**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 **Washington,
        D.C. 20549**
 
 
 **FORM
        10-QSB**
 
 **x** **QUARTERLY
        REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
        1934**
 
 FOR
        THE
        QUARTERLY PERIOD ENDED DECEMBER 31, 2007
 
 **o** **TRANSITION
        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 as specified 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 o NO x
  Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act). YES o NO x
  There
        were 38,000,000 shares of the Issuer’s common stock outstanding on September 29,
        2008.
  Transitional
        Small Business Disclosure Format (check one): YES o NO x
 1
 **TABLE
        OF CONTENTS**
  **Page****PART
                  I - FINANCIAL INFORMATION****ITEM
                  1.**
              
              
              FINANCIAL
                  STATEMENTS
              
              
              3**ITEM
                  2.**
              
              
              MANAGEMENT’S
                  DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
              
              
              22**ITEM
                  3.**
              
              
              CONTROLS
                  AND PROCEDURES
              
              
              32**PART
                  II - OTHER INFORMATION****ITEM
                  1.**
              
              
              LEGAL
                  PROCEEDINGS
              
              
              33**ITEM
                  2.**
              
              
              UNREGISTERED
                  SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
              
              
              33**ITEM
                  3.**
              
              
              DEFAULTS
                  UPON SENIOR SECURITIES
              
              
              33**ITEM
                  4.**
              
              
              SUBMISSION
                  OF MATTERS TO A VOTE OF SECURITY HOLDERS
              
              
              33**ITEM
                  5.**
              
              
              OTHER
                  INFORMATION
              
              
              33**ITEM
                  6.**
              
              
              EXHIBITS
              
              
              33
  2
  **PART
        I - FINANCIAL INFORMATION**
 
 **ITEM
        1.****FINANCIAL
        STATEMENTS**
  YARRAMAN
        WINERY, INC. AND SUBSIDIARY
  CONSOLIDATED
        UNAUDITED FINANCIAL STATEMENTS
 
 December
        31, 2007
 
 **TABLE
        OF CONTENTS**
 
 Consolidated
                  Unaudited Balance Sheets
              
              
              4Consolidated
                  Unaudited Statements of Operations
              
              
              5Consolidated
                  Unaudited Statements of Cash Flow
              
              
              6Notes
                  to Consolidated Unaudited Financial Statements
              
              
              7-22
  
 3
 YARRAMAN
                    WINERY, INC. AND SUBSIDIARYCONSOLIDATED
                    BALANCE SHEETS
  ASSETS
  December
                    31,
                
                June
                    30,2007
                
                2007Current
                    Assets
                
                (Unaudited)Cash
                    and cash equivalents
                
                $
                6,878
                
                $
                150,072Accounts
                    receivable, net
                
                
                844,013
                
                
                775,718Inventory
                
                
                4,696,879
                
                
                4,074,056Other
                    receivables
                
                
                210,386
                
                
                85,931Due
                    from related parties
                
                
                61,266
                
                
                -Other
                    assets
                
                
                246,850
                
                
                227,672Total
                    Current Assets
                
                
                6,066,272
                
                
                5,313,449Property,
                    plant and equipment, net
                
                
                4,195,343
                
                
                4,235,575Intangible
                    asset
                
                
                219,183
                
                
                212,200$
                10,480,798
                
                $
                9,761,224LIABILITIES
                    AND STOCKHOLDERS' EQUITY (DEFICIT)Current
                    Liabilities:Accounts
                    payable and accrued expenses
                
                $
                1,393,968
                
                $
                1,199,567Capital
                    leases, current portion
                
                
                131,049
                
                
                140,849Due
                    to related party
                
                
                3,887,900
                
                
                2,905,986Total
                    Current Liabilities
                
                
                5,412,917
                
                
                4,246,402Long
                    Term Liabilities:Capital
                    leases, net of current portion
                
                
                72,962
                
                
                124,847Loans
                    payable - related party
                
                
                1,908,425
                
                
                1,749,097Long-term
                    debt
                
                
                5,026,016
                
                
                4,818,008Total
                    Long Term Liabilities
                
                
                7,007,403
                
                
                6,691,952Total
                    Liabilities
                
                
                12,420,320
                
                
                10,938,354Stockholders'
                    Equity (Deficit):Common
                    stock, $.001 par value, 90,000,000 authorized 25,250,000 and
                    25,000,000
                    shares issued and outstanding, respectively
                
                
                25,250
                
                
                25,000Additional
                    paid in capital
                
                
                5,565,002
                
                
                5,455,252Subscription
                    receivable
                
                
                (99,000
                )
                
                —Other
                    comprehensive income
                
                
                291,594
                
                
                10,977Accumulated
                    deficit
                
                
                (7,722,370
                )
                
                (6,668,359
                )Total
                    Stockholders' Equity (Deficit)
                
                
                (1,939,524
                )
                
                (1,177,130
                )$
                10,480,798
                
                $
                9,761,224
 The
                    accompanying notes are an integral part of these consolidated
                    unaudited
                    financial statements.
  4
 
 YARRAMAN
                        WINERY, INC. AND SUBSIDIARYCONSOLIDATED
                        STATEMENTS OF OPERATIONS(Unaudited)
 Three
                        month
                      period
                        ended
                      December
                        31,
                    
                    Six
                        month
                      period
                        ended
                      December
                        31,2007
                    
                    2007Sales,
                        net
                    
                    $
                    793,716
                    
                    $
                    1,466,710Cost
                        of sales
                    
                    
                    576,218
                    
                    
                    1,040,583Gross
                        profit (loss)
                    
                    
                    217,498
                    
                    
                    426,128Selling,
                        general and administrative expenses
                    
                    
                    390,688
                    
                    
                    1,021,145Loss
                        from operations
                    
                    
                    (173,190
                    )
                    
                    (595,017
                    )Other
                        (Income) ExpenseInterest
                        income
                    
                    
                    (227
                    )
                    
                    (954
                    )Interest
                        expense
                    
                    
                    272,981
                    
                    
                    472,615Other
                        (income) expenses net
                    
                    
                    1,946
                    
                    
                    24,977Gain
                        on sale of fixed asset
                    
                    
                    (5,818
                    )
                    
                    (5,818
                    )Transaction
                        gain (loss) on foreign currency
                    
                    
                    (33,057
                    )
                    
                    (31,830
                    )Total
                        Other (Income) Expense
                    
                    
                    235,825
                    
                    
                    458,990Loss
                        before income taxes
                    
                    
                    (409,015
                    )
                    
                    (1,054,007
                    )Provision
                        for income taxes
                    
                    
                    -
                    
                    
                    -Net
                        loss
                    
                    
                    (409,015
                    )
                    
                    (1,054,007
                    )Other
                        comprehensive income (loss)Foreign
                        currency translation
                    
                    
                    35,740
                    
                    
                    280,617Comprehensive
                        Loss
                    
                    $
                    (373,276
                    )
                    $
                    (773,391
                    )Net
                        loss per share:Basic
                        & diluted
                    
                    $
                    (0.01
                    )
                    $
                    (0.04
                    )Weighted
                        average number of shares outstanding:Basic
                        & diluted
                    
                    
                    25,250,000
                    
                    
                    25,250,000
 Weighted
                        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 consolidated
                        unaudited
                        financial statements.
  5
 YARRAMAN
                        WINERY, INC. AND SUBSIDIARYCONSOLIDATED
                        STATEMENTS OF CASH FLOWS
 SIX
              MONTHS ENDED DECEMBER 31, 2007
 (Unaudited)
 CASH
                        FLOWS FROM OPERATING ACTIVITIESNet
                        Loss
                    
                    $
                    (1,054,007
                    )Adjustments
                        to reconcile net loss to net cash used in operating
                        activities:Depreciation
                    
                    
                    181,111Amortization
                        of discount on debt
                    
                    
                    101,773(Increase)
                        / decrease in assets:Accounts
                        receivables
                    
                    
                    (68,295
                    )Inventory
                    
                    
                    (622,823
                    )Other
                        receivables
                    
                    
                    (124,455
                    )Other
                        assets
                    
                    
                    (19,178
                    )Increase
                        in liabilities:Accounts
                        payable and accrued expenses
                    
                    
                    195,865Total
                        Adjustments
                    
                    
                    (356,002
                    )Net
                        cash used in operations
                    
                    
                    (1,410,009
                    )CASH
                        FLOWS FROM INVESTING ACTIVITIESAcquisition
                        of property and equipment
                    
                    
                    (3,134
                    )CASH
                        FLOWS FROM FINANCING ACTIVITIESProceeds
                        from long-term debt
                    
                    
                    49,470Collection
                        on subscription receivable
                    
                    
                    11,000Capital
                        lease payments
                    
                    
                    (70,429
                    )Receivable
                        from related parties
                    
                    
                    (61,266
                    )Loans
                        payable - related party
                    
                    
                    886,292Net
                        cash provided by (used in) financing activities
                    
                    
                    815,067Effect
                        of exchange rate changes on cash and cash equivalents
                    
                    
                    454,883Net
                        decrease in cash and cash equivalents
                    
                    
                    (143,194
                    )Cash
                        and cash equivalents, beginning balance
                    
                    
                    150,072Cash
                        and cash equivalents, ending balance
                    
                    $
                    6,878SUPPLEMENTAL
                        DISCLOSURES:Cash
                        paid for:Income
                        tax payments
                    
                    $
                    -Interest
                        payments
                    
                    $
                    249,290Non-cash
                        financing and investing activitiesDiscount
                        on debt
                    
                    $
                    101,773
 The
                        accompanying notes are an integral part of these consolidated
                        unaudited
                        financial statements.
  6
 **YARRAMAN
        WINERY, INC. AND SUBSIDIARY**
 **NOTES
        TO THE CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS**
 **SIX
        MONTHS ENDED DECEMBER 31, 2007**
 
 NOTE
        1 - NATURE
        OF OPERATIONS
 
 On
        December 16, 2005, Yarraman Estate Pty Limited, a privately owned Australian
        company engaged in the production of wine (“Yarraman Australia”), purchased from
        the beneficial owners of all of Yarraman Australia’s shares, (the
“Shareholders”) and Delta Dawn Pty Limited as trustee (the Trustee”) of the
        Yarraman Road Trust (the “Trust”), the nominal holder of such shares, certain
        assets including land, buildings and equipment and water license rights by
        assuming certain debt, capital leases, contribution to paid in capital for
        the
        Trust and a liability to the Trust (the “Asset Purchase”). The assets and
        liabilities were recorded at the historical cost of the related party. No
        cash
        was exchanged. The following is a summary of the transaction:
 
 Assets
                  Purchased
              
              $
              5,759,740Liabilities
                  Assumed
              
              
              (4,384,740
              )Payable
                  to Former Parent
              
              
              (431,151
              )Contribution
                  to Capital
              
              
              (943,849
              )$
              -
 
 Yarraman
        Australia’s assets are pledged as collateral for a loan advance owed by Yarraman
        Australia to a commercial bank. Prior to the Asset Purchase, the Trust was
        the
        borrower of this loan; subsequent to the Asset Purchase, Yarraman Australia
        assumed the loan. As of December 31, 2007 the outstanding balance on this
        debt
        was approximately $5,026,016.
 
 On
        December 22, 2005, Yarraman Australia, the Trustee and the Trust, entered
        into a
        Share Exchange Agreement (the “Exchange Agreement”) with Yarraman Winery, Inc.
        (formerly Dazzling Investments, Inc.), a company incorporated on December
        6,
        1996 under the laws of the State of Nevada. Under the terms of the Exchange
        Agreement, Yarraman Winery, Inc. issued 15,000,000 shares of its common stock
        for all the issued and outstanding shares of Yarraman Australia (the “Share
        Exchange”). This issuance of Yarraman Winery, Inc.’s common stock is intended to
        be exempt from registration under the Securities Act of 1933, as amended
        (“Securities Act”).  Henceforth, Yarraman Winery, Inc. or Yarraman
        Australia are to be referred to collectively as the “Company”, unless reference
        is made to the respective company for reference to events surrounding that
        company.
 
 The
        Share
        Exchange 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 balance sheet consists of
        the net
        assets of Yarraman Australia, the accounting acquirer, at historical cost
        and
        the net assets of Yarraman Winery, Inc., the legal acquirer, at historical
        cost.
        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. 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 Yarraman Australia.
 
 The
        Company produces and sells premium, super premium and ultra premium varietal
        wines. The Company’s wines are made from grapes grown at its vineyard (the
“Vineyard”) and from grapes purchased from other Australian vineyards. The
        grapes are crushed, fermented and made into wine at the Company’s winery and the
        wines are sold principally under the Company’s Yarraman Estate Vineyard labels.
        Yarraman Australia’s vineyard and winery are located in the Upper Hunter Valley,
        approximately 200 miles north of Sydney, Australia.
 
 7
  Prior
        to
        the Exchange Agreement, 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.  In connection with the Exchange
        Agreement, certain shareholders of the Company agreed to cancel an aggregate
        of
        8,158,500 shares of the Company’s common stock resulting in 3,496,500 shares of
        common stock outstanding as a result of the reverse acquisition. All prior
        year
        information has been adjusted to reflect the stock cancellation and the stock
        dividend.
 
 In
        connection with Exchange Agreement, 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. This right was
        relinquished in September 2006. The principal balance of the note has been
        collected as of December 31, 2006. Interest receivable amounting $36,851
        is due
        on this Note as of December 31, 2007 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 to MillhouseIAG Limited (“Millhouse”) as a finder’s fee.
 
 NOTE
        2 - GOING
        CONCERN
 
 The
        accompanying financial statements have been prepared assuming that the Company
        will continue as a going concern basis, which contemplates the realization
        of
        assets and the satisfaction of liabilities in the normal course of business.
        The
        carrying amounts of assets and liabilities presented in the consolidated
        financial statements do not purport to represent their realizable or settlement
        value. As shown in the financial statements, during the year ended June 30,
        2007
        the Company incurred a loss of $4,452,780. During the six months ended December
        31, 2007 the Company incurred a loss of $684,878. In addition, the Company
        has
        suffered recurring losses from operations, cash deficiencies and the inability
        to meets its 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.
 
 8
  NOTE
        3 - 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 (“USD” or
“$”).
 
 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 Accounting
        Bulletin (SAB) 104. The Company recognizes
        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.
 
 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 $24,966
        and
        $42,440 as of December 31, 2007 and June 30, 2007, respectively.
 
 Vineyard
        Development Costs
 Vineyard
        development costs consist primarily of the costs of the vines and expenditures
        related to labor and materials to prepare the land and construct vine trellises.
        The costs are capitalized until the vineyard becomes commercially productive,
        at
        which time annual amortization is recognized using the straight-line method
        over
        the estimated economic useful life of the vineyard, which is estimated to
        be 30
        years. Amortization expense of vineyard development costs aggregated to $1,324
        for the six months ended December 31, 2007 and $3,460 for the year ended
        June
        30, 2007, and is included in inventory costs and ultimately becomes a component
        of costs of goods sold.
 
 Goods
        and Services Tax
 Revenues,
        expenses and assets are recognized net of the amount of goods and services
        tax
        (GST), except where the amount of GST incurred is not recoverable from the
        taxation authority. In these circumstances, the GST is recognized as part
        of the
        cost of acquisition of the asset or as part of the expense. Receivables and
        payables are stated with the amount of GST included.
 
 9
  The
        net
        amount of GST recoverable from, or payable to, the Australian Tax Authority
        (ATO) is included as current asset or liability in the statement of financial
        position. Cash flows are included in the statement of cash flows on a gross
        basis. The GST components of cash flows arising from investing and financing
        activities, which are recoverable from, or payable to, the ATO are classified
        as
        operating cash flows. The Company has a net consumption tax payable of $16,598
        as of December 31, 2007. The Company had a net consumption tax receivable
        of
        $9,761 as of June 30, 2007.
 
 In
        addition to GST, the Company is required to collect wine equalisation tax
        (“WET”) on sales of wine product to non-exempt Australian customers. Revenue is
        recorded net of WET taxes. The WET taxes payable is offset by a rebate of
        the
        WET tax offered by the Australian Taxation Office. The WET rebate of the
        WET tax
        is phased out after a statutory amount of Australian sales have been achieved.
        The Company has a net WET rebate receivable of $84,288 at December 31, 2007.
 
 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.




During
        the six months ending December 31, 2007, the management of the
        Company sold approximately 341,300 liters of unbottled wine at below cost.
        The
        Company recorded approximately $920,000 in cost of sales to reflect this
        inventory at lower of cost or market at June 30, 2007. Per Company management
        this reduction in inventory is not indicative of impairment to any other
        inventory product at December 31, 2007 or subsequently. The sales, per
        management, were completed to infuse working capital into the Company for
        ongoing operations.


December
                    31, 2007(unaudited)
                
                June
                    30, 2007Winemaking
                    and packaging materials
                
                $
                214,690
                
                $
                97,858Work
                    in progress (costs related to unprocessed andnot
                    yet bottled products)
                
                
                3,287,785
                
                
                3,434,408Finished
                    goods (bottled wine)
                
                
                1,194,404
                
                
                541,790$
                4,696,879
                
                $
                4,074,056
 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
        amortizations 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.
 
 10
  As
        of
        December 31, 2007 and June 30, 2007 Property, Plant and Equipment consist
        of the
        following:
 December
                    31, 2007(unaudited)
                
                June
                    30, 2007Buildings
                    and improvements
                
                $
                37,905
                
                $
                36,698Land
                
                
                927,963
                
                
                898,400Plant
                    and equipment
                
                
                4,136,535
                
                
                4,003,850Computer
                    equipment
                
                
                45,089
                
                
                41,527Furniture
                    and Fixtures
                
                
                23,580
                
                
                22,8305,171,072
                
                
                5,003,305Accumulated
                    depreciation
                
                
                (975,729
                )
                
                (767,730
                )$
                4,195,343
                
                $
                4,235,575
 Capital
        Lease Obligations
 Included
        in Property, Plant and Equipment as of December 31, 2007 are $299,936 of
        net
        fixed assets that were purchased on capital lease arrangements.
 
 Fair
        Value of Financial Instruments
 Statement
        of financial accounting standard No. 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 current assets and current liabilities qualifying
        as
        financial instruments are a reasonable estimate of fair value.
 
 Long-Lived
        Assets
 The
        Company has adopted Statement of Financial Accounting Standards No. 144,
        “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”),
        which addresses financial accounting and reporting for the impairment or
        disposal of long-lived assets and supersedes SFAS No. 121, “Accounting for the
        Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
        Of,”
and the accounting and reporting provisions of APB Opinion No. 30, “Reporting
        the Results of Operations for a Disposal of a Segment of a Business.” The
        Company periodically evaluates the carrying value of long-lived assets to
        be
        held and used in accordance with SFAS 144. Under SFAS 144 impairment losses
        are
        to be recorded on long-lived assets used in operations when indicators of
        impairment are present and the undiscounted cash flows estimated to be generated
        by those assets are less than the assets’ carrying amounts. In that event, a
        loss is recognized based on the amount by which the carrying amount exceeds
        the
        fair market value of the long-lived assets. Loss on long-lived assets to
        be
        disposed of is determined in a similar manner, except that fair market values
        are reduced for the cost of disposal. Based on its review, the Company believes
        that, as of December 31, 2007 there were no significant impairments of its
        long-lived assets.
 
 Intangible
        Assets
 Effective
        July 2002, the Company 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 year ended June
        30, 2007. As of December 31, 2007 the intangible assets comprised of water
        licenses valued at $219,183, which are held in perpetuity.
 
 11
  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. As of December 31,
        2007
        all trademarks and other intangibles had been fully amortized.
 
 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.
 
 Loss
        contingencies considered to be remote by management are generally not disclosed
        unless they involve guarantees, in which case the guarantee would be
        disclosed.
 
 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.
 
 Basic
        and Diluted Earnings Per Share
 Earnings
        per share are 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 stated 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. For the six months ended December 31, 2007 and the year ended
        June
        30, 2007 the Company’s common stock equivalents have not been included for
        earning per share calculations as they are anti-dilutive.
 
 12
  Net
        loss per share
 The
        Company has adopted SFAS 128, “Earnings per Share.” Loss per common share is
        computed by dividing loss available to common shareholders by the weighted
        average number of common shares outstanding during the period. The common
        stock
        equivalents have not been included as they are anti-dilutive. As of December
        31,
        2007 and June 30, 2007, there are no common share equivalents.
 
 Translation
        Adjustment
 As
        of
        December 31, 2007, 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,
        stockholders’ 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 stockholders’
equity.
 
 Statement
        of Cash Flows
 In
        accordance with 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.
 
 Concentration
        of Credit Risk
 Financial
        instruments that potentially subject the Company to concentrations of credit
        risk are cash, and other receivables arising from their normal business
        activities. The Company places their cash in what they believe to be
        credit-worthy financial institutions. The Company has a diversified customer
        base, most of which are in Australia. The Company routinely assesses the
        financial strength of its customers and, based upon factors surrounding the
        credit risk, establishes an allowance, if required, for uncollectible accounts
        and, as a consequence, believes that its accounts receivable credit risk
        exposure beyond such allowance is limited.
 
 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.
 
 Comprehensive
        Income
 The
        Company has adopted Financial Accounting Standard No. 103 (“SFAS 130”),
“Reporting Comprehensive Income”. This statement establishes rules for the
        reporting of comprehensive income and its economic components. Comprehensive
        income consists of net loss to common shareholders and foreign currency
        translation adjustments and is presented in the consolidated statements of
        operations and stockholders’ equity.
 
 13
  Advertising
 Advertising
        is expensed as incurred. Advertising expenses for the six months ended December
        31, 2007 were approximately $3,697.
 
 Shipping
        Costs
 Shipping
        costs are included in selling and marketing expenses and totaled approximately
        $69,558 for the six months ended December 31, 2007.
 
 Income
        taxes
 The
        Company files federal and state income tax returns in the United States for
        its
        domestic operations, and files separate foreign tax returns for the Company’s
        Australian subsidiary. Income taxes are accounted for under Statement of
        Financial Accounting Standards No. 109, “Accounting for Income Taxes,” which is
        an asset and liability approach that requires the recognition of deferred
        tax
        assets and liabilities for the expected future tax consequences of events
        that
        have been recognized in the Company’s financial statements or tax
        returns.
 
 Reclassifications
 For
        comparative purposes, prior year’s consolidated financial statements may have
        been reclassified to conform to report classifications of the current
        year.
 
 New
        Accounting Pronouncements
 -
              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. The management
                  of
                  the Company is currently evaluating the effect of this pronouncement
                  on
                  the consolidated financial
                  statements.
 
 -
              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:
  14
  1.
            A
                brief description of the provisions of this Statement 2.
            The
                date that adoption is required 3.
            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 of the Company
        is
        currently evaluating the effect of this pronouncement on the consolidated
        financial statements.
 
 -
              In
                  February 2007, FASB issued FASB Statement No. 159, The Fair Value
                  Option
                  for Financial Assets and Financial Liabilities. FAS 159 is effective
                  for
                  fiscal years beginning after November 15, 2007. Early adoption
                  is
                  permitted subject to specific requirements outlined in the new
                  Statement.
 
 The
        new
        Statement allows entities to choose, at specified election dates, to measure
        eligible financial assets and liabilities at fair value that are not otherwise
        required to be measured at fair value. If a company elects the fair value
        option
        for an eligible item, changes in that item’s fair value in subsequent reporting
        periods must be recognized in current earnings. FAS 159 also establishes
        presentation and disclosure requirements designed to draw comparison between
        entities that elect different measurement attributes for similar assets and
        liabilities. The management of the Company is currently evaluating the effect
        of
        this pronouncement on financial statements.
 
 -
                  In
                      December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in
                      consolidated Financial Statements”. This Statement amends ARB 51 to
                      establish accounting and reporting standards for the non-controlling
                      (minority) interest in a subsidiary and for the deconsolidation
                      of a
                      subsidiary. It clarifies that a non-controlling interest in
                      a subsidiary
                      is an ownership interest in the consolidated entity that should
                      be
                      reported as equity in the consolidated financial statements.
                      SFAS No. 160
                      is effective for fiscal years beginning on or after December
                      15, 2008. The
                      management of the Company is currently evaluating the effect
                      of this
                      pronouncement on financial
                      statements.
 
 -
                  In
                      March 2008, the FASB issued FASB Statement No. 161, Disclosures
                      about
                      Derivative Instruments and Hedging Activities. The new standard
                      is
                      intended to improve financial reporting about derivative instruments
                      and
                      hedging activities by requiring enhanced disclosures to enable
                      investors
                      to better understand their effects on an entity’s financial position,
                      financial performance, and cash flows The new standard also
                      improves
                      transparency about the location and amounts of derivative instruments
                      in
                      an entity’s financial statements; how derivative instruments and related
                      hedged items are accounted for under Statement 133; and how
                      derivative
                      instruments and related hedged items affect its financial position,
                      financial performance, and cash flows. . It is effective for
                      financial
                      statements issued for fiscal years and interim periods beginning
                      after
                      November 15, 2008, with early application encouraged. Management
                      is
                      currently evaluating the effect of this pronouncement on financial
                      statements.
  15




-
                  In
                      December 2007, the FASB issued SFAS No. 141(R), “Business Combinations”.
                      This Statement replaces SFAS No. 141, Business Combinations.
                      This
                      Statement retains the fundamental requirements in Statement
                      141 that the
                      acquisition method of accounting (which Statement 141 called
                      the purchase
                      method) be used for all business combinations and for an acquirer
                      to be
                      identified for each business combination. This Statement also
                      establishes
                      principles and requirements for how the acquirer: (a) recognizes
                      and
                      measures in its financial statements the identifiable assets
                      acquired, the
                      liabilities assumed, and any non-controlling interest in theacquiree,
                      (b) recognizes and measures the goodwill acquired in the business
                      combination or a gain from a bargain purchase and (c) determines
                      what
                      information to disclose to enable users of the financial statements
                      to
                      evaluate the nature and financial effects of the business combination.
                      SFAS No. 141(R) will apply prospectively to business combinations
                      for
                      which the acquisition date is on or after Company’s fiscal year beginning
                      December 15, 2008. While the Company has not yet evaluated
                      this statement
                      for the impact, if any, that SFAS No. 141(R) will have on its
                      consolidated
                      financial statements, the Company will be required to expense
                      costs
                      related to any acquisitions after September 30,
                      2009.
 -
                      In May 2008, the Financial
                        Accounting
                        Standards Board (FASB) issued Statement of Financial Accounting
                        Standards
                        (SFAS) No. 162, “The Hierarchy of Generally Accepted Accounting
                        Principles.” The new standard is intended to improve financial reporting
                        by identifying a consistent framework, or hierarchy, for
                        selecting
                        accounting principles to be used in preparing financial statements
                        that
                        are presented in conformity with U.S. generally accepted
                        accounting
                        principles (GAAP) for non-governmental entities. Management
                        of the Company
                        is currently evaluating the effects, if any, that SFAS No. 162 may
                        have on our financial
                        reporting.
  NOTE
        4 - 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. As of December 31, 2007 cash held in Australian Banks are
        within
        Australian statuatory limits.
 
 NOTE
        5 - ACCOUNTS
        PAYABLE AND ACCRUED EXPENSES
 
 As
        of
        December 31, 2007 and June 30, 2007 the accounts payable and accrued expenses
        comprised of the following:
 December
                    31, 2007(unaudited)
                
                June
                    30, 2007Trade
                    creditors
                
                $
                922,219
                
                $
                740,545Accrued
                    expenses
                
                
                259,126
                
                
                309,976Payroll
                    liabilities
                
                
                95,622
                
                
                32,046Stock
                    to be issued
                
                
                117,000
                
                
                117,000$
                1,393,968
                
                $
                1,199,567
 Included
        in accrued expenses is a provision for annual employee leave, it 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, 2007 and June 30, 2007 annual leave was $33,685 and $33,668,
        respectively.
 
 At
        December 31, 2007 and June 30, 2007 included in accrued expenses is a net
        consumption tax receivable of $16,598 and $9,761, respectively and a net
        WET tax
        receivable of $84,288 and $13,266, respectively.
 
 NOTE
        6 - MAJOR
        CUSTOMERS AND VENDORS
 
 For
        the
        six months ended December 31, 2007 the Company’s largest customers, over
        10% of total sales, accounted for 16% of sales, respectively. There was
        $256,055 receivable from the customers as of December 31, 2007.
 
 16
  For
        the
        six months ended December 31, 2007 Company had no vendors that accounted
        for
        more than 10% of purchases.
  NOTE
        7 - RELATED
        PARTY TRANSACTIONS
 
 The
        Company entered into various related party transactions with the Trustee
        and the
        Trust that is their primary stockholder. The Trust was the sole shareholder
        of
        Yarraman Australia prior to the Share Exchange.
  -
              On
                  January 1, 2006 Yarraman Australia entered into a consulting agreement
                  with the Trustee 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 the Company is reduced to less than
                  15%. Under this agreement the Company must pay the Trustee$100,000
                  AUD (Australian Dollars)or
                  approximately$82,100
                  USD (US Dollars)annually.
                  This agreement was terminated on June 30, 2008.  During the six
                  months ended December 31, 2007 and 2006 the Company paid the Trustee
                  approximately $43,446 and $53,824,
                  respectively.
 
 NOTE
        8 - LOANS
        PAYABLE - RELATED PARTY / DUE TO RELATED PARTY
 
 -
              On
                  December 21 2005, prior to the Exchange Agreement and in connection
                  with
                  the Asset Purchase, Yarraman Australia entered into a loan agreement
                  with
                  the Trust, the nominal holder of all of Yarraman Australia’s shares. The
                  outstanding principal balance of this loan is $1,750,781. This
                  loan
                  advance is non-interest bearing. The loan is secured by the fixed
                  assets
                  of the Company, subordinated to all other loans of the Company
                  collateralized by the fixed assets. A total of 50% of the loan
                  payable, or
                  $875,391, is to be repaid in thirty-six monthly installments commencing
                  on
                  the first business day of the twenty-fifth month following the
                  loan
                  agreement, or approximately February 1, 2008. On the thirty-sixth
                  month of
                  payment, in January 2011, the remaining 50% of the loan payable
                  or
                  $875,391 is due and payable. The initial repayment date of February
                  2008
                  was extended to June 30, 2008.
 
 On
        May 1,
        2006 Yarraman Australia entered into a loan agreement with the Trust in the
        principal amount of $789,057. Originally, this loan agreement had an interest
        rate of 8%, with the same repayment terms of the December 21, 2005 loan.
        During
        the year ended June 30, 2006 a total of $10,910 in interest expense was recorded
        on this loan, until the Trust waived the interest requirement on this loan.
        On
        May 25, 2006 the Trust extended to Yarraman Australia an additional $13,151
        to
        be repaid in accordance with the same terms as the December 21, 2005 loan.
        This
        loan advance is also non-interest bearing.
 
 As
        of
        June 30, 2008 both loan advances above totaling $1,750,781 and the $789,057
        loan
        payable were converted into 6,559,524 shares of the Company common stock.
 
 17
  As
        the
        entire above loan advances, totaling $2,552,989 were non-interest bearing,
        the
        Company recorded an imputed interest of $967,784 which is recorded as discount
        on debt and a contribution of capital to the Company. This discount on debt
        is
        being amortized over the term that these loan advances are outstanding. During
        the six months ended December 31, 2007, the Company amortized $85,891 of
        this
        discount on debt recorded as interest expense. All these loan advances are
        recorded as long-term debt.
 
 The
        following is a reconciliation of the above loan advances as of December 31,
        2007:
 
 December
                  21, 2005 advance
              
              $
              1,750,782May
                  1, 2006 advance
              
              
              789,057May
                  25, 2006
              
              
              13,1512,552,989Discount
                  on debt
              
              
              (967,784
              )1,585,205Amortization
                  of discount on debt (balance sheet purposes)
              
              
              323,220$
              1,908,425
 
 -
              As
                  of December 31, 2007 the Company is indebted to a private company
                  that is
                  owned by one of the Company’s majority shareholders for $3,887,900.
                  This related party has made various advances, loans and payments
                  on behalf
                  of the Company, all of which are unsecured, and due on demand.
                  These
                  advances and loans accrued interest on their outstanding balances
                  ranging
                  between 0% and 10% per annum.
 
 On
        July
        1, 2007 various advances and loans made to the Company by a private company
        that
        is owned by one of the unit holders of the Company’s majority shareholders were
        restructured into one loan agreement for approximately $3,289,000. This new
        loan
        includes approximately $689,000 related to a sale of wine by the related
        party
        to the Company. This portion of the new loan is to be repaid commencing December
        7, 2007 with receipts from the proceeds of the re-sale of this wine by the
        Company until it is repaid in full. As of December 31, 2007 the balance on
        this
        portion of the loan was $689,000. The entire new loan accrues interest at
        6.5%
        per annum. This new loan is secured by the fixed assets of the Company,
        subordinate to the loan from the commercial bank, such loan totaling $5,026,016
        as of December 31, 2007. This new loan, together with outstanding interest,
        is
        to be repaid for any amounts still outstanding on September 30, 2008. On
        June
        30, 2008 AUD$2,400,000, or $2,104,152, of the above loan was converted into
        5,440,476 shares of the Company’s common stock.On
        October 15, 2008, the lender extended the repayment date on the balance of
        the loan remaining, subsequent to the $2,104,152 portion of the loan that
        had
        converted into common stock, from September 30, 2008 to September 30,
        2009.
 
 NOTE
        9 - LONG-TERM
        DEBT
 
 On
        December 21, 2005, prior to the Exchange Agreement and in connection with
        the
        Asset Purchase, Yarraman Australia assumed the loan facility that the Trust,
        the
        then nominal holder of all of Yarraman Australia’s shares, had with a financial
        institution located in Australia. As of December 31, 2007 the total amount
        due
        under this facility, inclusive of interest, is $5,084,352. This loan facility
        requires monthly interest payments due on the 15th 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 was due and payable on December 31, 2007. The loan
        is
        secured by certain property, plant and equipment of the Company as well as
        a
        guaranteed by the Trust. This loan facility has been extended through to
        December 31, 2008 by the lender with the following changes in the loan
        agreement: Higher interest rate is to be 16.50% per annum, lower interest
        rate
        is to be 10.50% per annum and if the Company notifies the lender prior to
        60
        days of their intention to repay, there will be no repayment fee.
 
 18
 NOTE
        10
        - LEASES PAYABLE
 
 As
        a part
        of the Asset Purchase agreement in December 16, 2005, the Company assumed
        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,
        2007
        are as follows:
 
 Plant
                  and equipment
              
              $
              412,928Less:
                  Accumulated depreciation
              
              
              (112,992
              )$
              299,936
 
 The
        future minimum lease payments under the capital lease and the net present
        value
        of the future minimum lease payments at December 31, 2007 are as
        follows:
 
 Total
                  minimum lease payments
              
              $
              228,299Amount
                  representing interest
              
              
              (24,289
              )Present
                  value of net minimum lease payments
              
              
              204,010Current
                  portion
              
              
              (131,049
              )Long-term
                  capital lease obligation
              
              $
              72,962
 
 The
        future aggregate minimum annual lease payments arising from these lease
        agreements are as follows:
 
 Year
                  endedDecember
                  31, 2008
              
              $
              151,065December
                  31, 2009
              
              
              61,787December
                  31, 2010
              
              
              15,447$
              228,299
 
 NOTE
        11 - STOCKHOLDERS’
        EQUITY
 
 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.
 On
          July
          16, 2007, as part of an employment agreement with Ian Long, President and
          Board
          Member, the Company agreed to sell 250,000 shares of its common stock to
          Mr.
          Long at the per share price of $0.44, for a total of $110,000. Mr. Long
          is
          paying for these shares over a five year period.
 
 19
 NOTE
        12 - COMMITMENTS
        AND CONTINGENCIES
 
 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 agreed to pay the firm a
                  monthly, nonrefundable, fee of $6,500. In addition, the Company
                  agreed to
                  pay a transaction fee to this consultant that is based on a sliding
                  percentage of any completed acquisition.  The original term of the
                  contract was from March 1, 2006 until July 1, 2006, it was subsequently
                  continued on a month-to-month basis. The total monthly fees paid
                  under the
                  agreement may be deducted from the total transaction fee. This
                  agreement
                  was terminated in April 2007. There were no fees paid under this
                  agreement
                  for the six months ended December 31, 2007.
 
 -
              On
                  September 7, 2006 the Company 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 the Company agreed
                  to pay a retainer of $35,000, of which $10,000 was paid, plus certain
                  percentages of financing or capital that is raised and merger acquisitions
                  completed.  The term of the contract was for six months, ending in
                  February 2007.  The agreement was not renewed and the firm waived the
                  remaining $25,000 retainer fee.
 
 -
              On
                  October 23, 2006 the Company entered into a consulting agreement
                  with a
                  firm in Australia for services in recruiting certain consultants
                  and Board
                  members for us, services in assisting the Company in establishing
                  international distribution arrangements, and for services with
                  a potential
                  business merger.  Certain milestones were set in the contract. 
                  Upon completion of each milestone an agreement was made for payment
                  to the
                  consultant in shares of the 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
        June 30, 2007 Milestone 1 was completed and the Company accrued $117,000
        in
        consulting exense. The Company issued 50,000 shares of common stock related
        thereto as of September 20, 2008.
 
 In
        addition to the above, the Company agreed to pay the consultant approximately
        $4,700 per month starting on November 1, 2006 and ending upon the completion
        of
        a potential business merger that was not completed. This agreement was
        terminated in June 2007. During the year ended June 30, 2007 the
        Company paid approximately $22,500 to this consultant.
 
 In
        connection with the above mentioned business merger that was not completed,
        on
        December 21, 2006 the Company had submitted an offer to merge with Evans
&
Tate, Ltd., a company publicly traded in Australia.  In March 2007 the
        merger was abandoned, and all conditional offers were terminated. Related
        to
        this acquisition the Company has incurred approximately $312,000 in expenses
        that have been expensed in the year ended June 30, 2007.
 
 20


Arbitration


The
        Company had entered into arbitration on a legal matter regarding one of their
        grape processing arrangements.  A dispute had arisen regarding storage
        charges that were invoiced related to the storage of wine processed under
        the
        arrangement.  The total amount in dispute was approximately $165,000. 
This amount has been recorded in income during the fiscal years ended June
        30,
        2006, 2005 and 2004.  No reserve had been accrued for this amount as the
        Company intended to vigorously defend their position. In the year ended June
        30,
        2007 this arbitration matter was mutually dropped by both parties.
  NOTE
        13 - SUBSEQUENT
        EVENTS
 
 On
        September 5, 2008 the Company entered into an Implementation Agreement with
        Asia
        Distributions Limited (ADSL), a public company in the United Kingdom, whereby
        the two companies propose to merge by means of an offer to be made on behalf
        of
        the Company to consist of 63,330,000 shares the Company’s common stock, in
        exchange for the entire share capital of ADSL, issued and to be issued,
        including 30,676,000 shares currently in issue and approximately 2,143,358
        shares to be issued. The formal offer is to be made to ADSL shareholders
        prior
        to October 16, 2008.
  Included
        and contemporaneous with the offer in the
        Implementation Agreement, the Company proposes to acquire assets owned by
        the
        Trust.  The asset is a vineyard and related plant and equuipment that
        Yarraman Australia previously leased from January 1, 2006 through May 31,
        2007.  The purchase price is expected to be approximately
        $11,000,000.
  Subsequent
            to March 31, 2008 the Company issued 700,000 shares of common stock to
            various
            Officers, Directors and vendors in payment of services rendered. The
            Company has
            recorded as an expense the value of the shares issued, $315,000, based
            on a per
            share price of $0.45.
  21
  **ITEM
        2.  MANAGEMENT’S DISCUSSION AND ANALYSIS AND RESULTS OF
        OPERATIONS**
  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, 2007.
  **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.
  22
 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.
 
 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,
“Goodwill and Other Intangible Assets” and “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.
  23
 **NATURE
        OF THE OPERATIONS OF THE COMPANY**
  **Background**
 
 We
        were
        incorporated as a Nevada corporation on December 6, 1996 under the name Dazzling
        Investments, Inc. From January 1, 1997 until December 22, 2005, we were in
        the
        developmental stage and had no operations. 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 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 (the “Exchange
        Agreement”) with Yarraman Estate Pty Ltd (“Yarraman Australia”), the
        shareholders of Yarraman Australia, Delta Dawn Pty Limited, as trustee of
        the
        Yarraman Road Trust (the “Trustee” or “Delta Dawn”) 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 shares of our common stock (the “Shares”) to the Trustee. Yarraman
        Australia became our wholly-owned subsidiary and, upon the issuance of the
        Shares, the Trustee owned 60% of our issued and outstanding common stock.
        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 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.
 
 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$10 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.
 Yarraman
          was awarded the Upper Hunter Exporter of the year award at the 2008 Hunter
          Export Awards. The annual Hunter Export Awards are held annually to recognize
          outstanding performance by exporters from all industries within the Hunter
          Valley region of New South Wales, Australia.
 **Product
        Overview**
 
 We
        offer
        a variety of wine for sale to retail customers. Our product line consists
        of:
 
 24
 ***Classic
        Hunter***
 
 Under
        the
        Classic Hunter label, we produce and sell the following wines in 750ml bottles:
        Shiraz, Chardonnay, Merlot and Gewurztraminer. The Shiraz is our largest
        selling
        varietal in this range and has become the product most associated with the
        “Yarraman Classic Hunter” label. The wines sell for approximately US$23 per
        bottle.
 
 These
        wines have received numerous awards and medals in the last three years from
        international and Australian wine shows including the International Wine
        and
        Food Society, the Hunter Valley Show, the Royal Adelaide Show, the Sydney
        Royal
        Wine Show and the Melbourne Wine Show. The
        Shiraz and Merlot were recently awarded 4 1⁄2 stars by the highly influential
        Australian wine magazine, Winestate. The Merlot is currently one of the
        finalists for the Winestate 2008 Wine Of The Year Award. The Shiraz also
        received a Silver medal at the 2008 Hunter Valley Wine Show.
 
 ***Black
        Cypress***
 
 Under
        the
        Black Cypress label, we currently produce and sell the following types of
        wines
        in 750ml bottles: Shiraz, Cabernet Merlot, Shiraz Rose, Chardonnay, Verdelho,
        Semillon, Savignon Blanc, Gewurztraminer and Chambourcin. The wines sell
        for
        approximately US$16 per bottle.
 
 These
        wines have received numerous awards and medals in the last four years from
        international and Australian wine shows including New World Wine Awards (NZ),
        the Winestate Shiraz Challenge, the International Food and Wine Society,
        the
        Hunter Valley Show, the Royal Adelaide Show, the Sydney Royal Wine Show and
        the
        Melbourne Wine Show. The
        Shiraz was recently awarded a Silver medal at the 2008 Hunter Valley Wine
        Show.
        The Cabernet Merlot was awarded 4 1⁄2 stars by influential Australian wine
        magazine Winestate, in their “Best Wines of 2007 “ issue.
 
 ***Red
        Horse Range***
  In
        May
        2006, we exported our first shipment of wines to our new distributor, Robert
        Whale Selections, in the United States. Under this label the range of wines
        is comprised of Shiraz Cabernet, Caberenet Merlot, Chardonnay and Semillon
        Verdelho and retail for approximately US$13 per bottle. In the year ended
        June
        30, 2008 we sold approximately 5,500 cases of wine through this
        distributor.
 
 ***Banjo
        Collection***
 
 Under
        the
        Banjo Collection label, we produce and sell the following types of wines
        in
        750ml bottles: Cabernet Merlot, Chardonnay Semillon and Shiraz Merlot. The
        suggested retail price for these wines is approximately US$12. The Cabernet
        Merlot is the Banjo range’s largest selling variety and has become the product
        most associated with the “Yarraman” label in the Banjo range.
 
 The
        Banjo
        Collection is an “export only” range that combines fruit sourced from our
        vineyards in the Upper Hunter Valley and Gundagai regions. These wines have
        received numerous awards since release in 2003 in the Sydney International
        Wine
        Competition, the International Wine and Food Society and the New World Wine
        Awards (NZ).
 
 ***The
        Bolter***
  The
          Bolter collection is a range of wines which was released in November 2005
          targeting domestic and international markets. This range was previously
          produced
          exclusively for a third party who would then sell to wholesalers and retailers.
          In June 2007 we assumed control of all sale and distribution for this
          collection. These wines are currently sold to a broad range of liquor retailers
          in Australia, with a suggested retail price for these wines of approximately
          US$10. During the year ended June 30, 2008 we sold approximately 25,000
          cases of
          this collection, compared to no sales in the year ended June 30, 2007.
 
 The
          Bolter collection sells the following range of wines in 750 ml bottles:
          Shiraz,
          Cabernet Merlot, Classic Dry White and Chardonnay.
 
 25
  ***Yarraman
        Race Club***
 
 Following
        the successful launch of the “Red Horse” range in the USA, Yarraman has recently
        released a similar series of wines in the Australian market. This range of
        wines
        has been releasesd in conjunction with a promotional offer whereby consumers
        who
        purchase a dozen of these wines become members of the Yarraman Race Club,
        and
        receive ownership shares in four Thoroughbred Race Horses. Members of the
        Yarraman Race Club receive many benefits, including a proportional share
        of the
        prize money won by the horses and invitations to attend race meetings when
        the
        horses are running.
  The
          Yarraman Race Club collection sells the following range of wines in 750ml
          bottles: Verdelho, Chardonnay, Rose, Shiraz and Cabernet Merlot. The wines
          sell
          for approximately US$13.50. The Cabernet Merlot was awarded 3 stars and
          the
          Shiraz 4 stars by the influential Australian wine magazine
          Winestate.
 **The
        Market**
 
 ***Overview***
 
 The
        Australian Bureau of Statistics (ABS) reported that 1.37 million tons of
        grapes
        were harvested for winemaking purposes in 2007. This was a decrease of 23.1%
        from the 2006 harvest. The reasons behind the reduced harvest are primarily
        the
        continuing drought and scarcity of irrigation water, plus the affects of
        frost
        and bushfires in some areas. ABS has estimated that there were 173,776 hectares
        cultivated for wine, drying and table grapes in 2007, an increase of 4.3%
        over
        2005.
 
 ***Domestic
        Wine Sales***
 
 Data
        published by the Australian Wine & Brandy Corporation (AWBC) shows that
        Australian wine accounted for 91% of domestic wine sales in Australia for
        2007.
        Domestic sales of Australian wine increased to 439 million litres - a rise
        of
        slightly more than 1% compared to 2006. Red wine accounted for 36.9% of domestic
        sales, white wine accounted for 47.7%, the balance made up of sparkling and
        fortified wines. Yarraman Australia’s sales account for less than 1% of the
        domestic market.
 
 We
        utilize a system of self distribution, employing three full-time sales
        representatives. We believe the program of self-representation is generating
        a
        strong presence in the New South Wales market with approximately US$731,209
        in
        domestic sales during the 2007 fiscal year, a 35.9% increase from the prior
        period due to new restaurant, retail and wholesale accounts that were
        established.
 
 In
        addition, we market and sell our wines through retail outlets in New South
        Wales, through mailing lists, and through distributors and wine brokers who
        sell
        in specific targeted areas outside of the state of New South Wales. As we
        have
        increased production volumes and achieved wider brand recognition, sales
        to
        other domestic markets have increased both in terms of absolute dollars and
        as a
        percentage of our total Company sales.
  26
 ***Export
        Wine Sales***
 
 In
        2007
        Australian wine exports grew to 785 million litres. The average price per
        litre
        increased 3% to US$3.25, the first time in five years that the average price
        for
        Australian wine exports has increased. The overall dollar value of these
        exports
        grew by 6.4% to US$2.55 billion. The United Kingdom remains the largest overseas
        market at 290 million litres (36.9%) , however the average value per litre
        is
        well below the overall average, at US$2.88. The United States is the second
        largest overseas market at 204 million litres (25.9%). The average value
        per
        litre in this market is well above the overall average, at $3.81 per litre.
        Yarraman Australia ships approximately 10,000 cases per year to the United
        States market.
 
 During
        2003, the Australian dollar began to strengthen against the US Dollar, the
        Euro
        and the Pound Sterling. As a result, we saw a decline in revenue per liter
        (in
        Australian dollar terms) for sales in those export markets. Despite this,
        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 has had the strongest export
        growth for all Australian wines. However, the United Kingdom, which consists
        of
        41% of the total 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 7500 cases per year to the United
        States, less than 1% of the total market.
 China
          has
          become the fastest growing export market for Yarraman wines and will quickly
          become our single largest export market by volume and value. Yarraman has
          received purchase orders and a confirmed shipping schedule for 8,800 cases
          of
          wine to be delivered to Shanghai Sing Xia Trading Co (a subsidiary of Asia
          Distribution Solutions Ltd). The total volume will be shipped during the
          period
          August 2008 through November 2008. As of September 2008 we have shipped
          approximately 3,300 cases.
 With
        continuing investment and development in our brands, we plan to capitalize
        on
        consumer demand in our primary export markets of the United States, Canada,
        United Kingdom, Ireland and Asia. We have also explored certain parts of
        Central
        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 in the following
        countries:
 s
                Canada
                s
                USA
                s
                Polands
                Japan
                s
                Denmark
                s
                Switzerlands
                Germany
                s
                United
                      Kingdom
                s
                Irelands
                Malaysia
  We
        export
        approximately 50% of our annual volume production.
  We
        appoint agents or distributors in export markets to facilitate importation
        of
        wines to the desired markets. Agents or distributors provide sales
        representation and facilitate or directly distribute wines within their
        designated regions.
  All
        markets, with the exception of 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.
  27
 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.
 
 **Seasonal
        and Quarterly Results**
 
 We
        have historically experienced and expect to continue experiencing seasonal
        fluctuations in our 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 we have 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. All amounts in the following
        presentation are in U.S. Dollars unless otherwise indicated.
  **Three
                  Months ended December 31,****2007**
              
              **2006**Revenue
              
              $
              793,716
              
              
              100
              %
              $
              431,798
              
              
              100
              %Cost
                  of Revenue
              
              $
              576,218
              
              
              73
              %
              $
              300,500
              
              
              70
              %Gross
                  Profit
              
              $
              217,498
              
              
              27
              %
              $
              131,298
              
              
              30
              %Other
                  (Income) Expense
              
              $
              235,825
              
              
              30
              %
              $
              224,047
              
              
              52
              %General
                  and administrative expenses
              
              $
              390,688
              
              
              49
              %
              $
              1,206,605
              
              
              279
              %Income
                  (loss) before income tax
              
              $
              (409,015
              )
              
              (52
              )%
              $
              (1,299,354
              )
              
              (301
              )%Income
                  tax expenses
              
              $
              0
              
              
              0
              %
              $
              0
              
              
              0
              %Net
                  Income (loss)
              
              $
              (409,015
              )
              
              (52
              )%
              $
              (1,299,354
              )
              
              (301
              )%
 
 **Three
        Months Ended December 31, 2007 Compared to Three Months Ended December 31,
        2006**
  ***Revenue*** .
        Revenue
        was $793,716 in the three months ended December 31, 2007 compared to $431,798
        in
        the three months ended December 31, 2006. The increase in revenues of $361,918
        or approximately 84%, was primarily related to an increase in our domestic
        sales
        of $259,031.
 
 ***Cost
        of Revenue*** .
        Cost of
        revenue was $576,218 in the three months ended December 31, 2007 compared
        to
        $300,500 in the three months ended December 31, 2006, an increase of $275,718.
        As a percentage of revenue, cost of revenue was 73% in the three months ended
        December 31, 2007 compared to 70% in the three months ended December 31,
        2006,
        an increase of 3%. The increase in cost of revenue is primarily due to the
        increase in our bulk wine sales during the second quarter which have a lower
        profit margin.
 
 28
 ***Gross
        Profit*** .
        Gross
        profit was $217,498 in the three months ended December 31, 2007 compared
        to
        $131,298 in the three months ended December 31, 2006. As a percentage of
        revenues, gross profit decreased to 27% in the three months ended December
        31,
        2007 from 30% in the three months ended December 31, 2006 for the reasons
        discussed above.
 
 ***Other
        Income (Expense)*** .
        Other
        expense was $235,825 in the three months ended December 31, 2007 compared
        to
        $224,047 in the three months ended December 31, 2006. The increase in other
        expense of $11,778 was primarily attributable to an increase in our interest
        expense of $52,160. Our interest expense increased substantially due to
        increased borrowings as described in our financial statements.
 
 ***Sales,
        General and Administrative Expenses*** .
        Sales,
        general and administrative expenses were $390,688 in the three months ended
        December 31, 2007 compared to $1,206,605 in the three months ended December
        31,
        2006. This is a decrease of $815,917 or approximately 68% from the 2006 period
        to the 2007 period. This decrease was primarily attributable to higher
        expenses in the three months end December 31, 2006 as we recorded a $197,333
        valuation reserve on our inventory, increase due to the write off of
        unrecoverable vineyard costs resulting from our decision not to make a vintage
        in 2007 and the recording of $117,000 in expense related to stock issued
        to a
        consultant based on a contractual agreement.
  As
        a
        percentage of revenues, sales, general and administrative expenses decreased
        to
        approximately 49% in the three months ended December 31, 2007 from 279% in
        the
        three months ended December 31, 2006 due to the reasons as discussed
        above.
  ***Net
        Income (Loss)*** .
        Our net
        loss was $409,015 in the three months ended December 301 2007 compared to
        a net
        loss of $1,299,354 in the three months ended December 31, 2006. This decrease
        in
        loss was primarily attributable to an increase in our sales, a decrease in
        our
        cost of sales as described above combined with the decrease in sales, general
        and administrative costs also outlined above.
 
 **Six
        Months Ended December 31, 2007 Compared to Six Months Ended December 31,
        2006**
  **Six
                  Months ended December 31,****2007**
              
              **2006**Revenue
              
              $
              1,466,710
              
              
              100
              %
              $
              836,543
              
              
              100
              %Cost
                  of Revenue
              
              $
              1,040,583
              
              
              71
              %
              $
              580,562
              
              
              69
              %Gross
                  Profit
              
              $
              426,128
              
              
              29
              %
              $
              255,981
              
              
              31
              %Other
                  (Income) Expense
              
              $
              458,990
              
              
              31
              %
              $
              377,087
              
              
              45
              %General
                  and administrative expenses
              
              $
              1,021,145
              
              
              70
              %
              $
              1,760,131
              
              
              210
              %Income
                  (loss) before income tax
              
              $
              (1,054,007
              )
              
              (72
              )%
              $
              (1,881,237
              )
              
              (225
              )%Income
                  tax expenses
              
              $
              0
              
              
              0
              %
              $
              0
              
              
              0
              %Net
                  Income (loss)
              
              $
              (1,054,007
              )
              
              (72
              )%
              $
              (1,881,237
              )
              
              (225
              )%
  ***Revenue*** .
        Revenue
        was $1,466,710 in the six months ended December 31, 2007 compared to $836,543
        in
        the six months ended December 31, 2006. The increase in revenues of $630,167
        or
        approximately 75%, was primarily related to the following items: (1) an increase
        in our domestic sales of $413,500, (2) an increase in our bulk wine sales
        of
        $398,000, (3)
        a
        decrease in our retail and international sales of $189,400 and (4)
        the effect of fluctuation in the exchange rate between the Australian Dollar
        and
        the US Dollar of approximately USD$41,800.
 
 29
 ***Cost
        of Revenue*** .
        Cost of
        revenue was $1,040,583 in the six months ended December 31, 2007 compared
        to
        $580,562 in the six months ended December 31, 2006, an increase of $460,021.
        As
        a percentage of revenue, cost of revenue was 71% in the six months ended
        December 31, 2007 compared to 69% in the six months ended December 31, 2006.
        The
        increase in cost of revenue as a percentage of sales is primarily due to
        the increase in bulk wine sales which has a lower profit margin.
 
 ***Gross
        Profit*** .
        Gross
        profit was $426,128 in the six months ended December 31, 2007 compared to
        $255,981 in the six months ended December 31, 2006. As a percentage of revenues,
        gross profit decreased to 29% in the six months ended December 31, 2007 from
        31%
        in the six months ended December 31, 2006 for the reasons discussed
        above.
 
 ***Other
        Income (Expense)*** .
        Other
        expense was $458,990 in the six months ended December 31, 2007 compared to
        $377,087 in the six months ended December 31, 2006. The increase in other
        expense of $81,903 was primarily attributable to an increase in our interest
        expense of $95,163. Our interest expense increased substantially due to
        increased borrowings as described in our financial statements.
 
 ***Sales,
        General and Administrative Expenses*** .
        Sales,
        general and administrative expenses were $1,021,145 in the six months ended
        December 31, 2007 compared to $1,760,131 in the six months ended December
        31,
        2006. This is a decrease of $738,986 or approximately 42% from the 2006 period
        to the 2007 period. This decrease was primarily attributable to a decrease
        in
        our expenses related
        to vineyard and winery costs of $512,980 as we did not produce a 2006 vintage
        and these costs were not therefore capitalized as part of our inventory.Also
        we
        had a reduction in expenses related to cost cutting measures in
        salaries, and consulting fees of $324,800 ,
        and
        $(230,900) due to the effect of the fluctuation in the exchange rate between
        the
        Australian Dollar and the US Dollar.
  As
        a
        percentage of revenues, sales, general and administrative expenses decreased
        to
        approximately 70% in the six months ended December 31, 2007 from 210% in
        the six
        months ended December 31, 2006 due to the reasons as discussed
        above.
  ***Net
        Income (Loss)*** .
        Our net
        loss was $1,054,007 in the six months ended December 31, 2007 compared to
        a net
        loss of $1,881,237 in the six months ended December 31, 2006. This decrease
        in
        loss was primarily attributable to an increase on our sales, a decrease in
        our
        cost of sales as described above combined with the decrease in sales, general
        and administrative costs also outlined above.
 
 **Liquidity
        and Capital Resources**
 
 As
        of
        December 31, 2007, we had $6,878 of cash and cash equivalents and $653,355
        of
        working capital as compared to $150,072 and $1,067,047, respectively, at
        June
        30, 2007. Cash flow from operations is expected to improve as a result of
        our
        cost cutting measures, including the termination of the Wirrilla lease and
        related operating costs and improved sales. Cash flow from financing activities
        is expected to improve as the Company converted approximately $4,500,000
        of debt
        into equity by issuing 12,000,000 shares of common stock.
 
 On
        December 21, 2005, we entered into a long term, loan with Delta Dawn 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.
        On June 30, 2008 Delta Dawn agreed to convert this loan to equity and received
        approximately 4,516,900 shares of common stock.
 
 30
 An
        additional loan agreement was also signed on May 1, 2006 with 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 June 30, 2008 Delta Dawn agreed to convert this loan to equity
        and
        received approximately 2,042,600 shares of common stock.
 
 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.
 
 As
        of
        June 30, 2007 the Company is indebted to Whinners Pty., Ltd., owned by Geoffrey
        White, one of the unit holders of the Company’s majority shareholder for
        $3,289,000. This related party has made various advances, loans and payments
        on
        behalf of the Company and has provided necessary cash flow. On July 1, 2007
        these advances and loans, including additional loans and advances made
        subsequent to June 30, 2007, were restructured into one loan agreement for
        approximately $3,289,000. This portion of the new loan is to be repaid
        commencing December 7, 2007 with receipts from the proceeds of the re-sale
        of
        this wine by the Company until it is repaid in full. The entire new loan
        accrues
        interest at 6.5% per annum. This new loan is secured by the fixed assets
        of the
        Company, subordinate to the loan from Provident, such loan totaling $5,026,016
        as of December 31, 2007. This new loan, together with outstanding interest,
        is
        to be repaid for any amounts still outstanding on September 30, 2008. As
        of June
        30, 2008 Whinners Pty., Ltd. agreed to convert approximately $2,104,152 of
        this
        debt into equity and received 5,440,476 shares of common stock.On
        October 15, 2008, the lender extended the repayment date on the balance of
        the loan remaining, subsequent to the $2,104,152 portion of the loan that
        had
        converted into common stock, from September 30, 2008 to September 30,
        2009.
 
 Management
        has been exploring options to refinance its long term loan from Provident,
        currently with an outstanding balance of $5,026,016. 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.
 
 The
        Company has engaged professional investment bankers in the United
        States to raise an additional $3,500,000. In addition the company has been
        working on an acquisition, as explained in the footnotes to the financial
        statements that would also improve its liquidity.
 
 31
  **ITEM
        3.  CONTROLS AND PROCEDURES**
  ITEM
          3.
          CONTROLS AND PROCEDURES.
 
 EVALUATION
          OF DISCLOSURE CONTROLS
 
 The
          Company maintains controls and procedures designed to ensure that they
          are able
          to collect the information that is required to be disclosed in the reports
          they
          file with the Securities and Exchange Commission (the "SEC") and to process,
          summarize and disclose this information within the time period specified
          in the
          rules of the SEC. The Company's Chief Executive and Chief Financial Officer
          are
          responsible for establishing, maintaining and enhancing these procedures.
          The
          office is also responsible, as required by the rules established by the
          SEC, for
          the evaluation of the effectiveness of these procedures.
 
 Based
          on
          management's evaluation (with participation of our principal executive
          officer
          and principal financial officer), as of the end of the period covered by
          this
          report, the principal executive officer and principal financial officer
          concluded that a deficiency was identified in the Company's internal controls
          over financial reporting which constituted a "material weakness." Accordingly,
          management concluded that the Company's disclosure controls and procedures
          were
          not effective.
 
 The
          material weakness was the result of an insufficient number of personnel
          having
          adequate knowledge, experience and training to provide effective, and timely,
          oversight and review over the Company's financial close and reporting
          process.
 
 LIMITATIONS
          ON THE EFFECTIVENESS OF CONTROLS
 
 The
          Company's management does not expect that their disclosure controls or
          their
          internal controls over financial reporting will prevent all error and fraud.
          A
          control system, no matter how well conceived and operated, can provide
          only
          reasonable, but not absolute, assurance that the objectives of a control
          system
          are met. Further, any control system reflects limitations on resources,
          and the
          benefits of a control system must be considered relative to its costs.
          These
          limitations also include the realities that judgments in decision-making
          can be
          faulty and that breakdowns can occur because of simple error or
          mistake.
 
 Additionally,
          controls can be circumvented by the individual acts of some persons, by
          collusion of two or more people or by management override of a control.
          A design
          of a control system is also based upon certain assumptions about potential
          future conditions; over time, controls may become inadequate because of
          changes
          in conditions, or the degree of compliance with the policies or procedures
          may
          deteriorate. Because of the inherent limitations in a
 cost-effective
          control system, misstatements due to error or fraud may occur and
 may
          not
          be detected.
 
  32
 **PART
        II -**  **OTHER
        INFORMATION**
  **ITEM
        1.**  **LEGAL
        PROCEEDINGS.**
  None.
  **ITEM
        2.**  **UNREGISTERED
        SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.**
 
 On
        July
        16, 2007 the Company sold 250,000 shares of common stock to Ian Long, President
        and Board Member at a price of $0.44 per share, a total of
        $110,000.
  **ITEM
        3.**  **DEFAULTS
        UPON SENIOR SECURITIES.**
  None.
  **ITEM
        4.**  **SUBMISSION
        OF MATTERS TO A VOTE OF SECURITY HOLDERS.**  ****
  None.
  **ITEM
        5.**  **OTHER
        INFORMATION.**
  On
        September 20, 2007 Wayne Rockall resigned as our Chief Executive Officer.
        On
        September 25, 2008 we appointed Ian Long as our Chief Executive
        Officer.
 
 On
        October 1, 2007 Raymond Brien was appointed our Chief Financial Officer,
        which
        he then resigned on June 30, 2008. On September 25, 2008 we appointed Lawrence
        Lichter as our Chief Financial Officer.
 
 On
        September 20, 2007 Mark Valencic resigned as our Secretary. On September
        20,
        2007 Lawrence Lichter was appointed as our Secretary.
 
 On
        May 1,
        2008 William Middleton resigned from our Board of Directors. On May 1, 2008
        Gary
        Blom was elected to our Board of Directors and on June 24, 2008 Ian Long
        was
        elected to our Board of Directors.
 
 **ITEM
        6.****EXHIBITS**
  The
        following exhibits are filed as part of this report:
  **Exhibit
                  Number**
              **Description**31.1
              Certification
                  of Principal 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 Principal Financial Officer pursuant to Rule 13a-14(b)/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 Pursuant to 18 U.S.C. 1350 (Section
                  906 of the
                  Sarbanes-Oxley Act of 2002).32.2
              Certification
                  of Chief Financial Officer Pursuant to 18 U.S.C. 1350 (Section
                  906 of the
                  Sarbanes-Oxley Act of 2002).
  33
  **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:
                October 15, 2008
              By:
              /s/ Ian
                LongName:
                Ian LongTitle:
                Chief Executive Officer
  34