notes are an integral part of these unaudited consolidated
        financial statements.


4




**YARRAMAN
        WINERY, INC. AND SUBSIDIARY**


**CONSOLIDATED
        STATEMENTS OF OPERATIONS**
 **(Unaudited)**
  **Three
                  Month Periods Ended**
              
              **Six
                  Month Periods Ended****December
                  31, 2006**
              
              **December
                  31, 2005**
              
              **December
                  31, 2006**
              
              **December
                  31, 2005**Sales,
                  net
              
              $
              431,798
              
              $
              309,040
              
              $
              836,543
              
              $
              1,014,755Cost
                  of sales
              
              
              300,500
              
              
              151,343
              
              
              580,562
              
              
              790,937**Gross
                  profit**
              
              
              131,298
              
              
              157,697
              
              
              255,981
              
              
              223,818Operating
                  ExpensesSelling,
                  general and administrative expenses
              
              
              685,586
              
              
              315,487
              
              
              1,239,112
              
              
              602,062Inventory
                  reserve
              
              
              197,333
              
              
              -
              
              
              197,333
              
              
              -Vineyard
                    costs
              
              
              206,186
              
              
              -
              
              
              206,186
              
              
              -Consulting
                  expense
              
              
              117,500
              
              
              -
              
              
              117,500
              
              
              -Total
                  operating expenses
              
              
              1,206,605
              
              
              315,487
              
              
              1,760,131
              
              
              602,062**Loss
                  from operations**
              
              
              (1,075,307
              )
              
              (157,790
              )
              
              (1,504,150
              )
              
              (378,244
              )Other
                  (Income) ExpenseInterest
                  income
              
              
              (287
              )
              
              (538
              )
              
              (785
              )
              
              (1,022
              )Interest
                  expense
              
              
              220,821
              
              
              1,241
              
              
              377,452
              
              
              1,295Transaction
                  gain (loss) on foreign currency
              
              
              3,513
              
              
              (8,348
              )
              
              420
              
              
              (10,882
              )Total
                  Other (Income) Expense
              
              
              224,047
              
              
              (7,645
              )
              
              377,087
              
              
              (10,609
              )**Net
                  loss**
              
              
              (1,299,354
              )
              
              (150,145
              )
              
              (1,881,237
              )
              
              (367,635
              )Other
                  comprehensive income (loss)Foreign
                  currency translation
              
              
              59,858
              
              
              -
              
              
              83,644
              
              
              -**Comprehensive
                  Loss**
              
              $
              (1,239,496
              )
              $
              (150,145
              )
              $
              (1,797,593
              )
              $
              (367,635
              )**Net
                  loss per share:**Basic
                  & diluted
              
              $
              (0.05
              )
              $
              (0.01
              )
              $
              (0.07
              )
              $
              (0.02
              )**Weighted
                  average number of shares outstanding:**Basic
                  & diluted
              
              
              25,000,000
              
              
              19,038,458
              
              
              25,000,000
              
              
              18,767,479Weighted
                  average of dilutive securities has not been calculated since the
                  effect of
                  dilutive securities is
                  anti-dilutive
  The
        accompanying notes are an integral part of these unaudited consolidated
        financial statements.


5




**YARRAMAN
        WINERY, INC. AND SUBSIDIARY**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 **FOR
        THE SIX MONTH PERIODS ENDED DECEMBER 31, 2006 AND 2005**
 **(UNAUDITED)**
  **2006**
              
              **2005****CASH
                  FLOWS FROM OPERATING ACTIVITIES**Net
                  Loss
              
              $
              (1,881,237
              )
              $
              (367,635
              )Adjustments
                  to reconcile net loss to net cashused
                  in operating activities:Depreciation
              
              
              175,355
              
              
              32,950Reserve
                  on inventory
              
              
              190,913
              
              
              -Provision
                  for doubtful debts
              
              
              46,770
              
              
              -(Increase)
                  / decrease in assets:Accounts
                  receivables
              
              
              (83,504
              )
              
              154,351Inventory
              
              
              (85,223
              )
              
              (52,341
              )Other
                  receivables
              
              
              (79,004
              )
              
              (60,581
              )Other
                  assets
              
              
              (46,888
              )
              
              (7,366
              )Increase
                  in current liabilities:Accounts
                  payable and accrued expenses
              
              
              943,324
              
              
              173,773Total
                  Adjustments
              
              
              1,061,743
              
              
              240,786**Net
                  cash used in operations**
              
              
              (819,494
              )
              
              (126,849
              )**CASH
                  FLOWS FROM INVESTING ACTIVITIES**Collection
                  on note receivable
              
              
              -
              
              
              500,000Acquisition
                  of property & equipment
              
              
              (128
              )
              
              (118,094
              )Purchase
                  of intangible assets
              
              
              (83,387
              )
              
              -**Net
                  cash provided by (used in) investing activities**
              
              
              (83,515
              )
              
              381,906**CASH
                  FLOWS FROM FINANCING ACTIVITIES**Payment
                  on capital lease
              
              
              (43,281
              )
              
              -Payment
                  on loan payable- related party
              
              
              (95,170
              )
              
              (243,379
              )Proceed
                  from loan payable- related party
              
              
              725,468
              
              
              -**Net
                  cash provided by (used in) financing activities**
              
              
              587,017
              
              
              (243,379
              )Effect
                  of exchange rate changes on cash and cash equivalents
              
              
              287,941
              
              
              113,305**Net
                  increase (decrease) in cash and cash equivalents**
              
              
              (28,051
              )
              
              124,983**Cash
                  and cash equivalents, beginning balance**
              
              
              110,438
              
              
              43,723**Cash
                  and cash equivalents, ending balance**
              
              $
              82,387
              
              $
              168,706**SUPPLEMENTAL
                  DISCLOSURES:**Cash
                  paid during the three month periods for:Income
                  tax payments
              
              $
              -
              
              $Interest
                  payments
              
              $
              189,400
              
              $
              1,295The
                  accompanying notes are an integral part of these unaudited consolidated
                  financial statements.


6




**YARRAMAN
      WINERY, INC. AND SUBSIDIARY**


**NOTES
      TO** **UNAUDITED** **CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31** **,
      2006**





NOTE
      1 - NATURE
      OF OPERATIONS





Yarraman
      Winery, Inc., formerly Dazzling Investments, Inc. (“the Company” or “we”) was
      incorporated on December 6, 1996 under the laws of the State of Nevada.





On
      December 22, 2005, we entered into a Share Exchange Agreement (the “Exchange
      Agreement”) with Yarraman Estate Pty Limited, a privately owned Australian
      company (“Yarraman Australia”), and the beneficial owners of all of Yarraman
      Australia’s shares, (the “Shareholders”) and Delta Dawn Pty Limited (“Delta
      Dawn”), as trustee of the Yarraman Road Trust (the “Trust”), the nominal holder
      of such shares, pursuant to which the Registrant acquired all of the issued
      and
      outstanding shares of stock of Yarraman Australia in exchange for the issuance
      in the aggregate of 15,000,000 shares of common stock of the Company (the
“Shares”) to the Trustee (the “Share Exchange”) for the benefit of the
      Shareholders.





The
      exchange of shares with Yarraman Australia has been accounted for as a reverse
      acquisition under the purchase method of accounting since the stockholders
      of
      Yarraman Australia obtained control of the consolidated entity. Accordingly,
      the
      acquisition has been recorded as a recapitalization of Yarraman Australia,
      with
      Yarraman Australia being treated as the continuing entity. The historical
      financial statements presented are those of Yarraman Australia. The continuing
      company has retained June 30 as
      its fiscal year end. The financial statements of the legal acquirer are not
      significant; therefore, no pro forma financial information is submitted.





We
      produce and sell premium, super premium and ultra premium varietal wines. Our
      wines are made from grapes grown at our vineyard (the "Vineyard") and from
      grapes purchased from other Australian vineyards. The grapes are crushed,
      fermented and made into wine at our winery and the wines are sold principally
      under the Company's Yarraman Estate Vineyard, Black Cypress, Banjo and Down
      Under labels. Yarraman Australia’s Vineyard and Winery are located in the Upper
      Hunter Valley, approximately 200 miles north of Sydney, Australia.





On
      February 3, 2006, the Company voted to change its fiscal year end from December
      31 st to June 30 th to
      correspond with the fiscal year end of the operating
      entity.


7


**YARRAMAN
      WINERY, INC. AND SUBSIDIARY**


**NOTES
      TO** **UNAUDITED** **CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31** **,
      2006**





NOTE
      2 - SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES





Basis
      of Presentation





The
      accompanying consolidated financial statements have been prepared in conformity
      with accounting principles generally accepted in the United States of America.
      The functional currency of Yarraman Australia is the
      Australian Dollar (“AUD”); however the accompanying consolidated financial
      statements have been translated and presented in United States Dollars
      (“$”).





Principles
      of Consolidation





The
      consolidated financial statements include the accounts of Yarraman Winery,
      Inc.
      and its wholly owned subsidiary Yarraman Estate Pty Limited, Inc, collectively
      referred to within as “the Company”. All material intercompany accounts,
      transactions and profits have been eliminated in consolidation.





Revenue
      Recognition





The
      Company’s revenue recognition policies are in compliance with Staff A ccounting B ulletin
      (SAB) 104. We
      recognize revenue when the product is shipped and title passes to the customer, when
      a
      formal arrangement exists, the price is fixed or determinable, the delivery
      is
      completed, no other significant obligations of the Company exist and
      collectibility is reasonably assured. The
      Company's standard terms are 'FOB' shipping point, with no customer acceptance
      provisions. No products are sold on consignment. Credit sales are recorded
      as
      trade accounts receivable and no collateral is required. Revenue from items
      sold
      through the Company's retail location is recognized at the time of sale. The
      Company has established an allowance for doubtful accounts based upon factors
      pertaining to the credit risk of specific customers, historical trends, and
      other information. Delinquent accounts are written-off when it is determined
      that the amounts are uncollectible. Revenues are recognized net of the amount
      of
      goods and services tax (GST) payable to the Australian taxing
      authority.




The
      company also receives processing revenue which represents fees charged to
      contract process fruit for other winemaking companies. It is recognized when
      the
      service is provided to the customer.




The
      Company sells substantial amount of its products in the domestic
      market.


8


**YARRAMAN
      WINERY, INC. AND SUBSIDIARY**


**NOTES
      TO** **UNAUDITED** **CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31** **,
      2006**





NOTE
      2 - SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES (Continued)





Accounts
      Receivable





The
      Company maintains reserves for potential credit losses on accounts receivable.
      Management reviews the composition of accounts receivable and analyzes
      historical bad debts, customer concentrations, customer credit worthiness,
      current economic trends and changes in customer payment patterns to evaluate
      the
      adequacy of these reserves. Allowance for doubtful debts amounted to $100,037
      as
      at December
      31 ,
      2006.





Segment
      Reporting





Statement
      of Financial Accounting Standards No. 131 (“SFAS 131”), “Disclosure About
      Segments of an Enterprise and Related Information” requires use of the
“management approach” model for segment reporting. The management approach model
      is based on the way a company’s management organizes segments within the company
      for making operating decisions and assessing performance. Reportable segments
      are based on products and services, geography, legal structure, management
      structure, or any other manner in which management disaggregates a company.
      SFAS
      131 has no effect on the Company’s consolidated financial statements as the
      Company consists of one reportable business segment.




Fair
      Value of Financial Instruments




Statement
      of F inancial A ccounting S tandard s No.
      107 (“SFAS
      107”) ,
      Disclosures about fair value of financial instruments ” ,
      requires that the Company disclose estimated fair values of financial
      instruments. The carrying amounts reported in the statements of financial
      position for assets and liabilities qualifying as financial instruments are
      a
      reasonable estimate of fair value.




Inventories




Yarraman
      Australia’s annual crop and production costs are recognized as work-in-process
      inventories. Such costs are accumulated with related direct and indirect
      harvest, wine processing and production costs, and are transferred to finished
      goods inventories when the wine is produced, bottled, and ready for sale. The
      cost of finished goods is recognized as cost of sales when the wine product
      is
      sold. Inventories are stated at the lower of first-in, first-out ("FIFO") cost
      or market by variety. In accordance with general practices in the wine industry,
      wine inventories are generally included in current assets in the accompanying
      balance sheet, although a portion of such inventories may be aged for more
      than
      one year. As of December
      31 ,
      2006
      inventory consisted of raw material, work in progress and finished goods as
      follows:


9




**YARRAMAN
      WINERY, INC. AND SUBSIDIARY**


**NOTES
      TO** **UNAUDITED** **CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31** **,
      2006**




NOTE
      2 - SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES (Continued)


Winemaking
                  and packaging materials
              
              $
              97,684Work
                      in progress ( costs related to unprocessed and/ or unbottled
                      products
                      )
              
              
              4,350,784Finished
                  good (bottled wine)
              
              
              864,858Reserve
                  for obsolesence
              
              
              (197,333
              )Total
              
              $
              5,115,993




The
      Company expensed vineyard costs of $206,186 during the six month period ended
      December 31, 2006. Management strongly believes that the inventory is properly
      valued based on its estimates of future sales.




Property,
      Plant and Equipment




Property,
      plant and equipment are stated at cost less accumulated depreciation.
      Expenditures for major additions and improvements are capitalized and minor
      replacements , maintenance and repairs are expensed as incurred. Whenever an asset is retired
      or disposed of, its cost and accumulated depreciation or amortization are
      removed from the respective accounts and the resulting gain or loss is credited
      or charged to income.





Depreciation
      is computed using the straight-line and declining-balance methods over the
      following estimated useful lives:


Land
                  improvements
              15
                  yearsWinery
                  building
              30
                  yearsEquipment
              5-7
                  years




Expenditures
      for repairs and maintenance are charged to operating expense as incurred.
      Expenditures for additions and betterments are capitalized. When assets are
      sold
      or otherwise disposed of, the cost and related accumulated depreciation are
      removed from the accounts, and any resulting gain or loss is included in
      operations.




As
      of
      December 31, 2006 Property, Plant and Equipment consist of the following:




Buildings
                  and improvements
              
              $
              51,321Land
              
              
              835,455Plant
                  and equipment
              
              
              3,571,992Computer
                  equipment
              
              
              38,616Furniture
                  and fixtures
              
              
              21,3144,518,698Accumulated
                  depreciation
              
              
              (533,197
              )$
              3,985,501




10




**YARRAMAN
      WINERY, INC. AND SUBSIDIARY**


**NOTES
      TO** **UNAUDITED** **CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31** **,
      2006**




NOTE
      2 - SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES (Continued)




Capital
      Lease Obligations




Included
      in Property, Plant and Equipment are $2 37,578 of fixed
      assets that were purchased on capital lease arrangements (note 8).





Intangible
      Assets





Effective
        July 2002, we adopted Statement of Financial Accounting Standards No.
        142 (“SFAS
        142”) ,
        “Goodwill and Other Intangible Assets.” The adoption of SFAS No. 142 required an
        initial impairment assessment involving a comparison of the fair value of
        trademarks, patents and other intangible assets to current carrying value.
        No
        impairment loss was recognized for the period ended December
        31 ,
        2006.
        As of December
        31 ,
        2006
        the intangible assets comprised of water licenses valued at $1 97,333,
        which
        are held in perpetuity and $83,387 of costs associated with our potential
        acquisition as described in Note 12 .





Trademarks
      and other intangible assets determined to have indefinite useful lives are
      not
      amortized. The Company tests such trademarks and other intangible assets with
      indefinite useful lives for impairment annually, or more frequently if events
      or
      circumstances indicate that an asset might be impaired. Trademarks and other
      intangible assets determined to have definite lives are amortized over their
      useful lives or the life of the trademark and other intangible asset, whichever
      is less.





Contingencies





Certain
      conditions may exist as of the date the financial statements are issued which
      may result in a loss to the Company but which will only be resolved when one
      or
      more future events occur or fail to occur. The Company’s management and legal
      counsel assess such contingent liabilities, and such assessment inherently
      involves an exercise of judgment. In assessing loss contingencies related to
      legal proceedings that are pending against the Company or unasserted claims
      that
      may result in such proceedings, the Company’s legal counsel evaluates the
      perceived merits of any legal proceedings or unasserted claims, as well as
      the
      perceived merits of the amount of relief sought or expected to be
      sought.





If
      the
      assessment of a contingency indicates that it is probable that a material loss
      has been incurred and the amount of the liability can be estimated, then the
      estimated liability would be accrued in the Company’s financial statements. If
      the assessment indicates that a potential material loss contingency is not
      probable but is reasonably possible, or is probable but cannot be estimated,
      then the nature of the contingent liability, together with an estimate of the
      range of possible loss, if determinable and material, would be disclosed.





11


**YARRAMAN
      WINERY, INC. AND SUBSIDIARY**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**





NOTE
      2 - SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES (Continued)





Loss
      contingencies considered to be remote by management are generally not disclosed
      unless they involve guarantees, in which case the guarantee would be disclosed.
      As of December 31, 2006, there is one matter that warrants disclosure in the
      financial statements (See Note 6).





Advertising





Advertising
      expenses consist primarily of costs of promotion for corporate image and product
      marketing and costs of direct advertising. The Company expenses all advertising
      costs as incurred.





Use
      of
      Estimates





The
      preparation of financial statements in conformity with generally accepted
      accounting principles requires management to make certain estimates and
      assumptions that 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 amounts of revenues and expenses during the
      reporting period. Actual results could differ from those estimates. Significant
      estimates include collectibility of accounts receivable, accounts payable,
      sales
      returns, and recoverability of long-term assets.





Concentration
      of Credit Risk





Financial
      instruments, which subject us to credit risk, consist primarily of cash
      equivalents and trade accounts receivable arising from its normal business
      activities. We place our cash in what we believe to be credit-worthy financial
      institutions. Concentration of credit risk with respect to trade accounts
      receivable are from customers located throughout the world. We actively evaluate
      the creditworthiness of the customers with which we conduct business through
      credit approvals, credit limits and monitoring procedures.




Basic
      and Diluted Earnings Per Share




Earnings
      per share is calculated in accordance with the Statement of Financial Accounting
      Standards No. 128 (“SFAS No. 128”), “Earnings per share”. SFAS No. 128
      superseded Accounting Principles Board Opinion No.15 (APB 15). Net loss per
      share for all periods presented has been restated to reflect the adoption of
      SFAS No. 128. Basic net loss per share is based upon the weighted average number
      of common shares outstanding. Diluted net loss per share is based on the
      assumption that all dilutive convertible shares and stock options were converted
      or exercised. Dilution is computed by applying the treasury stock method. Under
      this method, options and warrants are assumed to be exercised at the beginning
      of the period (or at the time of issuance, if later), and as if funds obtained
      thereby were used to purchase common stock at the average market price during
      the period.




12


**YARRAMAN
      WINERY, INC. AND SUBSIDIARY**


**NOTES
      TO** **UNAUDITED** **CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31** **,
      2006**





NOTE
      2 - SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES (Continued)




Statement
      of Cash Flows




In
      accordance with Statement
      of Financial Accounting Standards No. 95 (“ SFAS
      No.
      95 ”) ,
      “Statement of Cash Flows,” cash flows from the Company’s operations is based
      upon the local currencies. As a result, amounts related to assets and
      liabilities reported on the statement of cash flows will not necessarily agree
      with changes in the corresponding balances on the balance sheet.





Income
      Taxes





Income
      taxes have been provided based upon the tax laws and rates in the countries
      in
      which operations are conducted and income is earned. The income tax rates
      imposed by the taxing authorities vary. Taxable income may vary from pre-tax
      income for financial accounting purposes. There is no expected relationship
      between the provision for income taxes and income before income taxes, because
      the countries have different taxation rules, which vary not only to nominal
      rates but also in terms of available deductions, credits and other benefits.
      Deferred tax assets and liabilities are recognized for the anticipated future
      tax effects of temporary differences between the financial statement basis
      and
      the tax basis of our assets and liabilities using the applicable tax rates
      in
      effect at year end as prescribed by Statement of Financial Accounting Standards No. 109 (“ SFAS
      No.
      109 ”) “Accounting
      for Income Taxes”.





Translation
      Adjustment





As
      of
      December 31, 2006, the accounts of Yarraman Australia were maintained, and
      their
      financial statements were expressed, in Australian Dollars (AUD). Such financial
      statements were translated into U.S. Dollars (USD) in accordance with Statement
      of Financial Accounting Standards No. 52 (“SFAS No. 52”), “Foreign Currency
      Translation”, with the AUD as the functional currency. According to SFAS No. 52,
      all assets and liabilities were translated at the current exchange rate,
      stockholder’s equity are translated at the historical rates and income statement
      items are translated at the weighted average exchange rate for the period.
      The
      resulting translation adjustments are reported under other comprehensive income
      in accordance with Statement of Financial Accounting Standards No. 130 (“SFAS
      No. 130”), “Reporting Comprehensive Income” as a component of shareholders’
equity.





13


**YARRAMAN
      WINERY, INC. AND SUBSIDIARY**


**NOTES
      TO** **UNAUDITED** **CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31** **,
      2006**





NOTE
      2 - SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES (Continued)





New
      Accounting Pronouncements





In
      February 2006, FASB issued SFAS No. 155, “Accounting for Certain Hybrid
      Financial Instruments”. SFAS No. 155 amends SFAS No 133, “Accounting for
      Derivative Instruments and Hedging Activities”, and SFAF No. 140, “Accounting
      for Transfers and Servicing of Financial Assets and Extinguishments of
      Liabilities”. SFAS No. 155, permits fair value remeasurement for any hybrid
      financial instrument that contains an embedded derivative that otherwise would
      require bifurcation, clarifies which interest-only strips and principal-only
      strips are not subject to the requirements of SFAS No. 133, establishes a
      requirement to evaluate interest in securitized financial
      assets to identify interests that are freestanding derivatives or that are
      hybrid financial instruments that contain an embedded derivative requiring
      bifurcation, clarifies that concentrations of credit risk in the form of
      subordination are not embedded derivatives, and amends SFAS No. 140 to eliminate
      the prohibition on the qualifying special-purpose entity from holding a
      derivative financial instrument that pertains to a beneficial interest other
      than another derivative financial instrument. This statement is effective for
      all financial instruments acquired or issued after the beginning of the
      Company’s first fiscal year that begins after September 15, 2006.




In
      March
      2006 FASB issued SFAS 156 ‘Accounting for Servicing of Financial Assets’ this
      Statement amends FASB Statement No. 140, Accounting for Transfers and Servicing
      of Financial Assets and Extinguishments of Liabilities, with respect to the
      accounting for separately recognized servicing assets and servicing liabilities.
      This Statement:




14


**YARRAMAN
      WINERY, INC. AND SUBSIDIARY**


**NOTES
      TO** **UNAUDITED** **CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31** **,
      2006**




NOTE
      2 - SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES (Continued)




New
      Accounting Pronouncements (continued)




1.
            Requires
                an entity to recognize a servicing asset or servicing liability each
                time
                it undertakes an obligation to service a financial asset by entering
                into
                a servicing contract.




2.
            Requires
                all separately recognized servicing assets and servicing liabilities
                to be
                initially measured at fair value, if practicable.




3.
            Permits
                an entity to choose ‘Amortization method’ or ‘Fair value measurement
                method’ for each class of separately recognized servicing assets and
                servicing liabilities.




4.
            At
                its initial adoption, permits a one-time reclassification of
                available-for-sale securities to trading securities by entities with
                recognized servicing rights, without calling into question the treatment
                of other available-for-sale securities under Statement 115, provided
                that
                the available-for-sale securities are identified in some manner as
                offsetting the entity’s exposure to changes in fair value of servicing
                assets or servicing liabilities that a servicer elects to subsequently
                measure at fair value.




5.
            Requires
                separate presentation of servicing assets and servicing liabilities
                subsequently measured at fair value in the statement of financial
                position
                and additional disclosures for all separately recognized servicing
                assets
                and servicing liabilities.




This
      Statement is effective as of the beginning of the Company’s first fiscal year
      that begins after September 15, 2006.




In
      September 2006, FASB issued SFAS 157 ‘Fair Value Measurements’. This Statement
      defines fair value, establishes a framework for measuring fair value in
      generally accepted accounting principles (GAAP), and expands disclosures about
      fair value measurements. This Statement applies under other accounting
      pronouncements that require or permit fair value measurements, the Board having
      previously concluded in those accounting pronouncements that fair value is
      the
      relevant measurement attribute. Accordingly, this Statement does not require
      any
      new fair value measurements. However, for some entities, the application of
      this
      Statement will change current practice. This Statement is effective for
      financial statements issued for fiscal years beginning after November 15, 2007,
      and interim periods within those fiscal years.





15


**YARRAMAN
      WINERY, INC. AND SUBSIDIARY**


**NOTES
      TO** **UNAUDITED** **CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31** **,
      2006**





NOTE
      2 - SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES (Continued)




New
      Accounting Pronouncements (continued)




In
      September 2006, FASB issued SFAS 158 ‘Employers’ Accounting for Defined Benefit
      Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87,
      88, 106, and 132(R)’ This Statement improves financial reporting by requiring an
      employer to recognize the over funded or under funded status of a defined
      benefit postretirement plan (other than a multiemployer plan) as an asset or
      liability in its statement of financial position and to recognize changes in
      that funded status in the year in which the changes occur through comprehensive
      income of a business entity or changes in unrestricted net assets of a
      not-for-profit organization. This Statement also improves financial reporting
      by
      requiring an employer to measure the funded status of a plan as of the date
      of
      its year-end statement of financial position, with limited exceptions. An
      employer with publicly traded equity securities is required to initially
      recognize the funded status of a defined benefit postretirement plan and to
      provide the required disclosures as of the end of the fiscal year ending after
      December 15, 2006. An employer without publicly traded equity securities is
      required to recognize the funded status of a defined benefit postretirement
      plan
      and to provide the required disclosures as of the end of the fiscal year ending
      after June 15, 2007. However, an employer without publicly traded equity
      securities is required to disclose the following information in the notes to
      financial statements for a fiscal year ending after December 15, 2006, but
      before June 16, 2007, unless it has applied the recognition provisions of this
      Statement in preparing those financial statements:




a.
            A
                brief description of the provisions of this Statement




b.
            The
                date that adoption is required




c.
            The
                date the employer plans to adopt the recognition provisions of this
                Statement, if earlier.




The
      requirement to measure plan assets and benefit obligations as of the date of
      the
      employer’s fiscal year-end statement of financial position is effective for
      fiscal years ending after December 15, 2008. The management is currently
      evaluating the effect of this pronouncement on financial
      statements.




The
      Company is still in the process of evaluating the effect of these statements
      on
      its financials.





In
      July
      2006, the FASB released FASB Interpretation No. 48, Accounting for Uncertainty
      in Income Taxes, an interpretation of FASB Statement No. 109 (FIN 48). FIN
      48
      clarifies the accounting and reporting for uncertainties in income tax law.
      This
      interpretation prescribes a comprehensive model for the financial statement
      recognition, measurement, presentation and disclosure of uncertain tax positions
      taken or expected to be taken in income tax returns. This statement is effective
      for fiscal years beginning after December 15, 2006. Management is currently
      in
      the process of evaluating the expected effect of FIN 48 on our results of
      operations and financial position.




Reclassifications:





For
      comparative purposes, prior year’s consolidated financial statements may have
      been reclassified to conform with report classifications of the current
      year.




16


**YARRAMAN
      WINERY, INC. AND SUBSIDIARY**


**NOTES
      TO UNAUDITED** **CONSOLIDATED** **FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**





NOTE
      3
      - CASH
      & CASH EQUIVALENTS





Cash
      and
      cash equivalents include cash in hand and cash in time deposits, certificates
      of
      deposit and all highly liquid debt instruments with original maturities of
      three
      months or less.




NOTE
      4 - ACCOUNTS
      PAYABLE AND ACCRUED EXPENSES





As
      of December
      31 ,
      2006,
      the accounts payable and accrued expenses comprised of the
      following:




Trade
                  creditors
              
              $
              643,260Other
                  creditors
              
              
              525,170Accrued
                  liabilities
              
              
              117,000Payroll
                  liabilities
              
              
              134,672$
              1,420,102





The
      provision for employee benefits to annual leave represents the value of the
      estimated future cash outflows to be made resulting from employees’ services
      provided to the reporting dates based on their current wage rate. As of December
      31 ,
      2006
      annual leave liability existed in the amount of $ 48,708 which is
      included in the payroll liabilities.





Note
      5 - RELATED
      PARTY TRANSACTIONS





We
      entered into various related party transactions with our former parent, the
      Trust, various unit holders of the Trust, related entities of unit holders
      of
      the Trust and officers of the Company.





Yarraman
      Australia leased vineyards and related plant and equipment from the Trust.
      Terms
      of the agreement included annual payment of approximately $239,000. The lease
      began on July 1, 2003 and terminated on December 22, 2005 when Yarraman
      Australia purchased the vineyard and related plant and equipment.





We
        also
        pay the Trust approximately $35,000 per month for the use of additional vineyard
        land also located in Australia per a verbal agreement. On January 1, 2006
        we
        entered into a written agreement to lease this vineyard land for approximately
        $35,000 per month. The term was from January 1, 2006 through June 30, 2006.
        As
        of July 1, 2006 this lease is on a month to month basis with the same payment
        terms.





Prior
      to
      December 22, 2005, Yarraman Australia had received loans from the Trust to
      fund
      operations and purchase assets. The loan liabilities were assumed by Yarraman
      Australia. The outstanding principal balance of this loan was $1,177,000 and
      will be paid in accordance with such terms more specifically disclosed in Note
      8
      below.





17




**YARRAMAN
      WINERY, INC. AND SUBSIDIARY**


**NOTES
      TO UNAUDITED** **CONSOLIDATED** **FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**





Note
      5 - RELATED
      PARTY TRANSACTIONS (CONTINUED)





On
      May 1,
      2006 Yarraman Australia entered into a loan agreement with Delta Dawn in the
      principal amount of approximately $665,000. On May 25, 2006 Delta Dawn extended
      to Yarraman Australia an additional $10,950, to be repaid in accordance with
      the
      same terms as the May 1, 2006 loan.





Stockholders
      and Directors of the Company and of the Trust were provided wine during the six
      months and three months ended December
      31 ,
      2006
      valued at $15,226
      and $ 13,666,
      respectively .





The
      Company had wine sales to entities related to various Stockholders, Officers
      and
      Directors totaling $ 4,171
      and
      $1,446 during
      the six
      months and three months ended December
      31 ,
      2006.





We
      have a receivable
      from  one
      of
      the Unit Holders of Delta
      Dawn related
      to consulting fee s of
      approximately $ 9,814 as of December
      31 ,
      2006.





On
      January 1, 2006 Yarraman Australia entered into a consulting agreement with
      Delta Dawn to provide business consulting services related to the wine industry
      for a term of two years or until such time as their ownership percentage in
      our
      Company is reduced to less then 15%. We agree to pay approximately $78,000
      annually. During the six
      months and  three
      months ended December
      31 ,
      2006 we
      paid Delta Dawn $ 53,824
      and $24,652, respectively .





During
      the six
      months and  three
      months ended December
      31 ,
      2006
      the Company included in its revenue, fees for wine making and storage of wine
      of
      approximately $ 442,626
      and $269,246, respectively, to
      a
      company (related through common shareholder) with whom Yarraman Australia had
      an
      agreement.





On
      August
      1, 2006Yarraman
      Australiaentered
      into a loan agreement with a private corporation to borrow up to approximately
      $395,000,
      with interest payable at 8.75% per annum, due onSeptember
      30,
      2006.
      During the period from October 1, 2006 through December 31, 2006Yarraman
      Australiaborrowed
      an additional $355,000, from this entity. Interest is payable at the same rate
      of 8.75% per annum. The repayment terms for the entire $750,000
      has
      been extended until such time asthe
      Companyreceivesbridge
      financing related totheproposed
      merger (Note 12).




On
      December 16, 2005 the Company purchased from its former parent, the Trust,
      certain assets including land, buildings and equipment and water license rights
      by assuming certain debt (Note 8), capital leases (Note 8), contribution to
      paid
      in capital by the Trust and a liability to the Trust. The assets and liabilities
      were recorded at the historical cost of the related party. No cash was
      exchanged. See the summary below:




Assets
                purchased
            
            $
            5,759,740Liabilities
                assumed
            
            
            (4,384,740
            )Payable
                to former parent
            
            
            (431,151
            )Contribution
                to capital
            
            
            (943,850
            )Net
            
            
            -





18


**YARRAMAN
      WINERY, INC. AND SUBSIDIARY**


**NOTES
      TO UNAUDITED** **CONSOLIDATED** **FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**





Note
      5 - RELATED
      PARTY TRANSACTIONS (CONTINUED)





The
      Company’s assets are also pledged as collateral for indebtedness of Yarraman
      Australia’s prior Parent, the Trust. As of December
      31 ,
      2006
      the outstanding balance on this debt was approximately $ 4,090,000 .
      See
      Note 6.





Note
      6 - COMMITMENTS
      AND CONTINGENCIES





Operating
      Leases





Yarraman
      Australia leased approximately 200 acres of vineyard land and plant and
      equipment from Delta Dawn, for approximately $239,000. The lease was entered
      into on July 1, 2003 and is for a term of two years, but may continue past
      that
      date at the same rate until canceled by either party. This lease was terminated
      on December 22, 2005 when the Company purchased all property under this lease.
      Please see Note 5 - Related Party Transactions.





On
      January 1, 2006 Yarraman Australia entered into a written agreement with the
      Trust to lease additional vineyard land in Australia. The monthly rent is
      approximately $35,000. The lease term commences on January 1, 2006 and
      terminates on June 30,
      2006 and there after is
      leased on a month to month basis .
      See
      Note 5 above.





Corporate
      Sponsorship





Yarraman
      Australia entered into a five year Sponsorship Agreement beginning on April
      1,
      2004 with Luna Park Sydney. The terms of the sponsorship require the Company
      to
      pay approximately $37,676 for year one, approximately $45,992 for year two.
      The
      fees for years three through five will be calculated based on a formula related
      to the number of patrons attending the Luna Park Sydney facility.





On
      November 22, 2006 we canceled the arrangement with three months written notice
      per our contract.





Guarantor





Our
      assets have been pledged as collateral for indebtedness owed by the Trust,
      to a
      financial institution in Australia, the repayment of which the Company has
      guaranteed. The outstanding balance on this debt was approximately $ 4,090,000 as
      of December
      31 ,
      2006.





19




**YARRAMAN
      WINERY, INC. AND SUBSIDIARY**


**NOTES
      TO UNAUDITED** **CONSOLIDATED** **FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**





Note
      6 - COMMITMENTS
      AND CONTINGENCIES (Continued)





Consulting
      Agreements





On
      February 24, 2006 the Company entered into a consulting agreement with a company
      in New York to assist us to identify potential candidates for acquisition
      purposes and assist in the negotiation and execution of such transactions.
      As
      compensation the Company agree d to pay
      the firm a monthly, nonrefundable, fee of $6,500 beginning March 1, 2006 and
      ending on July 1, 2006 , but
      may
      continue past that date at the same rate until canceled by either party. The
      Company also agree d to pay a
      transaction fee that is based on a sliding percentage of any completed
      acquisition. The total monthly fees paid under the agreement may be
      deduct ed from the
      total transaction fee.





On
      January 1, 2006 we entered into a consulting agreement with the Delta Dawn
      Pty
      Ltd, as trustee of the Yarraman Road Trust, to provide business consulting
      services related to the wine industry for a term of two years or until such
      time
      as their ownership percentage in our Company is reduced to less then 15%. We
      agree to pay approximately $78,000, annually. See Note 5.





On
      September 7, 2006 we entered into an agreement with a firm in New York, New
      York
      to provide the following services: strategic advisory, development and
      evaluation financing or capital raising alternatives and merger and acquisition
      services. As compensation we agreed to pay a retainer of $35,000, of which
      $10,000 has been paid to date, plus certain percentages of financing or capital
      that is raised and merger acquisitions completed. The term of the contract
      is
      for six months, ending in February 2007. Thereafter the agreement shall continue
      in effect until terminated by either party.





On
      October 23, 2006 we entered into a consulting agreement with a firm in Australia
      for services in recruiting certain consultants and Board members for us as
      well
      as assisting us in establishing international distribution arrangements. Certain
      milestones were set in the contract. Upon completion of each milestone an
      agreement was made for payment to the consultant in shares of our company stock
      as follows:





Milestone
      1 - 50,000 shares of stock, or $100,000 in shares, whichever is
      greater


Milestone
      2 - 50,000 shares of stock, or $100,000 in shares, whichever is
      greater


Milestone
      3 - 100,000 shares of stock, or $200,000 in shares, whichever is
      greater





As
      of
      December 31, 2006 Milestone 1 has been completed. To date we have not issued
      any
      shares related thereto but have recorded the liability of
      $117,000 (see Note 4) .





In
      addition to the above we have agreed to pay the consultant approximately $4,700
      per month starting on November 1, 2006 and ending upon the completion of our
      merger negotiations as mentioned in Note 12.




20


**YARRAMAN
      WINERY, INC. AND SUBSIDIARY**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**





Note
      6 - COMMITMENTS
      AND CONTINGENCIES (Continued)





Arbitration





We
      have
      entered into arbitration on a legal matter regarding one of our grape processing
      arrangements. A dispute has arisen regarding storage charges that were invoiced
      related to the storage of wine processed under the arrangement. The total amount
      in dispute is approximately $165,000. This amount has been recorded in our
      income during the fiscal years ended June 30,
      2006, 2005 and 2004. No reserve has been accrued for this amount as we intend
      to
      vigorously defend our position and believe that we will prevail.





Note
      7 - COMMON
      STOCK





On
      August
      15, 2005, the Company's Board of Directors’ declared a 4.55 for 1 common stock
      dividend to the shareholders of record as of August 26, 2005. The number of
      common stock shares outstanding increased from 2,100,000 shares to 11,655,000
      shares, which are reflected retroactively in the financial statements.




On
      December 12, 2005, the Board of directors submitted to, and a majority of
      shareholders eligible to vote, approved a proposal that pursuant to the terms
      of
      a Share Exchange Agreement (the “Agreement”), the Company acquired all of the
      outstanding capital stock of Yarraman Australia in exchange for 15,000,000
      shares of the Company’s common stock to the Trustee (the "Transaction"). This
      issuance of the Company’s common stock is intended to be exempt from
      registration under the Securities Act of 1933, as amended ("Securities Act").




In
      connection with the Transaction, certain shareholders of the Company agreed
      to
      cancel an aggregate of 8,158,500 shares of the Company common stock resulting
      in
      3,496,500 shares of common stock outstanding.




On
      December 22, 2005, the Company entered into a stock purchase agreement (the
      “Purchase Agreement”) with certain investors (the “Investors”) for the sale of
      an aggregate of 5,253,500 shares of common stock (the “Share Sale”) for
      aggregate gross proceeds in the form of promissory notes with an aggregate
      principal amount equal to $2,000,000
      (the “Notes”) .
      The
      Notes have a maturity of 300 days and principal is payable in approximately
      quarterly installments, with interest accruing on the original principal amount
      at the rate of prime plus 2.5%, payable at maturity. Pursuant to the Purchase
      Agreement, the Company has granted the Investors rights of first refusal on
      financing the Company may do in the future. The principal balance of the note
      has been collected as of December
      31 ,
      2006.
      Interest receivable amounting $36,851 is due on this Note at December
      31 ,
      2006
      and has been classified as other receivable in the accompanying financial
      statements.




In
      connection with the Share Sale, the Company issued 1,250,000 shares of common
      stock (the “Millhouse Shares”) in exchange to MillhouseIAG Limited (“Millhouse”)
      as a finder’s fee.




21


**YARRAMAN
      WINERY, INC. AND SUBSIDIARY**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**




Note
      7 - COMMON
      STOCK (Continued)




On
      February 3, 2006, the Board of Directors of the Company and the holders of
      a
      majority of the Company’s outstanding common stock voted to increase the number
      of authorized shares of its capital stock. Pursuant to this authorization,
      on or
      about March 17, 2006, the Company increased the number of authorized shares
      of
      its capital stock to 100,000,000 shares, of which ninety million (90,000,000)
      shares are Common Stock, par value of $0.001, and ten million (10,000,000)
      shares are Preferred Stock, par value of $0.001, which may be issued in one
      or
      more series or classes as designated by the Board of Directors, from time to
      time, without the approval of stockholders.





All
      prior
      year information has been adjusted to reflect the stock cancellation and the
      stock dividend.




Note
      8
      - LONG
      TERM DEBT





Loans





On
      December 21, 2005 we entered into a loan agreement with a financial institution
      located in Australia. The amount of the loan is $5,577,397 Australian Dollars,
      approximately $4,071,000 with monthly interest payments due on the
      15 th of each
      month at the rate of 10% per annum, rising to 16% per annum if the Company
      is
      late in its payments. The principal balance is due and payable on December
      31,
      2007. The loan is secured by certain property, plant & equipment of the
      Company as well as a guarantee by the Trust and Delta Dawn. As of December
      31 ,
      2006,
      the loan balance is $ 4,447,555 inclusive of accrued and unpaid interest.





On
      December 22, 2005 Yarraman Australia entered into a loan agreement with Delta
      Dawn. The principle amount of the loan is $1,177,000.





On
      May 1,
      2006 Yarraman Australia entered into a loan agreement with Delta Dawn in the
      amount of approximately $656,000. On May 25, 2006 Delta Dawn loaned
      Yarraman Australia an additional $10,950, to be repaid in conjunction with
      the
      May 1, 2006 loan.





Interest
      on the Delta Dawn loans has been imputed at a rate of ten percent. During the
      six months ended December 31, 2006 we recognized approximately
      $124,000.




22


**YARRAMAN
      WINERY, INC. AND SUBSIDIARY**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**





Note
      8
      - LONG
      TERM DEBT (Continued)





The
      Delta
      Dawn loan agreements require principle payments as follows for the fiscal years
      ending on June 30 th :




2007
              
              $
              -2008
              
              
              166,2642009
              
              
              332,5272010
              
              
              332,5272011
              
              
              1,163,845$
              1,995,163





On
      August
      1, 2006 Yarraman
      Australia entered
      into a loan agreement with a private corporation that is
      one of the unit holders in the trust which owns most of the Company’s common
      stock to
      borrow  approximately
      $395,000, with interest payable at 8.75% per annum, due on December 31, 2006.
      During the period from October 1, 2006 through December 31, 2006 we borrowed
      an additional
      $ 355,000,
      from this corporation. The total amount of this loan is to be repaid at the
      time
      we may receive bridge financing related to our proposed merger (Note 12).





Leases





As
      a part
      of the asset purchase agreement in December 2005, the Company assumed a capital
      lease obligation to finance the purchase of plant and equipment. Minimum lease
      payments relating to the equipment have been capitalized and are being
      depreciated over the estimated useful lives of the equipment acquired. Assets
      under capital lease and related accumulated amortization at December
      31 ,
      2006
      are as follows:




Plant
                  and equipment
              
              $
              237,578Accumulated
                  depreciation
              
              
              53,809$
              183,769
  23


**YARRAMAN
      WINERY, INC. AND SUBSIDIARY**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**





Note
      8
      - LONG
      TERM DEBT (Continued)





The
      future minimum lease payments under the capital lease and the net present value
      of the future minimum lease payments at December
      31 ,
      2006
      are as follows:




Total
                  minimum lease payments
              
              $
              180,799Amount
                  representing interest
              
              
              (17,907
              )Present
                  value of net minimum lease payments
              
              
              162,892Current
                  portion
              
              
              (93,395
              )Long-term
                  capital lease obligation
              
              $
              69,497


Amortization
      expense for assets under capital lease is included in depreciation
      expense.





The
      future aggregate minimum annual lease payments arising from these lease
      agreements are as follows:




December
                  31,2007
              
              $
              51,5422008
              
              
              85,3772009
              
              
              25,973Total
              
              $
              162,892





Note
      9
      - STOCK
      EXCHANGE AGREEMENT





On
      December 22, 2005 the Company completed a Stock Exchange Agreement with Yarraman
      Australia. The exchange of shares has been accounted for as a “reverse
      acquisition” under the purchase method of accounting because the stockholders of
      the Yarraman Australia obtained control of the consolidated entity. Accordingly,
      the acquisition has been recorded as a recapitalization of Yarraman Australia,
      with Yarraman Australia being treated as the continuing entity. The historical
      financial statements presented are those of Yarraman Australia. The continuing
      company has retained June 30 as
      its fiscal year end. The financial statements of the legal acquirer are not
      significant; therefore, no pro forma financial information is submitted.





Accordingly,
      the financial statements include the following:





(1)
      The
      balance sheet consists of the net assets of the accounting acquirer at
      historical cost and the net assets of the legal acquirer at historical
      cost.




(2)
      The
      statements of operations include the operations of the accounting acquirer
      for
      the period presented and the operations of the legal acquirer from the date
      of
      the acquisition.





24


**YARRAMAN
      WINERY, INC. AND SUBSIDIARY**


**NOTES
      TO** **UNAUDITED** **CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31** **,
      2006**





Note
      10 - OTHER
      COMPREHENSIVE INCOME





Balances
      of related after-tax components comprising accumulated other comprehensive
      income (loss), included in stockholder’s equity at December
      31 ,
      2006
      are as follows:




Balance
                  at June 30, 2006
              
              $
              152,189Change
                  for the six months December 2006
              
              
              83,644Balance
                  at December 31, 2006
              
              $
              235,833





Note
      1 1  -
      MAJOR CUSTOMERS AND VENDORS





For
      the six
      months ended December
      31 ,
      2006
      our largest customer accounted for 20.35% of
      Yarraman Australia’s sales. There was no receivable from the customer as of December
      31 ,
      2006.  For
      the six
      months ended December
      31 ,
      2006  Yarraman
      Australia had
      no vendor s
      that accounted
      for more
      then
      10% of
      purchases.




For
        the
        six months ended December 31, 2005 our largest customer accounted for 16%
        of
        Yarraman Australia’s sales. For the six months ended December 31, 2005 Yarraman
        Australia had one vendor that accounted for 15.4% of
        purchases.


Note
        12 - PROPOSED
        ACQUISITION




On
      December 21, 2006 we submitted an offer to merge via a scheme of arrangement
      with Evans & Tate, Ltd., a company publicly traded in Australia. The terms
      of the offer included a combination of issuance of our company stock and
      issuance of convertible notes. Assuming a discounted share price of our common
      stock of $1.79 and an exchange rate of US$0.78 for every AU$1.00, the
      approximate value of the transaction is $103,500,000. In connection with this
      transaction we entered into a Conditional Sale Deed to purchase 18,387,998
      shares of Evans & Tate, Ltd. stock from a third party.


The
        purchase will only be made upon acceptance of our offer to Evans & Tate,
        Ltd.


On
        February 14, 2007 we submitted a revised offer that increased the enterprise
        value to approximately $117,000,000. As of the date of this report the offer
        has
        not been accepted. On
        February 20, 2007 the offer was conditionally accepted and due diligence
        will
        occur prior to approval by Evans & Tate, Ltd.
  Related
        to this acquisition we have incurred $83,387 of expenses as of December 31,
        2006.





25


**YARRAMAN
      WINERY, INC. AND SUBSIDIARY**


**NOTES
      TO** **UNAUDITED** **CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31** **,
      2006**





Note
      1 3 - GOING
      CONCERN





The
        accompanying financial statements have been prepared on a going concern basis
        which contemplates the realization of assets and the satisfaction of liabilities
        in the normal course of business. As shown in the financial statements, during
        the six months ended December
        31 ,
        2006
        and 2005, the Company incurred losses of $1,881,237 and $367,635, respectively.
        In addition, the Company has suffered recurring losses from operations, cash
        deficiencies and the inability to meets it’s maturing obligations without
        borrowing from related parties and sale of its stock.  These issues may
        raise substantial concern about its ability to continue as a going concern.




The
      financial statements do not include any adjustments relating to the
      recoverability and classification of liabilities that might be necessary should
      the Company be unable to continue as a going concern. The Company's continuation
      as a going concern is dependent upon its ability to generate sufficient cash
      flow to meet its obligations on a timely basis, to retain its current financing,
      to obtain additional financing, and ultimately to attain  profitability.





Management
      has prepared the following statement in order to address these and other
      concerns:




Yarraman
      Australia has completed its merger with Yarraman
      Winery, Inc. as
      stated in Note 9 .
      Related
      to this merger we were able to sell 5,253,500 shares of stock for $2,000,000.
      We
      also borrowed $675,950 from Delta Dawn.





We
      are currently in
      discussions with potential acquisition candidates that will significantly
      improve our operating results and working capital.





26




**ITEM
              2.**
            **MANAGEMENT’S
                DISCUSSION AND ANALYSIS OR PLAN OF
                OPERATION**




THE
      FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE INFORMATION
      CONTAINED IN THE FINANCIAL STATEMENTS OF THE COMPANY AND THE NOTES THERETO
      APPEARING ELSEWHERE HEREIN AND IN CONJUNCTION WITH THE MANAGEMENT’S DISCUSSION
      AND ANALYSIS SET FORTH IN THE COMPANY’S ANNUAL REPORT ON FORM 10-KSB FOR THE
      YEAR ENDED JUNE 30, 2006.




**PRELIMINARY
      NOTE REGARDING FORWARD-LOOKING STATEMENTS**




The
      statements contained in this Form 10-QSB that are not purely historical are
      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. These include statements about the Company’s expectations, beliefs,
      intentions or strategies for the future, which are indicated by words or phrases
      such as “anticipate,” “expect,” “intend,” “plan,” “will,” “the Company
      believes,” “management believes” and similar words or phrases. The
      forward-looking statements are based on the Company’s current expectations and
      are subject to certain risks, uncertainties and assumptions. The Company’s
      actual results could differ materially from results anticipated in these
      forward-looking statements. All forward-looking statements included in this
      document are based on information available to the Company on the date hereof,
      and the Company assumes no obligation to update any such forward-looking
      statements.




**CRITICAL
      ACCOUNTING POLICIES AND ESTIMATES**




Our
      discussion and analysis is based upon our consolidated financial statements,
      which have been prepared in accordance with accounting principles generally
      accepted in the United States. The preparation of these financial statements
      requires us to make estimates and judgments that affect the reported amounts
      of
      assets, liabilities, revenues and expenses, and related disclosure of contingent
      assets and liabilities. On an on-going basis, we evaluate our estimates,
      including those related to accounts receivable reserves, provisions for
      impairment losses of affiliated companies and other intangible assets, income
      taxes and contingencies. We base our estimates on historical experience and
      on
      various other assumptions 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 these estimates under different
      assumptions or conditions.




We
      believe the following critical accounting policies reflect our more significant
      estimates and assumptions used in the preparation of our consolidated financial
      statements:




ALLOWANCE
      FOR DOUBTFUL ACCOUNTS - We evaluate the collectibility of our trade receivables
      based on a combination of factors. We regularly analyze our significant customer
      accounts, and, when we become aware of a specific customer’s inability to meet
      its financial obligations to us, such as in the case of bankruptcy filings
      or
      deterioration in the customer’s operating results or financial position, we
      record a specific reserve for bad debt to reduce the related receivable to
      the
      amount we reasonably believe is collectible. The allowances are calculated
      based
      on detailed review of certain individual customer accounts, historical rates
      and
      an estimation of the overall economic conditions affecting our customer base.
      We
      review a customer’s credit history before extending credit. If the financial
      condition of our customers were to deteriorate, resulting in an impairment
      of
      their ability to make payments, additional allowances may be required.




INVENTORY
      - The
      annual crop and production costs relating thereto are recognized as
      work-in-process inventories. Such costs are accumulated with related direct
      and
      indirect harvest, wine processing and production costs, and are transferred
      to
      finished goods inventories when the wine is produced, bottled, and ready for
      sale. The cost of finished goods is recognized as cost of sales when the wine
      product is sold. Inventories are stated at the lower of first-in, first-out
      (“FIFO”) cost or market by variety. In accordance with general practices in the
      wine industry, wine inventories are generally included in current assets in
      the
      accompanying balance sheet, although a portion of such inventories may be aged
      for more than one year.




27




REVENUE
      RECOGNITION - The
      Company recognizes revenue when the product is shipped and title passes to
      the
      customer. The Company's standard terms are 'FOB' shipping point, with no
      customer acceptance provisions. No products are sold on consignment. Credit
      sales are recorded as trade accounts receivable and no collateral is required.
      Revenue from items sold through the Company's retail location is recognized
      at
      the time of sale. The Company has established an allowance for doubtful accounts
      based upon factors pertaining to the credit risk of specific customers,
      historical trends, and other information. Delinquent accounts are written-off
      when it is determined that the amounts are uncollectible. Revenues are
      recognized net of the amount of goods and services tax (GST) payable to the
      Australian taxing authority.




The
      company also receives processing revenue which represents fees charged in
      connection with contracts to process fruit for other winemaking companies.
      It is
      recognized when the service is provided to the customer.




CONTINGENCIES
      - We may be subject to certain asserted and unasserted claims encountered in
      the
      normal course of business. It is our belief that the resolution of these matters
      will not have a material adverse effect on our financial position or results
      of
      operations, however, we cannot provide assurance that damages that result in
      a
      material adverse effect on our financial position or results of operations
      will
      not be imposed in these matters. We account for contingent liabilities when
      it
      is probable that future expenditures will be made and such expenditures can
      be
      reasonably estimated.




LONG-LIVED
      ASSETS - We periodically assesses the need to record impairment losses on
      long-lived assets, such as property, plant and equipment and purchased
      intangible assets, used in operations and its investments when indicators of
      impairment are present indicating the carrying value may not be recoverable.
      An
      impairment loss is recognized when estimated undiscounted future cash flows
      expected to result from the use of the asset plus net proceeds expected from
      disposition of the asset (if any) are less than the carrying value of the asset.
      When an impairment is identified, the carrying amount of the asset is reduced
      to
      its estimated fair value. All goodwill will no longer be amortized and potential
      impairment of purchased intangible assets with indefinite useful lives will
      be
      evaluated using the specific guidance provided by SFAS No. 142 and SFAS No.
      144,
“Accounting for the Impairment or Disposal of Long-Lived Assets.” This
      impairment analysis will be performed at least annually. For investments in
      affiliated companies that are not majority-owned or controlled, indicators
      or
      value generally include revenue growth, operating results, cash flows and other
      measures. Management then determines whether there has been a permanent
      impairment of value based upon events and circumstances that have occurred
      since
      acquisition. It is reasonably possible that the impairment factors evaluated
      by
      management will change in subsequent periods, given that the Company operates
      in
      a volatile environment. This could result in material impairment charges in
      future periods.




**NATURE
      OF THE OPERATIONS OF THE COMPANY**




**Background** .





We
      were
      incorporated as a Nevada corporation on January 1, 1997 under the name Dazzling
      Investments, Inc. At the time of our formation, we intended to sell jewelry
      on
      the Internet, consisting of cubic zirconium stones mounted in various settings.
      As at December 31, 1996, all funds raised by the sale of shares of $.001 par
      value common stock in order to fulfill our initial objective had been expended
      and we, thereafter, become dormant.




28




From
      January 1, 1997 until December 22, 2005, we were in the developmental stage
      and
      had no operations and could therefore be defined as a “shell” Company, an entity
      which is generally described as having no or nominal operations and with no
      or
      nominal assets or assets consisting solely of cash and cash
      equivalents.





On
      October 7, 2005, we caused to be formed a corporation under the laws of the
      State of Nevada called Yarraman Winery, Inc. and acquired one hundred shares
      of
      its common stock for cash. As such, Yarraman Winery, Inc. (“Merger Sub”) became
      our wholly-owned subsidiary.





On
      December 6, 2005, Merger Sub was merged with and into us. As a result of the
      merger, our corporate name was changed to “Yarraman Winery, Inc.” Prior to the
      merger, Merger Sub had no liabilities and nominal assets and, as a result of
      the
      merger the separate existence of Merger Sub had ceased. We were the surviving
      corporation in the merger and, except for the name change provided for in the
      Agreement and Plan of Merger, there was no change in our directors, officers,
      capital structure or business.





On
      December 22, 2005, we entered into a Share Exchange Agreement with Yarraman
      Estate Pty Limited (“Yarraman Australia”), the shareholders of Yarraman
      Australia, Delta Dawn Pty Limited (the “Trustee” or “Delta Dawn”), as trustee of
      the Yarraman Road Trust (the “Trust”) and our shareholders, pursuant to which we
      acquired all of the issued and outstanding shares of stock of Yarraman Australia
      in exchange for the issuance in the aggregate of 15,000,000 of our shares (the
      “Shares”) to the Trustee. Yarraman Australia became
      our wholly-owned subsidiary and, upon the issuance of the Shares, the Trustee
      owned 60% of the Shares. Through our wholly-owned subsidiary, Yarraman
      Australia, we operate our primary business, which consists of the operation
      of
      vineyards and wine production in Australia and distribution of our wine products
      in Australia, United States, Canada, New Zealand, Hong Kong and throughout
      Europe.





**Overview** .




We
      produce and sell premium (up to US$14), super-premium (up to US$20) and
      ultra-premium (over US$20) wines. Our wines are made at our state-of-the-art
      winery in New South Wales, Australia, where grapes are crushed, fermented and
      made into wine or blended with wines purchased from other vineyards for
      production of varietals. Wines are sold both in Australia and internationally,
      principally under our “Yarraman” label. The vineyards from which we produce our
      wines are located on land in two regions in the State of New South Wales,
      Australia - the Upper Hunter Valley and Gundagai. Prior to the restructuring
      described above, Yarraman Australia conducted business as Delta
      Dawn.





Opened
      in
      1967 on the Upper Hunter Wybong property, our winery currently has a 2,300
      ton
      processing facility with the capacity to yield 160,000 cases. The winery
      utilizes current technology in its harvesting, production and packaging of
      its
      products. Over US$7.7 million (AU$10.3 million) has been spent since 1994 on
      capital improvements to the winery and vineyard.





The
      Wirrilla Vineyard is located over two blocks of land comprising the Wirrilla
      Homestead and Wirrilla Point Block, with 470 acres under vines. The Wirrilla
      Vineyard produces wines including Sauvignon Blanc, Semillon, Verdelho,
      Chardonnay, Merlot, Cabernet Sauvignon and Shiraz. The wines produced from
      this
      vineyard are used in our premium range of wines.




***Export
      Wine Sales***





In
      2006,
      Australian exports grew 7.1% to a record 722 million liters. Although the
      average price per liter declined 6.2% to AU$3.82, representing the fourth
      consecutive financial year the average price for Australian wine exports has
      declined, the overall dollar value of these exports grew by 1.5% to AU$2.8
      billion.




29




The
      increase in international red wine sales including sales to the United States
      continue to be major drivers of growth for Australian wineries. Red wine
      continues to have a higher margin of sales over white wine comprising 50% of
      the
      total Australian wine exports. The United States, which grew its share of
      Australian wine exports to 31% of total exports in 2005 and 2006, has had the
      strongest export growth for all Australian wines. However, the United Kingdom,
      which consists of 38% of the total export market, remains Australia’s largest
      overseas market by volume. Despite the disparity in size, the United States
      market supports higher sales margins per gallon and correspondingly was the
      largest market by value. Currently, the Company ships approximately 8,000 cases
      per year to the United States, less than 1% of the total market.




With
      continuing investment and development in its brands, the Company plans to
      capitalize on consumer demand in the primary export markets of the United
      States, Canada, United Kingdom, Ireland and Asia. Yarraman have also initiated
      sales to Europe and China as being areas in which, with carefully selected
      chosen partners, it can develop branded and non-branded wine
      distribution.





Our
      wines
      are distributed by independent companies throughout the world’s premium wine
      consuming nations.





We
      export
      approximately 35% of our annual volume production whereas most competitors
      in
      the region export approximately 14% of its volume production. The
      grape
      production for a particular year will be reflected in sales revenue in
      approximately two years owing to the fact that we record product sales following
      the aging time necessary in winemaking .





The
      Company appoints agents or distributors in export markets to facilitate
      importation of wines to the designated markets. Agents or distributors provide
      sales representation and facilitate or directly distribute wines within their
      regions.




All
      markets, with the exception of the United States and Canada, purchase “Yarraman”
branded wines in Australian dollars with shipping from Australia paid for by
      and
      at the risk of the purchaser. These wines are then sold wholesale. Singapore
      and
      Hong Kong distributors also engage in retail sales.





Our
      Canadian distributor acts as a commissioned agent facilitating the importation
      wines into the Canadian provinces and provides sales representation in
      government controlled and privatized markets. Exports to Canada are also shipped
      from Australia at the purchaser’s risk and cost, although such sales are made in
      Canadian dollars.





In
      February 2006, we finalized a distribution agreement with Robert Whale Imports
      to act as the sole importer of our new range of wines. This launch has thus
      far
      been successful, with twelve month projected sales targets, through December
      2006, overachieving by 22%.




On
        October 23, 2006 we entered into a consulting agreement with a firm in Australia
        for services in recruiting certain consultants and Board members for us as
        well
        as assisting us in establishing international distribution arrangements.
        Certain
        milestones were set in the contract. Upon completion of each milestone an
        agreement was made for payment to the consultant in shares of our company
        stock
        as follows:
 
 Milestone
        1 - 50,000 shares of stock, or $100,000 in shares, whichever is
        greater
 Milestone
        2 - 50,000 shares of stock, or $100,000 in shares, whichever is
        greater
 Milestone
        3 - 100,000 shares of stock, or $200,000 in shares, whichever is
        greater
 
 As
        of
        December 31, 2006 Milestone 1 had been completed. To date we have not issued
        any
        shares related thereto but have recorded the liability of
        $117,000 (see Note 4) .
 
 In
        addition to the above we have agreed to pay the consultant approximately
        $4,700
        per month starting on November 1, 2006 and ending upon the completion of
        our
        merger negotiations. A copy of the agreement is filed as Exhibit 10.1 hereto.


On
      December 21, 2006, we entered into a conditional agreement with Grape
      Expectations Ltd. to acquire 19.9% of Evans & Tate Ltd., the sixth largest
      wine producer in Australia which is listed on the Australian Stock Exchange.
      Subsequently, we lodged an offer with the Board of Evans & Tate to merge the
      two companies by scheme of arrangement which, among other things, would also
      include consolidating and refinancing the current outstanding debt held by
      us
      and Evans & Tate. The consideration offered to Evans & Tate’s
      shareholders in this offer was one (1) Yarraman share for nine (9) Evans &
Tate ordinary shares. This offer was rejected by the Evans & Tate Board on
      January 16, 2007. A revised offer was submitted to Evans & Tate on February
      1, 2007 which increased the offer to one Yarraman share for each 6.75 Evans
      & Tate share. On
      February 20, 2007 the offer was conditionally accepted and due diligence will
      occur prior to approval by Evans & Tate, Ltd.




30




In
      December 2006, the company finalized purchase commitments for all grapes
      produced on the Wirrilla Vineyard, to an unrelated third party, generating
      sales
      in excess of AU$550,000, or approximately $434,000 USD. This revenue will be
      received in three installments, as is standard industry practice.




In
      January 2007, we secured commitments from World Icon Group Pty Ltd to supply
      red
      and white wines into Taiwan. Initial orders of two containers will be shipped
      in
      February 2007. Additionally, we have received initial orders from China Duty
      Free for our new “Red Horse” brand. These orders are scheduled to be shipped in
      late February 2007.




In
      January 2007, we signed an agreement with Axios Health Pty Ltd, an Australian
      wholesaler servicing the hospitality sector, to supply 5000 9Lt. cases of wine
      per calendar year under the “Goodness Estate” brand name.





**Seasonal
      And Quarterly Results**





The
      Company has historically experienced and expects to continue experiencing
      seasonal fluctuations in its revenues and net income. Sales volumes increase
      progressively beginning in the fourth quarter through to the second quarter
      with
      declines in the first six weeks of the third quarter for the domestic market.
      In
      the export market the Company has traditionally seen increases in orders in
      the
      third quarter progressively increasing to the second quarter of the following
      financial year due to substantial lead times to meet seasonal sales
      requirements.




**RESULTS
      OF OPERATIONS**




The
      following table sets forth, for the periods indicated, certain operating
      information expressed as a percentage of revenue :




**Six
                Months ended December 31,**
            
            **Three
                Months ended December 31,****2006**
            
            **2005**
            
            **2006**
            
            **2005**Revenue
            
            $
            836,543
            
            
            100
            %
            $
            1,014,755
            
            
            100
            %
            $
            431,798
            
            
            100
            %
            $
            309,040
            
            
            100
            %Cost
                of Revenue
            
            
            580,562
            
            
            69
            %
            
            790,937
            
            
            78
            %
            
            300,500
            
            
            70
            %
            
            151,343
            
            
            49
            %Gross
                Profit
            
            
            255,981
            
            
            31
            %
            
            223,818
            
            
            22
            %
            
            131,298
            
            
            30
            %
            
            157,697
            
            
            51
            %Other
                Income (Expense)
            
            
            (377,087
            )
            
            (45
            )%
            
            10,609
            
            
            1
            %
            
            (224,047
            )
            
            (52
            )%
            
            7,645
            
            
            3
            %General
                and administrative expenses
            
            
            1,239,112
            
            
            148
            %
            
            602,062
            
            
            59
            %
            
            685,586
            
            
            159
            %
            
            315,487
            
            
            102
            %Other
                general expenses
            
            
            521,019
            
            
            62
            %
            
            0
            
            
            0
            
            
            521,019
            
            
            121
            %
            
            0
            
            
            0Income
                before income tax
            
            
            (1,881,237
            )
            
            (225
            )%
            
            (367,635
            )
            
            (36
            )%
            
            (1,299,354
            )
            
            (301
            )%
            
            (150,145
            )
            
            (48
            )%Income
                tax expenses
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0**Net
                Income**
            
            
            ($1,881,237
            )
            
            (225
            )%
            
            ($367,635
            )
            
            (36
            )%
            
            ($1,299,354
            )
            
            (301
            )%
            
            ($150,145
            )
            
            (48
            )%




31




**SIX
      MONTHS ENDED DECEMBER 31, 2006 COMPARED TO SIX MONTHS ENDED DECEMBER 31,
      2005**




***REVENUE*** **.** Revenue
      was $836,543 in the six months ended December 31, 2006 compared to $1,014,755
      in
      the six months ended December 31, 2005. The decrease in revenue in the 2006
      six-month period is primarily attributable to a non-recurring bottling contract
      performed in 2005 that represented $492,400 which did not reoccur in the six
      months ended December 31, 2006. The decrease was partially offset by an increase
      in export sales of $214,864 (231%) in the six months ended December 31, 2006
      compared to the same period in the previous year resulting from significant
      orders being achieved in United States, Canada and Europe and domestic sales
      increasing by $143,691 (40%) for the six month period in the current year
      compared to the same period in the previous year. Total case sales of bottled
      wine for the six months ended December 31, 2006 were 17,485 compared to 9,745
      cases in the same period the previous year.




***COST
      OF REVENUE*** **.** Cost of
      revenue was $580,562 in the six months ended December 31, 2006 compared to
      $790,937 in the six months ended December 31, 2005. As a percentage of revenue,
      cost of revenue was 69% in the six months ended December 31, 2006 compared
      to
      78% in the six months ended December 31, 2005. This decrease in cost of revenue
      was mainly attributable to a change in our revenue mix with a significant amount
      of contract winemaking included in the three months ended December 31, 2005
      which is a high cost, low-margin activity for us. There was no contract
      winemaking activity in the 2006 period. This decrease in cost was offset in
      part
      by lower margins obtained on the introduction of a new product range in the
      U.S.
      market through a new distributor. Gross profit was $255,981 in the six months
      ended December 31, 2006 compared to a gross profit of $223,818 in the six months
      ended December 31, 2005. As a percentage of revenue, gross profit increased
      to
      31 % in the six months ended December 31, 2006 from 22% in the six months ended
      December 31, 2005 related to the items discussed above.





***OTHER
      INCOME (EXPENSE)*** **.** Other
      income (expense) was ($377,087) in the six months ended December 31, 2006
      compared to $10,609 in the six months ended December 31, 2005. The increase
      was
      primarily attributable to an increase in interest expense of $376,157, which
      is
      a result our assumption of an interest bearing loan following the asset purchase
      agreement with the Trust on December 22, 2005. As a percentage of revenue,
      other
      expense increased to (45) % in the six months ended December 31, 2006 from
      other
      income of 1% in the six months ended December 31, 2005. This increase was due
      to
      the reasons discussed above.




***SALES,
      GENERAL AND ADMINISTRATIVE EXPENSES*** **.**  Sales,
      general and administrative expenses were $1,760,131 in the six months ended
      December 31, 2006 compared to $602,062 in the six months ended December 31,
      2005, an increase of $1,158,069. This increase was primarily attributable to
      the
      following items:




(1)
      lease
      expense of $200,458 paid in 2006 relating to a lease paid to the Delta Dawn,
      for
      use of the Wirrilla vineyard entered into on January 1, 2006.




(2)
      an
      increase of $112,735 in depreciation and amortization expense associated with
      fixed assets acquired from the asset purchase agreement with the Trust in
      December 2005.




(3)
      increase in directors fees, and legal and accounting costs of $75,628 associated
      with becoming a U.S. public company.




(4)
      an
      increase of $197,333 for creation of an inventory reserve to comply with
      accounting requirements based on our slow moving inventory related to current
      market conditions in Australia.




32




(5)
      an
      increase of $206,186 based on the net write-off of unrecoverable
      vineyard expenses and associated fixed winemaking expenses resulting from the
      decision not to take any crop from our vineyards for our own use in 2007. The
      majority of the crop from the Wirrilla vineyard has been sold to a major
      Australian winemaking company. Normally these costs would be capitalized and
      be
      included in our bulk wine valuation.




(6)
      an
      increase of $117,000 based on stock to be issued for payment to an independent
      consultant in relation to strategic planning for the Company.




(7)
      an
      increase of $100,580 due to recruitment expenses in our search for a new Chief
      Executive Officer and related salary increase during the three month period
      that
      we had two Chief Executive Officers to insure a smooth transition.




As
      a
      percentage of revenue, sales, general and administrative expenses increased
      to
      210% in the six months ended December 31, 2006 from 59% in the six months ended
      December 31, 2005. This increase was due to the items as discussed above.




***NET
      INCOME (LOSS).*** Our
      net loss
      before income tax was $(1,881,237) in the six months ended December 31, 2006
      compared to a net loss of $(367,635) in the three months ended December 31,
      2005. This increase in loss was attributable to the decrease in our revenue,
      an
      increase in selling, general and administrative expenses attributable to
      increased depreciation, lease expense and, corporate expenses, non recurring
      inventory and vineyard write-downs, consulting costs relating to strategic
      development and an increase in our interest expense relating to new
      debt.




**THREE
      MONTHS ENDED DECEMBER 31, 2006 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
      2005**




***REVENUE*** **.** Revenue
      was $431,798 in the three months ended December 31, 2006 compared to $309,040
      in
      the three months ended December 31, 2005. The increase in revenue in the
      three-month period is primarily attributable to an increase in export sales
      of
      $129,405 (398%) in the three months ended December 31, 2006 compared to the
      same
      period in the previous year. This was a result of management appointing a new
      distributor in the U.S. during 2006 and having an increased presence in Europe
      and Canada. Domestic sales also increased by $27,851 (12%) for the three month
      period in the current year. Total case sales of bottled wine for the three
      months ended December 31, 2006 were 8,181 compared to 5,764 cases in the same
      period the previous year.




***COST
      OF REVENUE*** **.** Cost of
      revenue was $300,500 in the three months ended December 31, 2006 compared to
      $151,343 in the three months ended December 31, 2005. As a percentage of
      revenue, cost of revenue was 70% in the three months ended December 31, 2006
      compared to 49% in the three months ended December 31, 2005. This increase
      in
      cost of revenue was attributable to lower margins obtained on the introduction
      of a new product range into the US market through a new distributor. Gross
      profit was $131,298 in the three months ended December 31, 2006 compared to
      a
      gross profit of $157,697 in the three months ended December 31, 2005. As a
      percentage of revenue, gross profit decreased to 30 % in the three months ended
      December 31, 2006 from 51% in the three months ended December 31, 2005 related
      to the items discussed above.





***OTHER
      INCOME (EXPENSE)*** **.** Other
      income (expense) was ($224,047) in the three months ended December 31, 2006
      compared to $7,645 in the three months ended December 31, 2005. The increase
      was
      primarily attributable to an increase in interest expense of $219,580, which
      is
      a result our assumption of an interest bearing loan following the asset purchase
      agreement with The Trust on December 22, 2005. As a percentage of revenue,
      other
      expense increased to (52) % in the three months ended December 31, 2006 from
      other income of 3% in the three months ended December 31, 2005. This increase
      was due to the reasons discussed above.




33




***SALES,
      GENERAL AND ADMINISTRATIVE EXPENSES*** **.**  Sales,
      general and administrative expenses were $1,206,605 in the three months ended
      December 31, 2006 compared to $315,487 in the three months ended December 31,
      2005, an increase of $891,118. This increase was primarily attributable to
      the
      following items:




(1)
      lease
      expense of $100,229 paid in 2006 relating to a lease paid to the Trust, for
      use
      of the Wirrilla vineyard entered into on January 1, 2006.




(2)
      an
      increase of $52,659 in depreciation and amortization expense associated with
      fixed assets acquired from the asset purchase agreement with the Trust in
      December 2005.




(3)
      increase in directors fees, and legal and accounting costs of $60,942 associated
      with becoming a U.S. public company.




(4)
      an
      increase of $197,333 for creation of an inventory reserve to comply with
      accounting requirements based on our slow moving inventory related to current
      market conditions in Australia.




(5)
      an
      increase of $206,186 based on the net write-off of unrecoverable
      vineyard expenses and associated fixed winemaking expenses resulting from the
      decision not to take any crop from our vineyards for our own use in 2007. The
      majority of the crop from the Wirrilla vineyard has been sold to a major
      Australian winemaking company. Normally these costs would be capitalized and
      be
      included in our bulk wine valuation.




(6)
      an
      increase of $117,000 based on stock to be issued for payment to an independent
      consultant in relation to strategic planning for the Company.




(7)
      an
      increase of $81,718 due to recruitment expenses in our search for a new Chief
      Executive Officer and related salary increase during the three month period
      that
      we had two Chief Executive Officers to insure a smooth transition.




As
      a
      percentage of revenue, sales, general and administrative expenses increased
      to
      279% in the three months ended December 31, 2006 from 102% in the three months
      ended December 31, 2005. This increase was due to the items as discussed above.




***NET
      INCOME (LOSS).*** Our
      net loss
      before income tax was $(1,299,354) in the three months ended December 31, 2006
      compared to a net loss of $(150,145) in the three months ended December 31,
      2005. This increase in loss was attributable to the decrease in our revenue,
      an
      increase in selling, general and administrative expenses attributable to
      increased depreciation, lease expense and corporate expenses, non recurring
      inventory and vineyard write-downs, consulting costs relating to strategic
      development and an increase in our interest expense relating to new
      debt.




**LIQUIDITY
      AND CAPITAL RESOURCES**




As
      of
      December 31, 2006, we had $82,387 of cash and cash equivalents and $3,425,287
      of
      working capital as compared to $168,706 and $3,246,725, respectively, at
      December 31, 2005 .





On
      December 21, 2005, we entered into a long term loan with the Trust with an
      initial principal balance of AU$1,612,666. According to the repayment terms,
      50%
      of the loan balance is first due after the first 25 months and the remaining
      balance is otherwise payable for 36 equal monthly installments thereafter.
      After
      the 36 months, the entire remaining balance becomes due and payable immediately.




34




An
      additional loan agreement was also signed on May 1, 2006 with the Delta Dawn,
      with a principal amount of $656,000. This loan was provided to assist with
      our
      working capital requirements due to the low level of sales revenue generated
      during the period. On May 25, 2006, Delta Dawn loaned us an additional $10,950
      to be paid according to the terms of the May 1, 2006 loan.





In
      August
      2006, we entered into a loan with a related party Whinners Pty Limited, for
      an
      amount of $395,000 at an interest rate of 8.75%. During the period October
      2006
      to December 2006 we borrowed an additional $355,000 from this entity at the
      same
      interest rate of 8.75%. The repayment terms of the entire $750,000 has been
      extended until such time as financing related to a proposed merger has been
      received. If
      the
      proposed merger is not consummated terms of repayment for this loan will be
      renegotiated.




Management
      has been exploring options to refinance its long term loan from Provident Bank,
      currently with an outstanding balance of $4,207,230. Any refinancing transaction
      will seek terms that provide a lower interest rate, which management believes
      will further increase the amount cash flow as a result of savings because of
      lower interest payments.




Management
      has also negotiated a debtor facility with a related party to provide working
      capital. This facility was implemented in February 2007.





We
      are
      currently in discussion with several potential acquisition candidates and have
      made a revised offer to merge with Evans & Tate, a publicly listed company
      in Australia, which, if successful, management believes will improve our
      operating results and working capital.




**ITEM
              3.**
            **CONTROLS
                  AND PROCEDURES******




Evaluation
      of Disclosure on Controls and Procedures .





Under
      the
      supervision and with the participation of our management, including the
      principal executive officer and the principal accounting officer, we conducted
      an evaluation of the effectiveness of the design and operation of our disclosure
      controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under
      the
      Securities Exchange Act of 1934, as of the end of the period covered by this
      report (the “Evaluation Date”). Based on this evaluation, our principal
      executive officer and principal accounting officer concluded as of the
      Evaluation Date that our disclosure controls and procedures were effective
      such
      that the material information required to be included in our Securities and
      Exchange Commission (“SEC”) reports is accumulated and communicated to
      management (including such officers) as appropriate to allow timely decisions
      regarding required disclosure and recorded, processed, summarized and reported
      within the time periods specified in SEC rules and forms relating to the
      Company, including our consolidated subsidiaries.





Changes
      in Internal Control Over Financial Reporting .




Additionally,
      there were no changes in our internal control over financial reporting that
      during the period covered by this Quarterly Report on Form 10-QSB has materially
      affected, or is reasonably likely to materially affect, our internal control
      over financial reporting.




35




**PART
      II -** **OTHER
      INFORMATION** ****




**ITEM
              1.**
            **LEGAL
                  PROCEEDINGS.******




None.




**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.******




None.




**ITEM
              5.**
            **OTHER
                  INFORMATION.**




There
      have been no material changes to the procedures by which security holders may
      recommend nominees to the Company’s board of directors.


36




EXHIBITS.




**(a)**  **EXHIBITS**




The
      following exhibits are filed as part of this report:




**Exhibit
                Number**
            
            **Description**10.1
            
            Consultancy
              Agreement dated October 23, 2006 between the Company and Warrick Duthy
              Consulting Pty Ltd.31.1
            
            Certification
                of Chief Executive Officer pursuant to Rule 13A-14(A)/15D-14(A) of
                the
                Securities Exchange Act of 1934, as adopted pursuant to Section 302
                of the
                Sarbanes-Oxley Act of 2002.31.2
            
            Certification
                of the Principal Financial Officer pursuant to Rule 13A-14(A)/15D-14(A)
                of
                the Securities Exchange Act of 1934, as adopted pursuant to Section
                302 of
                the Sarbanes-Oxley Act of 2002.32.1
            
            Certification
                of Chief Executive Officer and the Principal Financial Officer Pursuant
                to
                18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of
                2002).




37




**SIGNATURES**




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


**YARRAMAN
              WINERY, INC.**Date: February
              19, 2007
            By:
            /s/ Wayne
              RockallWayne
                Rockall
              Chief
                Executive Officer




Date: February
              19, 2007
            By:
            /s/ John
              WellsJohn
                Wells
              Chief
                Financial Officer




38