**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 MARCH 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 in its charter)







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




**(61)
      2 6547-8118**


(Issuer’s
      Telephone Number)







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


Since
      Last Report)




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




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




There
      were 25,000,000 shares of the Issuer’s common stock outstanding on June 15,
      2007.




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









**TABLE
        OF CONTENTS**


**Page****ITEM
                  1.**
              
              
              FINANCIAL
                  STATEMENTS
              
              
              4**ITEM
                  2.**
              
              
              MANAGEMENT’S
                  DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
              
              
              26**ITEM
                  3.**
              
              
              CONTROLS
                  AND PROCEDURES
              
              
              34PART
                  II - OTHER INFORMATION
              
              
              36**ITEM
                  1.**
              
              
              LEGAL
                  PROCEEDINGS.
              
              
              36**ITEM
                  2.**
              
              
              UNREGISTERED
                  SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
              
              
              36**ITEM
                  3.**
              
              
              DEFAULTS
                  UPON SENIOR SECURITIES.
              
              
              36**ITEM
                  4.**
              
              
              SUBMISSION
                  OF MATTERS TO A VOTE OF SECURITY HOLDERS.
              
              
              36**ITEM
                  5.**
              
              
              OTHER
                  INFORMATION.
              
              
              36




2




FINANCIAL
      INFORMATION




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




YARRAMAN
      WINERY, INC. AND SUBSIDIARY




CONSOLIDATED
      UNAUDITED FINANCIAL STATEMENTS





MARCH
      31,
      2007








**TABLE
      OF CONTENTS**


Consolidated
                  Unaudited Balance Sheet
              
              
              4Consolidated
                  Unaudited Statements of Operations
              
              
              5Consolidated
                  Unaudited Statements of Cash Flow
              
              
              6Notes
                  to Unaudited Consolidated Financial Statements
              
              
              7-25
  3
  **YARRAMAN
          WINERY, INC. AND SUBSIDIARY**
 **CONSOLIDATED
          BALANCE SHEET**
 **March
          31, 2007**
 **(Unaudited)**




ASSETS




**Current
                Assets**Cash
                and cash equivalents
            
            $
            32,016Accounts
                receivable, net
            
            
            511,144Inventory
            
            
            4,805,514Other
                receivables
            
            
            137,606Other
                assets
            
            
            254,601Total
                Current Assets
            
            
            5,740,881**Property,
                plant and equipment, net**
            
            
            3,988,781**Intangible
                asset**
            
            
            201,995$
            9,931,657**LIABILITIES
                AND STOCKHOLDERS' EQUITY****Current
                Liabilities**Accounts
                payable and accrued expenses
            
            $
            1,497,201Accounts
                payable -related party
            
            
            864,482Capital
                leases, current portion
            
            
            115,127Shares
                to be issued
            
            
            234,500Due
                to related party
            
            
            848,379Total
                Current Liabilities
            
            
            3,559,689**Long
                Term Liabilities**Capital
                leases, net of current portion
            
            
            27,717Related
                party loans, net
            
            
            1,628,458Long-term
                debt
            
            
            4,539,249Total
                Long Term Liabilities
            
            
            6,195,424**Total
                Liabilities**
            
            
            9,755,113**Stockholder's
                Equity**Common
                stock, $.001 par value,25,000,000
                shares authorized and outstanding
            
            
            25,000Additional
                paid in capital
            
            
            5,455,252Other
                comprehensive income
            
            
            246,639Accumulated
                deficit
            
            
            (5,550,347
            )**Total
                Stockholder's Equity**
            
            
            176,544$
            9,931,657


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


4




**YARRAMAN
        WINERY, INC. AND SUBSIDIARY**
 **CONSOLIDATED
          STATEMENTS OF OPERATIONS**
 **(Unaudited)**


**Three
                  Month Periods Ended**
              
              **Nine
                  Month Periods Ended****March
                  31, 2007**
              
              **March
                  31, 2006**
              
              **March
                  31, 2007**
              
              **March
                  31, 2006**Sales,
                  net
              
              $
              543,270
              
              $
              290,782
              
              $
              1,379,813
              
              $
              1,305,537Cost
                  of sales
              
              
              987,685
              
              
              184,766
              
              
              1,167,321
              
              
              975,703**Gross
                  profit (loss)**
              
              
              (444,415
              )
              
              106,016
              
              
              212,492
              
              
              329,834Operating
                  ExpensesSelling,
                  general and administrative expenses
              
              
              228,318
              
              
              511,419
              
              
              1,870,949
              
              
              1,113,481Consulting
                  expense
              
              
              117,000
              
              
              -
              
              
              234,500
              
              
              -Inventory
                  reserve
              
              
              -
              
              
              -
              
              
              192,753
              
              
              -Vineyard
                  costs
              
              
              184,483
              
              
              -
              
              
              392,656
              
              
              -Total
                  operating expenses
              
              
              529,801
              
              
              511,419
              
              
              2,690,858
              
              
              1,113,481**Loss
                  from operations**
              
              
              (974,216
              )
              
              (405,403
              )
              
              (2,478,366
              )
              
              (783,647
              )Other
                  (Income) ExpenseInterest
                  income
              
              
              (7
              )
              
              (31,559
              )
              
              (792
              )
              
              (32,581
              )Interest
                  expense
              
              
              165,502
              
              
              179,036
              
              
              542,954
              
              
              180,331Merger
                  and acquisition costs
              
              
              312,009
              
              
              -
              
              
              312,009
              
              
              -Gain
                  on settlement of debt
              
              
              -
              
              
              (152,081
              )
              
              -
              
              
              (152,081
              )Transaction
                  gain (loss) on foreign currency
              
              
              1,812
              
              
              (5,838
              )
              
              2,232
              
              
              (16,720
              )Total
                  Other (Income) Expense
              
              
              479,316
              
              
              (10,442
              )
              
              856,403
              
              
              (21,051
              )**Net
                  loss**
              
              
              (1,453,532
              )
              
              (394,961
              )
              
              (3,334,769
              )
              
              (762,596
              )Other
                  comprehensive income (loss)Foreign
                  currency translation
              
              
              10,806
              
              
              -
              
              
              94,450
              
              
              -**Comprehensive
                  Loss**
              
              $
              (1,442,726
              )
              $
              (394,961
              )
              $
              (3,240,319
              )
              $
              (762,596
              )**Net
                  loss per share:**Basic
                  & diluted
              
              $
              (0.06
              )
              $
              (0.02
              )
              $
              (0.13
              )
              $
              (0.03
              )**Weighted
                  average number of shares outstanding:**Basic
                  & diluted
              
              
              25,000,000
              
              
              25,000,000
              
              
              25,000,000
              
              
              23,554,778Weighted
                  average of dilutive securities has not been calculated since the
                  effect of
                  dilutive securities is
                  anti-dilutive




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




5




**YARRAMAN
        WINERY, INC. AND SUBSIDIARY**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**FOR
        THE NINE MONTH PERIODS ENDED MARCH 31, 2007 AND 2006**
 **(UNAUDITED)**


**2007**
              
              **2006****CASH
                  FLOWS FROM OPERATING ACTIVITIES**Net
                  Loss
              
              $
              (3,334,769
              )
              $
              (762,596
              )Adjustments
                  to reconcile net loss to net cashused
                  in operating activities:Depreciation
              
              
              276,416
              
              
              186,430Gain
                  on settlement of debt
              
              
              -
              
              
              (152,081
              )Reserve
                  on inventory
              
              
              192,753
              
              
              -Provision
                  for doubtful debts
              
              
              46,770
              
              
              -Shares
                  to be issued for consulting fees
              
              
              234,500
              
              
              -(Increase)
                  / decrease in assets:Accounts
                  receivables
              
              
              73,345
              
              
              127,605Inventory
              
              
              350,430
              
              
              (1,283,177
              )Other
                  receivables
              
              
              (6,881
              )
              
              (57,138
              )Other
                  assets
              
              
              (57,134
              )
              
              (9,950
              )Increase
                  in current liabilities:Accounts
                  payable and accrued expenses
              
              
              1,064,780
              
              
              173,539Total
                  Adjustments
              
              
              2,174,979
              
              
              (1,014,772
              )**Net
                  cash used in operating activities**
              
              
              (1,159,790
              )
              
              (1,777,368
              )**CASH
                  FLOWS FROM INVESTING ACTIVITIES**Acquisition
                  of property & equipment
              
              
              (128
              )
              
              (32,141
              )**Net
                  cash used in investing activities**
              
              
              (128
              )
              
              (32,141
              )**CASH
                  FLOWS FROM FINANCING ACTIVITIES**Collecltion
                  on Note Receivable
              
              
              -
              
              
              1,250,000Increase
                  in Note Payable
              
              
              23,991
              
              
              69,611Payment
                  on capital lease
              
              
              (69,691
              )
              
              (10,795
              )Payment
                  on loan payable- related party
              
              
              (100,695
              )
              
              (126,117
              )Proceed
                  from loan payable- related party
              
              
              848,379
              
              
              1,081,492**Net
                  cash provided by financing activities**
              
              
              701,984
              
              
              2,264,191Effect
                  of exchange rate changes on cash and cash equivalents
              
              
              379,512
              
              
              (393,050
              )**Net
                  increase (decrease) in cash and cash equivalents**
              
              
              (78,422
              )
              
              61,632**Cash
                  and cash equivalents, beginning balance**
              
              
              110,438
              
              
              43,723**Cash
                  and cash equivalents, ending balance**
              
              $
              32,016
              
              $
              105,355**SUPPLEMENTAL
                  DISCLOSURES:**Cash
                  paid during the three month periods for:Income
                  tax payments
              
              $
              -
              
              $
              -Interest
                  payments
              
              $
              428,334
              
              $
              180,331




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




6




**YARRAMAN
      WINERY, INC. AND SUBSIDIARY**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**MARCH
      31, 2007**








NOTE
      1 - NATURE
      OF OPERATIONS





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





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





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





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





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





7




**YARRAMAN
      WINERY, INC. AND SUBSIDIARY**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**MARCH
      31, 2007**








NOTE
      2 - SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES





Basis
      of Presentation





The
      accompanying consolidated financial statements have been prepared in conformity
      with accounting principles generally accepted in the United States of America.
      The functional currency of Yarraman Australia is the Australian Dollar (“AUD”);
      however the accompanying consolidated financial statements have been translated
      and presented in United States Dollars (“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. We
      recognize revenue when the product is shipped and title passes to the customer, when
      a
      formal arrangement exists, the price is fixed or determinable, the delivery
      is
      completed, no other significant obligations of the Company exist and
      collectibility is reasonably assured. The Company's standard terms are 'FOB' shipping point, with no customer
      acceptance provisions. No products are sold on consignment. Credit sales are
      recorded as trade accounts receivable and no collateral is required. Revenue
      from items sold through the Company's retail location is recognized at the
      time
      of sale. The Company has established an allowance for doubtful accounts based
      upon factors pertaining to the credit risk of specific customers, historical
      trends, and other information. Delinquent accounts are written-off when it
      is
      determined that the amounts are uncollectible. Revenues are recognized net
      of
      the amount of goods and services tax (GST) payable to the Australian taxing
      authority.




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




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




8




**YARRAMAN
      WINERY, INC. AND SUBSIDIARY**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**MARCH
      31, 2007**








NOTE
      2 - SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES (Continued)





Accounts
      Receivable





The
      Company maintains reserves for potential credit losses on accounts receivable.
      Management reviews the composition of accounts receivable and analyzes
      historical bad debts, customer concentrations, customer credit worthiness,
      current economic trends and changes in customer payment patterns to evaluate
      the
      adequacy of these reserves. Allowance for doubtful debts amounted to $102,400
      as
      at March 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. As of March 31, 2007 inventory consisted of raw material, work in
      progress and finished goods as follows:




9




**YARRAMAN
      WINERY, INC. AND SUBSIDIARY**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**








NOTE
      2 - SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES (Continued)




Winemaking
                  and packaging materials
              
              $
              97,642Work
                  in progress ( costs related to unprocessedand/
                  or unbottled products )
              
              
              4,167,482Finished
                  good (bottled wine)
              
              
              540,390Reserve
                  for obsolesence
              
              
              -Total
              
              $
              4,805,514




The
      Company expensed vineyard costs of $ 184,483
      and $392,656, respectively during the three month and nine
      month period ended March 31, 2007. Management strongly believes that the
      inventory is properly valued based on its estimates of future
      sales.




Property,
      Plant and Equipment




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





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




Land
                  improvements
              
              
              15
                  yearsWinery
                  building
              
              
              30
                  yearsEquipment
              
              
              5-7
                  years




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




As
      of
      March 31, 2007 Property, Plant and Equipment consist of the
      following:




Buildings
                  and improvements
              
              $
              34,933Land
              
              
              855,195Plant
                  and equipment
              
              
              3,673,942Computer
                  equipment
              
              
              39,529Furniture
                  and fixtures
              
              
              21,7324,625,331Accumulated
                  depreciation
              
              
              (636,550
              )$
              3,988,781




10




**YARRAMAN
      WINERY, INC. AND SUBSIDIARY**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**MARCH
      31, 2007**








NOTE
      2 - SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES (Continued)




Capital
      Lease Obligations




Included
      in Property, Plant and Equipment are $243,191 of fixed assets that were
      purchased on capital lease arrangements (note 8).





Intangible
      Assets





Effective
      July 2002, we adopted Statement of Financial Accounting Standards No. 142 (“SFAS
      142”), “Goodwill and Other Intangible Assets.” The adoption of SFAS No. 142
      required an initial impairment assessment involving a comparison of the fair
      value of trademarks, patents and other intangible assets to current carrying
      value. No impairment loss was recognized for the period ended March 31, 2007.
      As
      of March 31, 2007 the intangible assets comprised of water licenses valued
      at
      $201,995, which are held in perpetuity.





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





Contingencies





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





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





11




**YARRAMAN
      WINERY, INC. AND SUBSIDIARY**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**MARCH
      31, 2007**








NOTE
      2 - SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES (Continued)





Loss
      contingencies considered to be remote by management are generally not disclosed
      unless they involve guarantees, in which case the guarantee would be disclosed.
      As of March 31, 2007, there is one matter that warrants disclosure in the
      financial statements (See Note 6).





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




12




**YARRAMAN
      WINERY, INC. AND SUBSIDIARY**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**MARCH
      31, 2007**








NOTE
      2 - SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES (Continued)





Translation
      Adjustment





As
      of
      March 31, 2007, the accounts of Yarraman Australia were maintained, and their
      financial statements were expressed, in Australian Dollars. Such financial
      statements were translated into U.S. Dollars in accordance with Statement of
      Financial Accounting Standards No. 52 (“SFAS No. 52”), “Foreign Currency
      Translation”, with the AUD as the functional currency. According to SFAS No. 52,
      all assets and liabilities were translated at the current exchange rate,
      stockholder’s equity are translated at the historical rates and income statement
      items are translated at the weighted average exchange rate for the period.
      The
      resulting translation adjustments are reported under other comprehensive income
      in accordance with Statement of Financial Accounting Standards No. 130 (“SFAS
      No. 130”), “Reporting Comprehensive Income” as a component of shareholders’
equity.





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 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:





13




**YARRAMAN
      WINERY, INC. AND SUBSIDIARY**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**MARCH
      31, 2007**








NOTE
      2 - SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES (Continued)





New
      Accounting Pronouncements (continued)





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 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. Therefore, calendar-year
      companies may be able to adopt FAS 159 for their first quarter 2007 financial
      statements.





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 is currently evaluating the effect of this
      pronouncement on financial statements .





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




14




**YARRAMAN
      WINERY, INC. AND SUBSIDIARY**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**MARCH
      31, 2007**








NOTE
      2 - SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES (Continued)





Reclassifications:





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




NOTE
      3
      - CASH
      & CASH EQUIVALENTS





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




NOTE
      4 - ACCOUNTS
      PAYABLE AND ACCRUED EXPENSES





As
      of
      March 31, 2007, the accounts payable and accrued expenses comprised of the
      following:


Trade
                  creditors
              
              $
              741,606Other
                  creditors
              
              
              628,981Payroll
                  liabilities
              
              
              126,614$
              1,497,201





The
      provision for employee benefits to annual leave represents the value of the
      estimated future cash outflows to be made resulting from employees’ services
      provided to the reporting dates based on their current wage rate. As of March
      31, 2007 annual leave liability existed in the amount of $36,433 which is
      included in the payroll liabilities.





15




**YARRAMAN
      WINERY, INC. AND SUBSIDIARY**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**MARCH
      31, 2007**







Note
      5 - RELATED
      PARTY TRANSACTIONS





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





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





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





Prior
      to
      December 22, 2005, Yarraman Australia had received loans from the Trust to
      fund
      operations and purchase assets. The loan liabilities were assumed by Yarraman
      Australia. The outstanding principal balance of this loan was $1,613,491 and
      will be paid in accordance with such terms more specifically disclosed in Note
      8
      below.





On
      May 1,
      2006 Yarraman Australia entered into a loan agreement with the Trust in the
      principal amount of $727,182. On May 25, 2006 the Trust extended to Yarraman
      Australia an additional $12,120, to be repaid in accordance with the same terms
      as the May 1, 2006 loan. The Company recorded a discount of $871,307 on the
      loan
      which is being amortized over the term of the loan .
      During
      the nine month period ended March 31, 2007, the company recorded $104,554 as
      interest expense on the loan .





Stockholders
      and Directors of the Company and of the Trust were provided wine during the
      nine
      months and three months ended March 31, 2007 valued at $21,303 and $6,046,
      respectively.





The
      Company had wine sales to entities related to various Stockholders, Officers
      and
      Directors totaling $7,268 and $3,117 during the nine months and three months
      ended March 31, 2007.





We
      have a
      receivable from one of the Unit Holders of the Trust related to consulting
      fees
      of approximately $10,046 as of March 31, 2007.




16




**YARRAMAN
      WINERY, INC. AND SUBSIDIARY**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**MARCH
      31, 2007**








Note
      5 - RELATED
      PARTY TRANSACTIONS (CONTINUED)





On
      January 1, 2006 Yarraman Australia entered into a consulting agreement with
      the
      Trust to provide business consulting services related to the wine industry
      for a
      term of two years or until such time as its ownership percentage in our Company
      is reduced to less then 15%. We agreed to pay approximately $78,000 annually.
      During the three months and nine months ended March 31, 2007 we paid the Trust
      $25,411 and $57,825, respectively.





During
      the three months and nine months ended March 31, 2007 the Company included
      in
      its revenue, fees for wine making and storage of wine of approximately $213,695
      and $626,695 , respectively, to a company (related through common shareholder)
      with whom Yarraman Australia had an agreement.





On
      August
      1, 2006 Yarraman Australia entered into a loan agreement to initially
      borrow up to approximately $403,990, with interest payable at 8.75% per annum,
      due on December 31, 2006, with a private corporation that is owned by one of
      the
      unit holders of the Company’s majority stockholder. During the
      period from October 1, 2006 through March 31, 2007, Yarraman Australia borrowed
      an additional $444,389, from this entity with interest payable at the same
      rate
      of 8.75% per annum. The term for the entire $848,379 has been extended by oral
      agreement until September 2007.





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





See
      the
      summary below:





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




The
      Company’s assets are also pledged as collateral for indebtedness of Yarraman
      Australia’s prior Parent, the Trust. As of March 31, 2007 the outstanding
      balance on this debt was approximately $4,539,248. See Note 6.




17




**YARRAMAN
      WINERY, INC. AND SUBSIDIARY**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**MARCH
      31, 2007**








Note
      6 - COMMITMENTS
      AND CONTINGENCIES





Operating
      Leases





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





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





Guarantor





Our
      assets have been pledged as collateral for indebtedness owed by the Trust to
      a
      financial institution in Australia, the repayment of which the Company has
      guaranteed. The outstanding balance on this debt was approximately $4,539,248
      as
      of March 31, 2007.





18




**YARRAMAN
      WINERY, INC. AND SUBSIDIARY**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**MARCH
      31, 2007**








Note
      6 - COMMITMENTS
      AND CONTINGENCIES (Continued)





Consulting
      Agreements





On
      February 24, 2006,the Company entered into a consulting agreement with a company
      in New York to assist in identifying 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. The original term of the contract was from March 1, 2006 until July
      1, 2006, but it has continued past that date on a month to month basis, and
      will
      continue in such manner until cancelled by either party. The Company also agreed
      to pay a transaction fee that is based on a sliding percentage of any completed
      acquisition. The total monthly fees paid under the agreement may be deducted
      from any transaction fee. As of March 31, 2007, this agreement was still in
      effect.





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





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





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





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


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


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





As
      of
      March 31, 2007 Milestones 1 and 2 have been completed. In addition to the above
      we have agreed to pay the consultant approximately $4,700 per month starting
      on
      November 1, 2006 and ending upon the completion of our merger negotiations
      as
      mentioned in Note 12. To date we have not issued any shares related thereto
      but
      have recorded the liability of $234,500 (see Note 4).




19




**YARRAMAN
      WINERY, INC. AND SUBSIDIARY**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**MARCH
      31, 2007**








Note
      6 - COMMITMENTS
      AND CONTINGENCIES (Continued)





Arbitration





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





Note
      7 - COMMON
      STOCK





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




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




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





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




20




**YARRAMAN
      WINERY, INC. AND SUBSIDIARY**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**MARCH
      31, 2007**







Note
      7 - COMMON
      STOCK (Continued)







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





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




Note
      8
      - LONG
      TERM DEBT





Loans





On
      December 21, 2005 we entered into a loan agreement with a financial institution
      located in Australia. The amount of the loan $4,071,000 with monthly interest
      payments due on the 15 th of each
      month at the rate of 10% per annum, rising to 16% per annum if the Company
      is
      late in its payments. The principal balance is due and payable on December
      31,
      2007. The loan is secured by certain property, plant and equipment of the
      Company as well as a guaranteed by the Trust. As of March 31, 2007, the loan
      balance is $4,539,249 inclusive of accrued and unpaid interest.





On
      December 22, 2005 Yarraman Australia entered into a loan agreement with the
      Trust. The principal amount of the loan is $1,613,491.





On
      May 1,
      2006 Yarraman Australia entered into a loan agreement with the Trust in the
      amount of approximately $727,182. On May 25, 2006 the Trust loaned Yarraman
      Australia an additional $12,120, to be repaid in conjunction with the May 1,
      2006 loan.





Interest
      on these loans has been imputed at a rate of ten percent. During the nine months
      ended March 31, 2007 we paid approximately $104,500 on these loans.





21




**YARRAMAN
      WINERY, INC. AND SUBSIDIARY**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**








Note
      8
      - LONG
      TERM DEBT (Continued)





The
      Trust
      loan agreements require principal payments as follows for the twelve months
      ending on March 31st  :


2008
              
              
              98,0332009
              
              
              392,1322010
              
              
              392,1322011
              
              
              1,470,495$
              2,352,792


On
      August
      1, 2006 Yarraman Australia entered into a loan agreement with a private
      corporation that is one of the unit holders in the trust which owns most of
      the
      Company’s common stock to borrow approximately $403,990, with interest payable
      at 8.75% per annum, due on December 31, 2006. During the period from October
      1,
      2006 through December 31, 2006 we borrowed an additional $444,389, from this
      corporation. There are no terms for repayment because the initial terms of
      the
      loan stated that the outstanding balance was to be repaid at the time we
      received financing in connection with our proposed merger with Evans & Tate,
      Ltd. As a result of the proposed merger being rejected, the loan is now due
      to
      mature in September 2007. (Note 12).





Leases





As
      a part
      of the asset purchase agreement in December 2005, the Company assumed a capital
      lease obligation to finance the purchase of plant and equipment. Minimum lease
      payments relating to the equipment have been capitalized and are being
      depreciated over the estimated useful lives of the equipment acquired. Assets
      under capital lease and related accumulated amortization at March 31, 2007
      are
      as follows:




Plant
                  and equipment
              
              $
              243,191Accumulated
                  depreciation
              
              
              53,809$
              189,382




22




**YARRAMAN
      WINERY, INC. AND SUBSIDIARY**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**








Note
      8
      - LONG
      TERM DEBT (Continued)





The
      future minimum lease payments under the capital lease and the net present value
      of the future minimum lease payments at March 31, 2007 are as
      follows:


Total
                  minimum lease payments
              
              $
              155,399Amount
                  representing interest
              
              
              (
                  12,556
              )Present
                  value of net minimum lease payments
              
              
              142,843Current
                  portion
              
              
              (115,127
              )Long-term
                  capital lease obligation
              
              $
              27,716




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





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


March
                  312008
              
              $
              115,1272009
              
              
              27,716Total
              
              $
              142,843




Note
        9
        - STOCK
        EXCHANGE AGREEMENT





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





Accordingly,
      the financial statements include the following:





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


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




23




**YARRAMAN
      WINERY, INC. AND SUBSIDIARY**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**








Note
      10 - OTHER
      COMPREHENSIVE INCOME





Balances
      of related after-tax components comprising accumulated other comprehensive
      income (loss), included in stockholder’s equity at March 31, 2007 are as
      follows:




Balance
                  at June 30, 2006
              
              $
              152,189Change
                  for the nine months March 2007
              
              
              94,450Balance
                  at March 31, 2007
              
              $
              246,639




Note
      11 -
      MAJOR CUSTOMERS AND VENDORS





For
      the
      nine months ended March 31, 2007 our largest customer accounted for 12.3% of
      Yarraman Australia’s sales. There was no receivable from the customer as of
      March 31, 2007. For the nine months ended March 31, 2007 Yarraman Australia
      had
      no vendors that accounted for more then 10% of purchases.





Note
      12 - PROPOSED
      ACQUISITION





On
      December 21, 2006, we submitted an offer to merge by scheme of arrangement
      with
      Evans & Tate, Ltd., a company publicly traded in Australia. The terms of the
      offer included a combination of issuance of our company stock and issuance
      of
      convertible notes. On February 14, 2007, we submitted a revised offer, which
      offer was conditionally accepted pending the results of due diligence by Evans
      & Tate, Ltd. Our revised offer was rejected on March 16, 2007.





In
      connection with this transaction we entered into a Conditional Sale Deed to
      purchase 18,387,998 shares of Evans & Tate, Ltd. stock from a third party.
      Upon rejection of our offer by Evans & Tate, Ltd., the Conditional Sale Deed
      was terminated.





Related
      to this acquisition, we have incurred $312,009 of expenses as of March 31,
      2007.





24





**YARRAMAN
      WINERY, INC. AND SUBSIDIARY**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**MARCH
      31, 2007**








Note
      13 - GOING
      CONCERN





The
      accompanying financial statements have been prepared on a going concern basis
      which contemplates the realization of assets and the satisfaction of liabilities
      in the normal course of business. As shown in the financial statements, during
      the nine months ended March 31, 2007 and 2006, the Company incurred losses
      of **$** 3,364,769 and
      $762,596, respectively. 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.





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




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





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





25




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




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




**PRELIMINARY
      NOTE REGARDING FORWARD-LOOKING STATEMENTS**




The
      statements contained in this Form 10-QSB that are not purely historical are
      forward-looking statements within the meaning of Section 27A of the Securities
      Act of 1933, as amended, and Section 21E of the Securities Exchange Act of
      1934,
      as amended. These include statements about the Company’s expectations, beliefs,
      intentions or strategies for the future, which are indicated by words or phrases
      such as “anticipate,” “expect,” “intend,” “plan,” “will,” “the Company
      believes,” “management believes” and similar words or phrases. The
      forward-looking statements are based on the Company’s current expectations and
      are subject to certain risks, uncertainties and assumptions. The Company’s
      actual results could differ materially from results anticipated in these
      forward-looking statements. All forward-looking statements included in this
      document are based on information available to the Company on the date hereof,
      and the Company assumes no obligation to update any such forward-looking
      statements.




**CRITICAL
      ACCOUNTING POLICIES AND ESTIMATES**




Our
      discussion and analysis is based upon our consolidated financial statements,
      which have been prepared in accordance with accounting principles generally
      accepted in the United States. The preparation of these financial statements
      requires us to make estimates and judgments that affect the reported amounts
      of
      assets, liabilities, revenues and expenses, and related disclosure of contingent
      assets and liabilities. On an on-going basis, we evaluate our estimates,
      including those related to accounts receivable reserves, provisions for
      impairment losses of affiliated companies and other intangible assets, income
      taxes and contingencies. We base our estimates on historical experience and
      on
      various other assumptions that are believed to be reasonable under the
      circumstances, the results of which form the basis for making judgments about
      the carrying values of assets and liabilities that are not readily apparent
      from
      other sources. Actual results may differ from these estimates under different
      assumptions or conditions.




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




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




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




26




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




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




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




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




**NATURE
      OF THE OPERATIONS OF THE COMPANY**




**Background** .





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




27




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





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





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





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





**Overview** .




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





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





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




***Export
      Wine Sales***





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




28




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





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





We
      export approximately 40% of our annual volume production whereas most
      competitors in the region export approximately 14% of its volume production. The
      grape
      production for a particular year will be reflected in sales revenue in
      approximately two years owing to the fact that we record product sales following
      the aging time necessary in winemaking .





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




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





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





In
      February 2006, we finalized a distribution agreement with Robert Whale Imports
      to act as the sole importer of our new range of wines in the United
      States .
      This
      launch continues to be successful, with year to date March 2007 sales targets
      overachieved by 28%.





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





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


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


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





As
      of
      March 31, 2007 Milestones 1 and 2 had been completed. In addition to the above
      we have agreed to pay the consultant approximately $4,700 per month starting
      on
      November 1, 2006 and ending upon the completion of our merger negotiations.
      To
      date we have not issued any shares related thereto but have recorded a liability
      of $234,500.




In
        December 2006, the company finalized purchase commitments for grapes produced
        on
        the Wirrilla Vineyard during the 2007 season specifically for an unrelated
        third
        party, generating sales in excess of AUD 550,000, or approximately $434,000.
        As
        of March 31, 2007, the purchase commitment has ended on its terms and all
        payments were received. Other than in connection with this agreement, no
        other
        grapes were grown during the 2007 season.


29




In
      January 2007, we secured commitments from World Icon Group Pty Ltd to supply
      red
      and white wines into Taiwan. Initial orders of two containers will be shipped
      in
      February 2007. Additionally, we have received initial orders from China Duty
      Free for our new “Red Horse” brand. These orders were scheduled to be shipped in
      late February 2007. These orders are packed and ready to be shipped however
      the
      purchaser preferred that any merger and acquisition issues were settled prior
      to
      accepting delivery. Accordingly, the shipment date is unknown and may never
      be
      made. As a result, we may never realize any revenue as a result of this
      arrangement.




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





Overall,
      sales for the quarter ending March 31, 2007 have been significantly lower than
      expected, with budgeted sales not achieved. Management believes that primary
      reasons for this decline has been the deferred Australian launch of our “Mad
      Nags” line of wines, a brand selling successfully in the United States. Despite
      a decline in overall domestic sales, the Australia-only brand “Tuckerbox” has
      seen an increase in its retail sales with Domaine Wine Shippers, Yarraman
      Estate’s Australian distributor.





New
      sales
      have been finalized for Macau, with commitments for six containers of wine
      over
      the next twelve months.





During
      the three months ended March 31, 2007 we added new Vineyard and Winemaking
      staff, replacing vacancies created during the last fiscal year.





Management
      believes that Australian wine supplies will continue to tighten following very
      low harvest tonnages for the 2007 vintage, with the Australian Wine and Brandy
      Corp. estimating the aggregate harvest of 1.34 metric tones, the smallest
      harvest in the last seven years. We have recently had an independent valuation
      of wine stocks held at Wybong by Brian McGuigan, who determined that our
      inventory value is approximately AUD6,180,060.




**Seasonal
      And Quarterly Results**





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




30




**RESULTS
      OF OPERATIONS**




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




**Nine
                Months ended March 31,**
            
            **Three
                Months ended March 31,****2007**
            
            **2006**
            
            **2007**
            
            **2006**Revenue
            
            $
            1,379,813
            
            
            100
            %
            $
            1,305,537
            
            
            100
            %
            $
            543,270
            
            
            100
            %
            $
            290,782
            
            
            100
            %Cost
                of Revenue
            
            
            1,167,321
            
            
            85
            %
            
            975,703
            
            
            75
            %
            
            987,685
            
            
            181
            %
            
            184,766
            
            
            64
            %Gross
                Profit
            
            
            212,492
            
            
            15
            %
            
            329,834
            
            
            25
            %
            
            (444,415
            )
            
            (82
            )%
            
            106,016
            
            
            36
            %Other
                Income (Expense)
            
            
            (856,406
            )
            
            (62
            )%
            
            21,051
            
            
            2
            %
            
            (479,316
            )
            
            (88
            )%
            
            10,442
            
            
            4
            %Operating
                expenses
            
            
            2,690,858
            
            
            195
            %
            
            1,113,481
            
            
            85
            %
            
            529,801
            
            
            96
            %
            
            511,419
            
            
            176
            %Income
                before income tax
            
            
            (3,334,769
            )
            
            (242
            )%
            
            (762,596
            )
            
            (58
            )%
            
            (1,453,532
            )
            
            (268
            )%
            
            (394,961
            )
            
            (136
            )%Income
                tax expenses
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0**Net
                Income**
            
            
            ($3,334,769
            )
            
            (242
            )%
            
            ($762,596
            )
            
            (58
            )%
            
            ($1,453,532
            )
            
            (268
            )%
            
            ($394,961
            )
            
            (136
            )%




**NINE
      MONTHS ENDED MARCH 31, 2007 COMPARED TO NINE MONTHS ENDED MARCH 31,
      2006**




***REVENUE*** **.** Revenue was $1,379,813 in the nine months ended March 31, 2007 compared to
      $1,305,537 in the nine months ended March 31, 2006. The increase in revenue
      in
      the nine-month period is primarily attributable to an increase in export sales
      to the United States of $219,880 (701%), an increase in our retail sales of
      $73,314 (229%), an increase in our sales of grapes of $479,299 (100%) and a
      decrease in our contract winemaking fees of $708,334 (98%) in the nine months
      ended March 31, 2007 compared to the same period in the previous year.




***COST
      OF REVENUE*** **.** Cost of revenue was $ 1,167,321 in the nine months ended March 31, 2007 compared to $ 975,703 in the nine months ended March 31, 2006 **.** As a percentage of revenue, cost of revenue was 85 %
      in the nine months ended March 31, 2007 compared to 75 %
      in the nine months ended March 31, 2006 **.** This increase in cost of revenue was attributable to the decision to sell the
      majority of the crop from our Wirrilla vineyard to a major Australian winemaking
      company versus making our own vintage. The crop was sold at a loss of
      approximately $391,276.




***OTHER
      INCOME (EXPENSE)*** **.** Other
      income (expense) was ($ 856,403 )
      in the
      nine months ended March 31, 2007 compared to $ 21,051 in the
      nine months ended March 31, 2006 . The
      increase was attributable to an increase in interest expense of $290,228, which
      is a result of :
      (1) **** our
      assumption of an interest bearing loan following the asset purchase agreement
      with Delta Dawn, as Trustee for the Yarraman Road Trust on December 22, 2005
      and
      (2) imputed interest on interest free loans from related parties. Also during
      the nine months ended March 31, 2007 we incurred $312,009 in expenses associated
      with the possible acquisition of Evans & Tate, Ltd. These amounts are
      expensed in accordance with accounting guidelines .
      As a
      percentage of revenue, other expense increased to 62%
      in
      the nine months ended March 31, 2007 from other income of 2%
      in the
      nine months ended March 31, 2006.
      This increase was due to the reasons discussed above.




***OPERATNG
      EXPENSES*** **.** Operating expenses were $ 2,690,858 in the nine months ended March 31, 2007 compared to $ 1,113,481 in the nine months ended March 31 **,** 2006, an increase of $ 1,577,377. This increase was primarily attributable to an increase in selling, general
      and
      administrative expenses of $757,468 related to the following: lease expense
      of
      $200,458 relating to a lease paid to Delta Dawn, as trustee for the Yarraman
      Road Trust for use of the Wirrilla vineyard entered into on January 1, 2006,
      an
      increase of $112,735 in depreciation and amortization expense associated with
      fixed assets acquired from the asset purchase agreement with Delta Dawn, as
      trustee for the Yarraman Road Trust in December 2005 and an increase of $125,084
      in discount and commission expense.




31




In
      addition, we incurred the following expenses during the nine months ended March
      31, 2007 that we did not have in the same period ending March 31,
      2006:




Inventory
      Reserve.  During
      the nine months ended March 31, 2007 we recorded a reserve of $192,753 against
      our inventory for slow moving or obsolete items to adequately account for
      current market conditions.




Vineyard
      Costs.   We
      made a decision not to use any grape crop from our vineyards during 2007 to
      make
      our own vintage. We sold some of the grapes to a major Australian winemaker
      and
      recorded related expenses to this sale as a cost of sales, as described
      above .
      The remaining costs associated with our vineyards, which are usually capitalized
      as part of our inventory, have been expensed. These costs amounted to $392,656
      through March 31, 2007.




Consulting
      Expense .  We
      recorded an expense to reflect the cost of shares to be issued to one of our
      consultants upon achievement of agreed milestones in
      relation to their agreement. As of March 31, 2007 the consultants had completed
      two parts of its contract and we therefore recorded an expense of $234,500,
      including monthly fees.




***NET
      INCOME (LOSS).*** Our
      net loss before income tax was $( 3, 334,769 )
      in the nine months ended March 31, 2007 compared to a net loss of $( 762,596 )
      in t he
      three months ended March 31, 2006 .
      This increase in loss was attributable to the increase in our cost of revenue
      an
      increase in selling, general and administrative expenses related to our proposed
      merger, vineyard costs and inventory reserves and interest on new debt that
      did
      not occur in the nine months ended March 31, 2006.




**THREE
      MONTHS ENDED MARCH 31, 2007 COMPARED TO THREE MONTHS ENDED MARCH 31,
      2006**




***REVENUE*** **.** Revenue was $543,270 in the three months ended March 31, 2007 compared to
      $290,782 in the three months ended March 31, 2006. The increase in revenue
      of
      $252,488 in the three-month period is primarily attributable to the decision
      to
      sell the majority of crop from the Wirrilla vineyard to a major Australian
      winemaking company for $359,474. There was a decrease in export sales of $17,087
      in the three months ended March 31, 2007 compared to the same period in the
      previous year. Domestic sales also decreased by $114,831 for the three month
      period in the current year.




***COST
      OF REVENUE*** **.** Cost of revenue was $987,685 in the three months ended March 31, 2007 compared
      to $184,766 in the three months ended March 31, 2006. As a percentage of
      revenue, cost of revenue was 181% in the three months ended March 31, 2007
      compared to 64% in the three months ended March 31, 2006. The increase in the
      cost of revenue is attributable our decision to sell part of our grape crop
      to a
      major Australian winemaking company versus making a vintage in 2007. We sold
      the
      grapes for $359,474, however they had a cost basis of $750,750 which was
      included in our cost of revenue.




32




***OTHER
      INCOME (EXPENSE)*** **.** Other income (expense) was ($479,316) in the three months ended March 31, 2007
      compared to $10,442 in the three months ended March 31, 2006. The increase
      was
      attributable due to a gain on settlement of debt of $152,081 that occurred
      in
      the three months ended 31 March 2006, that did not occur in the three months
      ended 31 March 2007 and merger and acquisition costs we incurred of $312,009
      associated with the possible acquisition of Evans & Tate, Ltd. These amounts
      are expensed in accordance with accounting guidelines. As a percentage of
      revenue, other expense increased to (88) % in the three months ended March
      31,
      2007 from other income of 4% in the three months ended March 31, 2006. This
      increase was due to the reasons discussed above.




***OPERATING
      EXPENSES*** **.** Operating expenses were $529,801 in the three months ended March 31, 2007
      compared to $511,419 in the three months ended March 31, 2006, an increase
      of
      $18,382. This increase was primarily attributable to an increase of $301,483
      in
      vineyard costs and consulting expense as detailed below. We also had decreases
      in the following items during the period: export development and administration
      expenses of $40,752, wages of $32,221, depreciation expense of $43,123,
      advertising and promotion of $27,115 and freight expense of $16,994. As a
      percentage of revenue, operating expenses decreased to 96% in the three months
      ended March 31, 2007 from 179% in the three months ended March 31, 2006.




Vineyard
      Costs.   We
      made a decision not to use any grape crop from our vineyards during 2007 to
      make
      our own vintage. We sold some of the grapes to a major Australian winemaker
      and
      recorded related expenses to this sale as a cost of sales, as described above.
      The remaining costs associated with our vineyards, which are usually capitalized
      as part of our inventory, have been expensed. These costs amounted to
      $184,483through March 31, 2007.




Consulting
      Expense .  We
      recorded an expense to reflect the cost of shares to be issued to one of our
      consultants upon achievement of agreed milestones in
      relation to their agreement. As of March 31, 2007 the consultants had completed
      two parts of their contract and we therefore recorded an expense of
      $117,000.




***NET
      INCOME (LOSS).*** Our
      net loss before income tax was $(1,453,532) in the three months ended March
      31,
      2007 compared to a net loss of $(394,961) in the three months ended March 31,
      2006. This increase in loss was attributable to the decrease in our revenue,
      an
      increase in selling, general and administrative expenses attributable to
      increased depreciation and lease expense, expensing merger and acquisition
      costs, accrual of consulting expenses, expensing vineyard costs and an increase
      in our interest expense relating to new debt.




**LIQUIDITY
      AND CAPITAL RESOURCES**




As
      of March 31, 2007, we had $32,016 of cash and cash equivalents and $2,181,192
      of
      working capital as compared to $105,355 and $4,856,190, respectively, at March
      31, 2006.





On
      December 21, 2005, we entered into a long term loan with Delta Dawn, as Trustee
      for the Yarraman Road Trust with an initial principal balance of $ 1,613,491.
      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.





An
      additional loan agreement was also signed on May 1, 2006 with Delta Dawn, with
      a
      principal amount of $727,182. This loan was provided to assist with our working
      capital requirements due to the low level of sales revenue generated during
      the
      period. On May 25, 2006, Delta Dawn loaned us an additional $12,120 to be paid
      according to the terms of the May 1, 2006 loan.




33




In
      August 2006, we entered into a bridge loan with a related party Whinners Pty
      Limited, for an amount of $403,990 at an interest rate of 8.75%. During the
      period October 2006 to March 2007 we borrowed an additional $444,389 from this
      entity at the same interest rate of 8.75%. The repayment terms of the entire
      amount has been extended until such time as bridge financing related to a
      proposed merger has been received.




Management
      has been exploring options to refinance its long term loan from Provident Bank,
      currently with an outstanding balance of $4,539,249. Any refinancing transaction
      will seek terms that provide a lower interest rate, which management believes
      will further increase the amount cash flow as a result of savings because of
      lower interest payments.




Management
      has also negotiated an assignment of debt facility with a related party to
      provide  ongoing working capital in exchange for the transfer of certain accounts receivable
      due
      to us. This facility first became available in February 2007 and the initial
      amount available under such facility is AUD 500,000 and increased based on
      an
      assignment of our outstanding accounts receivable. As
      of May 31, 2007, the principal amount of AUD 516,500 had been advanced by this
      related party and we are required to pay AUD 23,400 if all outstanding
      receivables are collected by June 30, 2007. **** A
      copy of the agreement is filed as Exhibit 10.1 hereto.




On
      December 21, 2006, we submitted an offer to merge by scheme of arrangement
      with
      Evans & Tate, Ltd., a company publicly traded in Australia. The terms of the
      offer included a combination of issuance of our company stock and issuance
      of
      convertible notes. On February 14, 2007 , we submitted a revised offer which
      was
      offer was conditionally accepted pending the results of due diligence by Evans
      & Tate, Ltd. Our revised offer was rejected on March 16, 2007.





Related
      to this proposed
      merger, we have incurred $ 312,009 of expenses as of March 31, 2007.




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




Evaluation
      of Disclosure on Controls and Procedures .





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




34




Changes
      in Internal Control Over Financial Reporting .




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




35




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




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




None.




**ITEM
      2.** **UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.**





None.




**ITEM
      3.** **DEFAULTS
      UPON SENIOR SECURITIES.**




None.




**ITEM
      4.** **SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS.** ****




None.




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




Effective
      April 27, 2007, Mr. John Wells resigned as the Chief Financial Officer and
      Secretary of Yarraman Winery, Inc. (the "Company").




There
      were no disagreements between Mr. Wells and the Company on any matter relating
      to the Company’s operations, policies or practices, which resulted in his
      resignation. The Board of Directors of the Company is currently considering
      people to appoint as a Chief Financial Officer and Secretary to fill the
      vacancy.




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




36




EXHIBITS.




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




The
      following exhibits are filed as part of this report:




**Exhibit
                Number**
            **Description**10.1
            Assignment
                of Debts Agreement dated February 2007 between Yarraman Estate Pty
                Limited
                and Whinners Pty Limited31.1
            Certification
                of Chief Executive Officer pursuant to Rule 13A-14(A)/15D-14(A) of
                the
                Securities Exchange Act of 1934, as adopted pursuant to Section 302
                of the
                Sarbanes-Oxley Act of 2002.32.1
            Certification
                of Chief Executive Officer and the Principal Financial Officer Pursuant
                to
                18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of
                2002).




37




**SIGNATURES**




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


**YARRAMAN
              WINERY, INC.**Date:
                June 25, 2007
            By:
            /s/ Wayne
              RockallWayne
                Rockall
              Chief
                Executive Officer




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