UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q












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


For the
Quarterly Period Ended June 30, 2009





 ̈ TRANSITION REPORT UNDER
SECTION 13 OR 15(d) OF THE EXCHANGE ACT





Commission
File Number 000-21522





WILLAMETTE
VALLEY VINEYARDS, INC.





(Exact
name of registrant as specified in charter)





Oregon
              93-0981021(State
      or other jurisdiction of
              (I.R.S.
      Employerincorporation
      or organization)
              Identification
      No.)










8800 Enchanted Way, S.E., Turner,
      Oregon
                
                97392(Address
      of principal executive offices)
                
                (Zip
      Code)





Registrant's
telephone number, including area code:  (503)
588-9463









Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the preceding 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.





x
    YES
                 ̈
  NO





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).





x
    YES
               ̈
  NO





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer,” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.





 ̈ Large accelerated
      filer
             ̈ Accelerated
      filer ̈ Non-accelerated
      filer
            x Smaller reporting
      company





Indicate
by checkmark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act).





 ̈
    YES
              x
  NO





Number of
shares of common stock outstanding as of July 30, 2009:


4,863,979
shares, no par value





WILLAMETTE
VALLEY VINEYARDS, INC.


INDEX TO
FORM 10-Q





Part
      I - Financial Information
                3Item
      1 - Financial Statements
                3Balance
      Sheet
                3Statement
      of Operations
                4Statement
      of Cash Flows
                5Notes
      to Unaudited Interim Financial Statements
                6Item
      2 - Management's Discussion and Analysis of Financial Condition and
      Results of Operations
                10Item
      3 – Quantitative and Qualitative Disclosures about Market
    Risk
                17Item
      4 - Controls and Procedures
                17Part
      II - Other Information
                19Item
      1 - Legal Proceedings
                19Item
      1A – Risk Factors
                19Item
      2 - Unregistered Sales of Equity Securities and Use of
      Proceeds
                19Item
      3 - Defaults upon Senior Securities
                19Item
      4 - Submission of Matters to a Vote of Security Holders
                19Item
      5 - Other Information
                19Item
      6 - Exhibits
                20Signatures
                21


2





Part
      1
                FINANCIAL
      INFORMATION





Item
      1
              FINANCIAL
      STATEMENTS





WILLAMETTE
VALLEY VINEYARDS, INC.


Balance
Sheet


June
      30,
                        
                        
                        December
      31,2009
                        
                        
                        2008(unaudited)ASSETSCurrent
      assets:Cash
      and cash equivalents
                        
                        $
                        -
                        
                        
                        $
                        350,361Accounts
      receivable trade, net
                        
                        
                        1,141,725
                        
                        
                        
                        1,204,881Inventories
                        
                        
                        11,619,663
                        
                        
                        
                        10,604,204Prepaid
      expenses and other current assets
                        
                        
                        127,678
                        
                        
                        
                        68,834Current
      portion of notes receivable
                        
                        
                        62,415
                        
                        
                        
                        62,415Deferred
      income taxes
                        
                        
                        81,700
                        
                        
                        
                        81,700Total
      current assets
                        
                        
                        13,033,181
                        
                        
                        
                        12,372,395Vineyard
      development cost, net
                        
                        
                        1,682,055
                        
                        
                        
                        1,693,769Property
      and equipment, net
                        
                        
                        5,988,620
                        
                        
                        
                        6,069,408Note
      receivable
                        
                        
                        134,284
                        
                        
                        
                        165,491Debt
      issuance costs, net
                        
                        
                        25,354
                        
                        
                        
                        29,581Other
      assets
                        
                        
                        4,456
                        
                        
                        
                        4,456Total
      assets
                        
                        $
                        20,867,950
                        
                        
                        $
                        20,335,100LIABILITIES
      AND SHAREHOLDERS’ EQUITYCurrent
      liabilitiesBank
      overdraft
                        
                        $
                        76,920
                        
                        
                        $
                        -Current
      portion of long term debt
                        
                        
                        354,536
                        
                        
                        
                        354,536Revolving
      credit line
                        
                        
                        1,042,440
                        
                        
                        
                        -Accounts
      payable
                        
                        
                        905,916
                        
                        
                        
                        1,111,499Accrued
      expenses
                        
                        
                        534,300
                        
                        
                        
                        510,768Income
      taxes payable
                        
                        
                        232,420
                        
                        
                        
                        350,870Grapes
      payable
                        
                        
                        24,837
                        
                        
                        
                        594,734Total
      current liabilities
                        
                        
                        3,171,369
                        
                        
                        
                        2,922,407Long-term
      debt, less current portion
                        
                        
                        2,022,238
                        
                        
                        
                        2,178,246Deferred
      rent liability
                        
                        
                        217,742
                        
                        
                        
                        217,742Deferred
      gain
                        
                        
                        329,883
                        
                        
                        
                        345,930Deferred
      income taxes
                        
                        
                        355,207
                        
                        
                        
                        355,207Total
      liabilities
                        
                        
                        6,096,439
                        
                        
                        
                        6,019,532Shareholders’
      equityCommon
      stock, no par value - 10,000,000 shares authorized, 4,863,977 and
      4,851,327 shares issued and outstanding at June 30, 2009 and December 31,
      2008
                        
                        
                        8,552,670
                        
                        
                        
                        8,515,667Retained
      earnings
                        
                        
                        6,218,841
                        
                        
                        
                        5,799,901Total
      shareholders’ equity
                        
                        
                        14,771,511
                        
                        
                        
                        14,315,568Total
      liabilities and shareholders’ equity
                        
                        $
                        20,867,950
                        
                        
                        $
                        20,335,100





The
accompanying notes are an integral part of this financial
statement.





3




WILLAMETTE
VALLEY VINEYARDS, INC.


Statement
of Operations


(unaudited)


Three months ended June 30,
                    
                    
                    Six months ended June 30,2009
                    
                    
                    2008
                    
                    
                    2009
                    
                    
                    2008Net
      revenues Case revenue
                    
                    $
                    4,052,383
                    
                    
                    $
                    3,884,983
                    
                    
                    $
                    7,692,621
                    
                    
                    $
                    7,287,656Total
      net revenues
                    
                    
                    4,052,383
                    
                    
                    
                    3,884,983
                    
                    
                    
                    7,692,621
                    
                    
                    
                    7,287,656Cost
      of sales Case
                    
                    
                    2,056,684
                    
                    
                    
                    1,973,844
                    
                    
                    
                    3,819,828
                    
                    
                    
                    3,727,678Total
      cost of sales
                    
                    
                    2,056,684
                    
                    
                    
                    1,973,844
                    
                    
                    
                    3,819,828
                    
                    
                    
                    3,727,678Gross
      profit
                    
                    
                    1,995,699
                    
                    
                    
                    1,911,139
                    
                    
                    
                    3,872,793
                    
                    
                    
                    3,559,978Selling,
      general and administrative expenses
                    
                    
                    1,537,775
                    
                    
                    
                    1,645,963
                    
                    
                    
                    3,099,509
                    
                    
                    
                    3,174,471Net
      operating income
                    
                    
                    457,924
                    
                    
                    
                    265,176
                    
                    
                    
                    773,284
                    
                    
                    
                    385,507Other
      income (expense)Interest
      income
                    
                    
                    -
                    
                    
                    
                    16,222
                    
                    
                    
                    -
                    
                    
                    
                    17,193Interest
      expense
                    
                    
                    (36,216
                    )
                    
                    
                    (17,715
                    )
                    
                    
                    (68,878
                    )
                    
                    
                    (40,043
                    )Other
      income(expense)
                    
                    
                    1,922
                    
                    
                    
                    (1,139
                    )
                    
                    
                    1,922
                    
                    
                    
                    53Net
      income before income taxes
                    
                    
                    423,630
                    
                    
                    
                    262,544
                    
                    
                    
                    706,328
                    
                    
                    
                    362,710Income
      tax expense
                    
                    
                    169,846
                    
                    
                    
                    105,017
                    
                    
                    
                    287,388
                    
                    
                    
                    145,085Net
      income
                    
                    
                    253,784
                    
                    
                    
                    157,527
                    
                    
                    
                    418,940
                    
                    
                    
                    217,625Retained
      earnings beginning of period
                    
                    
                    5,965,057
                    
                    
                    
                    5,151,405
                    
                    
                    
                    5,799,901
                    
                    
                    
                    5,091,307Retained
      earnings end of period
                    
                    $
                    6,218,841
                    
                    
                    $
                    5,308,932
                    
                    
                    $
                    6,218,841
                    
                    
                    $
                    5,308,932Basic
      earnings per common share
                    
                    $
                    .05
                    
                    
                    $
                    .03
                    
                    
                    $
                    .09
                    
                    
                    $
                    .04Diluted
      earnings per common share
                    
                    $
                    .05
                    
                    
                    $
                    .03
                    
                    
                    $
                    .09
                    
                    
                    $
                    .04Weighted
      average number of basic common shares outstanding
                    
                    
                    4,858,480
                    
                    
                    
                    4,844,475
                    
                    
                    
                    4,855,379
                    
                    
                    
                    4,840,882Weighted
      average number of diluted common shares outstanding
                    
                    
                    4,877,738
                    
                    
                    
                    5,006,888
                    
                    
                    
                    4,858,146
                    
                    
                    
                    4,997,528





The
accompanying notes are an integral part of this financial
statement.


4





WILLAMETTE
VALLEY VINEYARDS, INC.


Statement
of Cash Flows


(unaudited)





Six Months ended June 30,2009
                              
                              
                              2008Cash
      flows from operating activities:Net
      income
                              
                              $
                              418,940
                              
                              
                              $
                              217,625Reconciliation
      of net income to net cash provided by (used in) operating
      activities:Depreciation
      and amortization
                              
                              
                              326,866
                              
                              
                              
                              308,241Deferred
      rent liability
                              
                              
                              -
                              
                              
                              
                              (8,936
                              )Deferred
      gain
                              
                              
                              (16,047
                              )
                              
                              
                              (16,048
                              )Stock
      based compensation expense
                              
                              
                              8,988
                              
                              
                              
                              20,733Changes
      in operating assets and liabilities:Accounts
      receivable trade
                              
                              
                              63,156
                              
                              
                              
                              729,069Inventories
                              
                              
                              (1,015,457
                              )
                              
                              
                              (1,758,542
                              )Prepaid
      expenses and other current assets
                              
                              
                              (58,845
                              )
                              
                              
                              (223,572
                              )Other
      assets
                              
                              
                              -
                              
                              
                              
                              59,469Accounts
      payable
                              
                              
                              (205,583
                              )
                              
                              
                              200,138Accrued
      expenses
                              
                              
                              23,532
                              
                              
                              
                              (6,633
                              )Income
      taxes payable
                              
                              
                              (122,961
                              )
                              
                              
                              61,771Grape
      payables
                              
                              
                              (569,897
                              )
                              
                              
                              (445,644
                              )Net
      cash used in operating activities
                              
                              
                              (1,147,308
                              )
                              
                              
                              (862,329
                              )Cash
      flows from investing activities;Additions
      to property and equipment
                              
                              
                              (206,797
                              )
                              
                              
                              (489,132
                              )Vineyard
      development
                              
                              
                              (23,340
                              )
                              
                              
                              -Payment
      received on grape supplier loan
                              
                              
                              31,207
                              
                              
                              
                              -Net
      cash used in investing activities
                              
                              
                              (198,930
                              )
                              
                              
                              (489,132
                              )Cash
      flows from financing activities:Bank
      overdraft
                              
                              
                              76,920
                              
                              
                              
                              -Proceeds
      from stock options exercised
                              
                              
                              28,015
                              
                              
                              
                              27,250Borrowing
      from revolving line of credit
                              
                              
                              1,042,440
                              
                              
                              
                              440,533Payments
      on long-term debt
                              
                              
                              (156,008
                              )
                              
                              
                              (140,379
                              )Excess
      tax benefit on stock option exercises
                              
                              
                              4,510
                              
                              
                              
                              6,798Net
      cash provided by (used in) financing activities
                              
                              
                              995,877
                              
                              
                              
                              334,202Net
      increase (decrease) in cash and cash equivalents
                              
                              
                              (350,361
                              )
                              
                              
                              (1,017,259
                              )Cash
      and cash equivalents:Beginning
      of period
                              
                              
                              350,361
                              
                              
                              
                              1,083,405End
      of period
                              
                              $
                              -
                              
                              
                              $
                              66,146





The
accompanying notes are an integral part of this financial
statement.





5




NOTES TO
UNAUDITED INTERIM FINANCIAL STATEMENTS





1) BASIS
OF PRESENTATION





The
accompanying unaudited financial statements for the three and six months ended
June 30, 2009 and 2008, have been prepared in conformity with accounting
principles generally accepted in the United States (“GAAP”). The financial
information as of December 31, 2008 is derived from the audited financial
statements presented in the Willamette Valley Vineyards, Inc. (the “Company”)
Annual Report on Form 10-K for the year ended December 31, 2008. Certain
information or footnote disclosures normally included in financial statements
prepared in accordance with GAAP have been condensed or omitted pursuant to the
rules and regulations of the Securities and Exchange Commission. In the opinion
of management, the accompanying financial statements include all adjustments
necessary (which are of a normal recurring nature) for the fair statement of the
results of the interim periods presented. The accompanying financial statements
should be read in conjunction with the Company’s audited financial statements
for the year ended December 31, 2008, as presented in the Company’s Annual
Report on Form 10-K.




Operating
results for the three and six months ended June 30, 2009 are not necessarily
indicative of the results that may be expected for the entire year ending
December 31, 2009, or any portion thereof.





The
Company consists of the retail, in-state self-distribution and out-of-state
sales departments.  These departments have mostly similar economic
characteristics, offer comparable products to customers, and utilize similar
processes for production and distribution. The in-state self-distribution
business known as Bacchus Fine Wines has the unique characteristic of selling
wholesale purchased wines and glassware in addition to Company produced wines.
The Company reports limited financial information for two operating segments as
follows: Bacchus Distribution and Produced Wines.





Basic
earnings per share are computed based on the weighted-average number of common
shares outstanding each period. Diluted earnings per share are computed using
the weighted average number of shares of common stock and potentially dilutive
common shares outstanding during the year.  Potentially dilutive
shares from stock options and other potentially dilutive shares are excluded
from the computation when their effect is anti-dilutive. There were no
potentially dilutive shares excluded from the computation for the three and six
months ended June 30, 2009. 19,258 and 2,767 potentially dilutive shares are
included in the computation of dilutive earnings per share for the three and six
months ended June 30, 2009, respectively. 162,413 and 156,647 potentially
dilutive shares are included in the computation of dilutive earnings per share
for the three and six months ended June 30, 2008, respectively.





2) STOCK
BASED COMPENSATION





The
Company has two stock option plans, the 1992 Stock Incentive Plan (“1992 Plan”)
and 2001 Stock Option Plan (“2001 Plan”).  No additional grants may be
made under the 1992 Plan.  The 2001 Plan, which was approved by the
shareholders, permits the grant of stock options and restricted stock awards for
up to 900,000 shares.  All stock options have an exercise price that
is equal to the fair market value of the Company’s stock on the date the options
were granted.  Administration of the plan, including determination of
the number, term, and type of options to be granted, lies with the Board of
Directors or a duly authorized committee of the Board of
Directors.  Options are generally granted based on employee
performance with vesting periods ranging from date of grant to seven
years.  The maximum term before expiration for all grants is ten
years.


6





The
following table presents information related to the value of outstanding stock
options for the periods shown:





Three months ended
                                    
                                    
                                    Six months endedJune 30, 2009
                                    
                                    
                                    June 30, 2009Weighted
                                    
                                    
                                    
                                    
                                    
                                    Weightedaverage
                                    
                                    
                                    
                                    
                                    
                                    averageexercise
                                    
                                    
                                    
                                    
                                    
                                    exerciseShares
                                    
                                    
                                    price
                                    
                                    
                                    Shares
                                    
                                    
                                    priceOutstanding
      at beginning of period
                                    
                                    
                                    440,700
                                    
                                    
                                    $
                                    3.78
                                    
                                    
                                    
                                    442,200
                                    
                                    
                                    $
                                    3.77Granted
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Exercised
                                    
                                    
                                    (11,000
                                    )
                                    
                                    $
                                    2.30
                                    
                                    
                                    
                                    (12,500
                                    )
                                    
                                    $
                                    2.24Forfeited
                                    
                                    
                                    (49,000
                                    )
                                    
                                    $
                                    2.30
                                    
                                    
                                    
                                    (49,000
                                    )
                                    
                                    $
                                    2.30Outstanding
      at end of Period
                                    
                                    
                                    380,700
                                    
                                    
                                    $
                                    4.01
                                    
                                    
                                    
                                    380,700
                                    
                                    
                                    $
                                    4.01





At
January 1, 2006, the Company began recognizing compensation expense for stock
options with the adoption of Statement of Financial Accounting Standards
(“SFAS”) No. 123 (Revised), “Share-Based Payment,” (“SFAS 123R”). The fair value
of each stock option granted is estimated on the date of grant using the
Black-Scholes stock option valuation model. This model uses the assumptions
listed in the table below. Expected volatilities are based on implied
volatilities from the Company’s stock, historical volatility of the Company’s
stock, and other factors.  Expected dividends are based on the
Company’s plan not to pay dividends for the foreseeable future.  The
Company uses historical data to estimate option exercises and employee
terminations within the valuation model. The risk-free rate for periods within
the contractual life of the option is based on the U.S. Treasury yield curve in
effect at the time of grant.





Black-Scholes
assumptions


June 30,2009Risk
      Free interest rates
                      
                      
                      3.53
                      %Expected
      dividend
                      
                      
                      0
                      %Expected
      lives, in years
                      
                      
                      5-10Expected
      volatility
                      
                      
                      34.7
                      %





The
Company expenses stock options on a straight-line basis over the options’
related vesting term.  For the three months ended June 30, 2009 and
2008, the Company recognized pretax compensation expense related to stock
options and restricted stock grants of $4,494 and $8,143, respectively; and for
the six months ended June 30, 2009 and 2008, the Company recognized pretax
compensation expense related to stock options of $8,988 and $20,733,
respectively.





During
the six months ended June 30, 2009, the following transactions related to stock
option exercise occurred:


ExerciseShares
                  
                  
                  PriceStock
      Options Exercised
                  
                  
                  1,500
                  
                  
                  $
                  1.8111,000
                  
                  
                  $
                  2.30


7





The
exercise of the aforementioned options resulted in a reduction of $4,510 in the
Company’s tax liability.  This tax savings is reflected in the
financials presented at June 30, 2009. Since the deduction does not exceed the
compensation costs recognized in the financial statements, the excess tax
benefit is not recognized as additional paid in capital.





3)
INVENTORIES





The
Company’s inventories, by major classification, are summarized as follows, as of
the dates shown:





June
      30,
                    
                    
                    December
      31,2009
                    
                    
                    2008(unaudited)Winemaking
      and packaging materials
                    
                    $
                    606,794
                    
                    
                    $
                    309,467Work-in-progress
      (costs relating to unprocessed and/or bulk wine products)
                    
                    
                    3,038,350
                    
                    
                    
                    3,350,830Finished
      goods (bottled wines and related products)
                    
                    
                    7,974,519
                    
                    
                    
                    6,943,907Current
      inventories
                    
                    $
                    11,619,663
                    
                    
                    $
                    10,604,204





4)
PROPERTY AND EQUIPMENT





The
Company’s property and equipment consists of the following, as of the dates
shown:


June 30,
                    
                    
                    December 31,2009
                    
                    
                    2008(unaudited)Land
      and improvements
                    
                    $
                    2,591,357
                    
                    
                    $
                    2,589,560Winery
      building and hospitality center
                    
                    
                    4,969,758
                    
                    
                    
                    4,969,758Equipment
                    
                    
                    5,557,835
                    
                    
                    
                    5,352,83513,118,950
                    
                    
                    
                    12,912,153Less
      accumulated depreciation
                    
                    
                    (7,130,330
                    )
                    
                    
                    (6,842,745
                    )$
                    5,988,620
                    
                    
                    $
                    6,069,408





5)  INTEREST
AND TAXES PAID





During
the second quarter ended June 30, 2009, the Company paid $60,000 in Federal,
State and Local income taxes and $80,383 in Payroll tax. Additionally, $36,216
was paid in interest on the long-term debt and revolving credit line for the
same period. For the six month period ended June 30, 2009, the Company paid
$235,000 in Federal, State and Local income taxes and $162,542 in Payroll tax.
Additionally, $68,878 was paid in interest on the long-term debt and revolving
credit line for the same period.


8


6)
SEGMENT REPORTING





The
Company has identified two operating segments, Produced Wine and Bacchus
Distribution. Bacchus Distribution (dba Bacchus Fine Wines), is the Company’s
in-state distribution department. Bacchus distributes produced wine, purchased
wine and glassware at wholesale prices to in-state customers. Produced wine
represents all Willamette Valley Vineyard branded wine which is produced at the
winery.  Purchased wines and glassware are brands purchased from other
wine distributors and wineries for sale to in-state customers. For segment
reporting, the produced wines distributed by Bacchus are consolidated with
Retail and Out-of-State sales and shown as Produced Wines.





The two
segments reflect how the Company’s operations are evaluated by senior management
and the structure of its internal financial reporting.  The Company
evaluates performance based on the gross profit of the respective business
segment.  Sales, general and administrative expenses are not allocated
between operating segments, therefore net income information for the respective
segments is not available.  Discrete financial information related to
segment assets, other than inventory, is not available and that information
continues to be aggregated.





The
following tables outline the sales, cost of sales and gross profit, for the
three and six month period ended June 30, 2009 by operating
segment:





Three months ended June 30,
      2009Bacchus
                  
                  
                  ProducedDistribution
                  
                  
                  Wine
                  
                  
                  TotalNet
      Sales
                  
                  $
                  1,012,754
                  
                  
                  $
                  3,039,629
                  
                  
                  $
                  4,052,383Cost
      of Sales
                  
                  $
                  774,632
                  
                  
                  $
                  1,282,052
                  
                  
                  $
                  2,056,684Gross
      Profit
                  
                  $
                  238,122
                  
                  
                  $
                  1,757,577
                  
                  
                  $
                  1,995,699%
      of sales
                  
                  
                  23.5
                  %
                  
                  
                  57.8
                  %
                  
                  
                  49.2
                  %





Six months ended June 30, 2009Bacchus
                  
                  
                  ProducedDistribution
                  
                  
                  Wine
                  
                  
                  TotalNet
      Sales
                  
                  $
                  1,920,280
                  
                  
                  $
                  5,772,341
                  
                  
                  $
                  7,692,621Cost
      of Sales
                  
                  $
                  1,417,587
                  
                  
                  $
                  2,402,241
                  
                  
                  $
                  3,819,828Gross
      Profit
                  
                  $
                  502,693
                  
                  
                  $
                  3,370,100
                  
                  
                  $
                  3,872,793%
      of sales
                  
                  
                  26.2
                  %
                  
                  
                  58.4
                  %
                  
                  
                  50.3
                  %





Total
inventory for Bacchus Distribution was $2,546,373 of purchased wines and
$413,279 of non-wine merchandise at period end June 30, 2009.  This
compares to produced wine inventory of $4,942,035 and $3,717,976 of non-wine
merchandise and work-in-process for the same period. At June 30, 2008 total
inventory for Bacchus Distribution was $2,230,858 of purchased wines and
$257,485 of non-wine merchandise. This compares to produced wine inventory of
$6,333,354 and $913,279 of non-wine merchandise and work-in-process for the same
period.




9




Item
2





MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS





Forward Looking
Statements





This
Management’s Discussion and Analysis of Financial Condition and Results of
Operations and other sections of this Form 10-Q contain forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995.  These forward-looking statements involve risks and
uncertainties that are based on current expectations, estimates and projections
about the Company’s business, and beliefs and assumptions made by
management.  Words such as “expects,” “anticipates,” “intends,”
“plans,” “believes,” “seeks,” “estimates” and variations of such words and
similar expressions are intended to identify such forward-looking
statements.  Therefore, actual outcomes and results may differ
materially from what is expressed or forecasted in such forward-looking
statements due to numerous factors, including, but not limited
to:  availability of financing for growth, availability of adequate
supply of high quality grapes, successful performance of internal operations,
impact of competition, changes in wine broker or distributor relations or
performance, impact of possible adverse weather conditions, impact of reduction
in grape quality or supply due to disease, impact of governmental regulatory
decisions, and other risks disclosed from time to time in the Company’s
Securities and Exchange Commission filings and reports.  In addition,
such statements could be affected by general industry and market conditions and
growth rates, and general domestic economic conditions.  The
forward-looking statements are made as of the date hereof, and, except as
otherwise required by law, we disclaim any intention or obligation to update or
revise any forward-looking statements or to update the reasons whythe actual
results could differ materially from those projected in the forward-looking
statements, whether as a result of new information, future events or
otherwise.





Critical
Accounting Policies





The
foregoing discussion and analysis of our financial condition and results of
operations are based upon our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America.  The preparation of these financial statements requires the
Company’s management 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 revenue recognition, collection of
accounts receivable, valuation of inventories, and amortization of vineyard
development costs.  We base our estimates on historical experience and
on various other assumptions that are believed to be reasonable under the
circumstances.  Actual results may differ from these estimates under
different assumptions or conditions.  A description of our critical
accounting policies and related judgments and estimates that affect the
preparation of our financial statements is set forth in our Annual Report on
Form 10-K for the year ended December 31, 2008.  Such policies were
unchanged during the three and six months ended June 30, 2009.





Overview





The
Company’s principal sources of revenue are derived from sales and distribution
of wine.  The Company experienced a dramatic jump in net earnings of
$253,784 for the second quarter ended June 30, 2009, a 61% increase over the
comparable prior year period. Net earnings for the six month were $418,940 and
increased 93% over the prior year’s six month period.





As a
result, the Company generated $0.05 and $0.09 basic earnings per share during
the three and six months ended June 30, 2009, an increase of $0.02 and $0.05
basic earnings per share versus the comparable prior year periods.





Sales
revenue for the three and six months ended June 30, 2009 increased $167,400 and
$404,965, or 4.3% and 5.6%, from the comparable prior year
periods.


10


Sales
revenue growth for the three and six months ended June 30, 2009 versus 2008 is
being principally driven by new product placements and order activity from our
chain store customers.  The main channel of the growth is through our
National Sales business unit which deals with out of state customers where
product is sold through distributors in each state.  Additionally
in-state sales were slightly down versus the prior year.  The mix of
sales in-state has shifted from purchased brands to produced brands mainly due
to the availability of three produced Pinot Noir products that became available
for sale in the 4th Quarter of 2008. The decrease in purchased brands sales
in-state from 2008 to 2009 is largely the result of reduced order activity by
on-premise customers who are experiencing significant reductions in consumer
demand in a struggling economy.





Taken as
a whole, the three sales departments: National Sales, Oregon Wholesale (Bacchus
Fine Wines) and Retail showed increased performance on their net contribution
for the three and six months ended June 30, 2009 versus the comparable prior
year period.





Net
operating income performance for the quarter ended June 30, 2009 was improved
mainly due the increased sales volume in National Sales, coupled with improved
gross profit which is enhanced by decreased sales, general and administrative
expenses. Cost of sales has decreased mainly due to a shift in the mix of sales
from purchased brands to produced brands where we achieve a higher gross profit.
Additionally, improved inventory controls have resulted in reduced inventory
shrinkage and therefore have improved operations. Sales, General and
Administrative expense decreases are primarily due to reduced accounting and
legal professional service fees related to the independent audit. These savings
are somewhat offset by higher sales labor costs including related fringe
benefits.  This trend in improved operating income performance is
consistent with the first quarter of 2009 and therefore the Company’s
year-to-date operating income is also improved as compared to 2008.





The
winery bottled approximately 45,000 cases in the second quarter of 2009, mainly
2008 vintage Riesling and 2008 vintage Pinot Gris.





The
Company has an asset-based loan agreement with Umpqua Bank that allows it to
borrow up to $2,000,000.  This maturity date on this loan agreement is
June 2010.  At June 30, 2009, the Company had a credit line balance of
$1,042,440 and $957,560 of available credit. The interest rate charged in the
quarter was 3.25%. The interest rate on this note is a variable interest rate
and is subject to change from time to time based on changes in an independent
index which is the Prime Rate as published in the Wall Street Journal (the
“Index”).  The index rate at June 30, 2009 is 3.25%. The loan
agreement contains, among other things, certain restrictive financial covenants
with respect to total equity, debt-to-equity and debt coverage that must be
maintained by the Company on a quarterly basis.  As of June 30, 2009,
the Company was in compliance with all of the financial covenants.





The
Company's wines continued to accumulate prized recognition from national wine
groups and publications.





Willamette
Valley Vineyards’ 2006 Estate Pinot Noir and 2006 Signature Cuvee Pinot Noir
both took Gold at the Grand Harvest Awards. This international competition is
sponsored by Vineyard & Winery Management Magazine and has a special focus
on terroir. All wines are judged in the context of the viticultural region where
they are grown in order to “learn more about how terroir contributes qualities
of excellence and distinctiveness to wines”.





Additionally,
the '06 Estate Pinot Noir also took "Double Gold" and was nominated for Best of
Show at the Hilton Head Island Wine and Food Festival in South
Carolina;  the 2006 Dijon Clone Chardonnay took Critic’s Gold at the
2009 Critic’s Challenge, judged by many of America’s most accomplished wine
journalists; and the 2007 Dry Riesling took a Gold medal at the Tasters Guild
22nd annual International Wine Judging, where forty experienced judges from
around the country completed over 2,100 evaluations of wine from 36
states/provinces and 13 countries. The judging panels were comprised of a
carefully selected mix of winemakers, retailers, wine writers, restaurateurs,
and knowledgeable consumers.


11





The first
annual Oregon Wine Awards, a competition for and by Oregon wine industry
specialists awarded three of our wines "Double Gold" in their categories, an
honor that the competition classifies as “Best of the Best”: 2006 WVV Signature
Cuvee Pinot Noir, 2007 WVV Riesling and the 2003 Griffin Creek
Syrah.





On April
22, the Oregon Certified Sustainable Wine (“OCSW”) website launched. Hosted by
the Oregon Wine Board, OCSW is a certification program that encompasses LIVE,
Organic and Biodynamic wine certifications under one symbol in the hopes of
making it easier for the consumer to choose sustainable wines. Willamette Valley
Vineyards was one of the first wineries to qualify for this new certification.
The new website (www.ocsw.org <http://www.ocsw.org/>) features an
interview with winery Founder Jim Bernau.





On April
26, Willamette Valley Vineyards received the honor of “Best Local Winery” in the
Statesman Journal’s annual Best of the Mid-Valley contest. This honor was based
entirely on consumer votes.  WVV’s custom Tour & Tastings were
highlighted in the article.





In the
April, 2009 issue of Simply Wine Today, the cover story “Going Green: the
organic trend” featured a photo of Founder Jim Bernau on a bio-diesel fueled
tractor under the headline “Wineries on a Green Path: Eco-Friendly Wines”. This
continuing coverage of WVV’s sustainable efforts goes to the heart of our
Company’s values.





Our Cork
ReHarvest program, which was launched at the beginning of the first quarter, has
continued to garner media coverage into the second quarter, both locally and
abroad. Cork ReHarvest is a cradle-to-cradle cork recycling program, executed
with zero increase to the company’s carbon footprint. This program was
highlighted in the May/June issue of UK based publication Living Woods Magazine,
with a follow-up feature story to appear in the July/August issue.





During
Willamette University’s Atkinson Graduate School of Management graduation
ceremonies on May 17th, WVV Founder Jim Bernau was honored with the annual Glenn
L. Jackson Leadership Award. The award was presented to Bernau by Gerry Frank,
who was the first to receive the award in 1984. The award is presented annually
to an individual in business or government who has demonstrated the values of
entrepreneurship in public/private partnerships.





On May
28th the book Oregon: the Taste of Wine, underwritten by WVV, was honored by the
Independent Book Publishers Association with the Ben Franklin Book Award. Named
in honor of America's most cherished publisher/printer, the Benjamin Franklin
Awards recognize excellence in independent publishing. The book received a gold
medal in the Regional category, competing against all books nationwide with a
regional slant.  This book was entirely underwritten by the winery as
a fundraiser for Salud, the medical clinic for Oregon farmworkers.





In the
second week of June,  Bacchus Fine Wines, WVV's Wholesale Dept hosted
sold-out trade and consumer tasting events with world-renowned owner of Riedel
Crystal Stemware, Georg Riedel. Georg tasted through several WVV wines paired
with the perfect Riedel Crystal glass in the Vinum XL product
line.  WVV is the distributor of Riedel glassware in
Oregon.





On June
11th, at the annual SEDCOR (Strategic Economic Development Corporation) honors
luncheon, Willamette Valley Vineyards was awarded the Agri-Business of the year
award. This award is presented to an active SEDCOR member who has demonstrated
excellence in agri-business in the past year, and who supports and maintains the
significant role and future of agriculture in the Mid-Willamette Valley
economy.  SEDCOR is a private, non-profit member organization
comprised of more than 500 business and community leaders.


12





On the
evening of June 24th, WVV and Jim Bernau played host to Fred Meyer CEO for a
wine dinner that was auctioned off for $35,000 at the Northwest Grocery
Association’s annual gala dinner and auction. The bidding on this auction item
was intense, surpassing all previous records.  This donation will go
to support the grocery industry as a whole.





On June
25th Willamette Valley Vineyards, in cooperation with Ken Wright Cellars, EIEIO
& Company Ltd. and Federal Express, hosted Oregon’s first virtual wine
tasting with Hong Kong. The video conference and wine tasting brought together
more than two dozen Hong Kong wine distributors, sommeliers and retailers to
taste through a flight of high-quality Oregon wines. The event came on the heels
of Hong Kong lifting duties on US wine imports in February 2008, which could
improve the importation of Oregon wines. As a result of this event the Company
secured distribution through a prominent Hong Kong importer.





RESULTS
OF OPERATIONS





Revenue





Net
revenue for the three and six months ended June 30, 2009 increased $167,400 and
$404,965, or 4.3% and 5.6%, from the comparable prior year periods. The increase
in the quarter and the year is primarily due to increased product placements in
National chain stores and related out-of-state distributors. This is offset
slightly by the decrease in in-state wholesale revenue which is driven by the
decreased volume of order activity in purchased brands. The reduction in the
volume of in-state order activity is mainly due to on-premise accounts that are
experiencing significant reductions in consumer demand in a struggling economy.
Retail consumer sales for the three and six months ended June 30, 2009 are
slightly favorable over last year by less than 1.0%. Increases in Retail direct
to consumer sales are almost entirely offset by the reduction in tasting room
sales and room rental sales.





Our
revenues from winery operations are summarized as follows:





Three months ended
                
                
                Six months endedJune 30,
                
                
                June 30,2009
                
                
                2008
                
                
                2009
                
                
                2008Retail
      Sales, Rental Income and Events
                
                $
                595,255
                
                
                $
                592,677
                
                
                $
                1,128,530
                
                
                $
                1,122,205In-state
      sales
                
                
                1,825,696
                
                
                
                1,864,762
                
                
                
                3,482,582
                
                
                
                3,577,877Out-of-state
      sales
                
                
                1,774,850
                
                
                
                1,505,630
                
                
                
                3,303,723
                
                
                
                2,758,066Misc.
      sales
                
                
                -
                
                
                
                -
                
                
                
                10,991
                
                
                
                (947
                )Total
      Revenue
                
                
                4,195,801
                
                
                
                3,963,069
                
                
                
                7,925,826
                
                
                
                7,457,201Less
      excise taxes
                
                
                (143,418
                )
                
                
                (78,086
                )
                
                
                (233,205
                )
                
                
                (169,545
                )Net
      Revenue
                
                $
                4,052,383
                
                
                $
                3,884,983
                
                
                
                7,692,621
                
                
                
                7,287,656





Retail
sales, rental income and events for the three and six months ended June 30, 2009
increased $2,578 and $6,325 respectively or 0.4% and 0.6% compared to the
corresponding prior year periods.  For the quarter, the incremental
revenue is primarily due to increased volumes of tasting room sales offset by
direct to consumer retail sales. For the first six months of 2009, the direct to
consumer retail sales is offset somewhat by reduced tasting room sales, on-site
room rentals and event revenue versus prior year.


13





Sales in
the state of Oregon, through our wholesale department, Bacchus Fine Wines,
decreased $39,066 and $95,296, or -2.1% and -2.3%, for the three and six months
ended June 30, 2009, compared to the corresponding prior year period. The
decrease is largely the result of reduced order activity for purchased brands by
on-premise customers whom are experiencing significant reductions in consumer
demand in a struggling economy.  This is mostly offset by the
favorable increase in the volume of Willamette Valley Vineyard brand Pinot Noir
and Pinot Gris varietals. The release of the 2007 vintage Pinot Noir in the
fourth quarter of 2008, allowed a key customer to begin receiving shipments that
were unavailable in the first nine months of 2008. Sales to our largest in-state
customer for the three and six months ended June 30, 2009 represent 19.8% and
19.5% of total in-state sales. The Company does not anticipate a shortage of the
2007 vintage Pinot Noir in 2009.





Out-of-state
sales in the three and six months ended June 30, 2009 increased $269,219 and
$545,657, or 17.9% or 19.8% respectively, versus the comparable prior year
periods. The increase in the quarter and the year is primarily due to increased
volume of 2007 and 2008 Pinot Gris shipments to a key customer and their related
out of state distributors. These distributors are carefully managing their
inventory levels even though sales to end consumers are up over last
year.





Gross
Profit





Gross
profit for the three and six months ended June 30, 2009 increased $84,560 and
$312,815, or 4.4% and 8.8% respectively, versus the comparable prior year
periods.





As a
percentage of net revenue, gross profit from winery operations was 49.2% and
50.3% respectively in the three and six months ended June 30, 2009, compared to
49.2% and 48.8% in the comparable prior year periods. The increase in gross
profit as a percentage of net revenue is mainly due to the mix of sales towards
produced brands versus purchased brands in our in-state wholesale distributor,
Bacchus Fine Wines. This shift in the mix of sales represents a higher
percentage of total gross profit. This improvement in gross profit percentage is
slightly offset by the increase in the volume of out of state sales towards
lower margin products versus prior year.  The Company continues to
focus on improved distribution of higher margin Willamette Valley Vineyards
brand products as well as continuing our efforts to reduce grape and production
costs.





Selling,
General and Administrative Expense





Selling,
general and administrative expense for the three and six months ended June 30,
2009 decreased $108,188 and $74,962, or 6.6% and 2.4% respectively, compared to
the corresponding prior year periods.  This decrease is due primarily
to decreased accrued professional service fees for Accounting audit services and
legal services. The savings in professional service fees is somewhat offset by
incremental labor and related fringe benefit expenses for sales and
administrative staff in the second quarter and six months ended
2009.  In total, as a percentage of net revenues from winery
operations, selling, general and administrative expenses decreased to 37.9% and
40.3% respectively for the three and six months ended June 30, 2009, as compared
to 42.4% and 43.6% for the comparable prior year period.





Interest
Income, Interest Expense





Interest
income decreased $16,222 and $17,193, or -100% and -100%, for the three and six
months ended June 30, 2009, respectively, compared to the comparable prior year
periods.  Interest expense for the three and six months ended June 30,
2009, respectively, increased $18,501 and $28,835 or 104.4% and 72.0%, compared
to the corresponding prior year periods.  The average interest rate
paid for the three and six months ended June 30, 2009, respectively was 4.6% and
4.6%.


14





Income
Taxes





Income
tax expense was $169,846 and $287,388 for the three and six months ended June
30, 2009, compared to $105,017 and $145,085 for the prior year periods. 
Our estimated tax rate for the three and six months ended June 30, 2009 was
40.1% and 40.7%,respectively.




Net
Income and Earnings per Share





As a
result of the factors listed above, net income for the three and six months
ended June 30, 2009 was $253,784 and $418,940, respectively, compared to net
income of $157,527 and $217,625, respectively in the comparable prior year
periods. This is an increase of 61.1% and 92.5% versus 2008 for the three and
six months ended June 30, 2009, respectively.  Diluted earnings per
share was $0.05 for the quarter ended June 30, 2009, compared to $0.03 per
diluted share, in the comparable prior year period. Diluted earnings per share
for the six months ended June 30, 2009 was $0.09 compared to $0.04 in 2008, an
increase of 125%.





Liquidity
and Capital Resources





At June
30, 2009, we had a working capital balance of $9.9 million and a current ratio
of 4.11:1.  At December 31, 2008, we had a working capital balance of
$9.4 million and a current ratio of 4.23:1.  We had a cash balance of
$0 at June 30, 2009, compared to a cash balance of $350,361 at December 31,
2008.  The decrease in cash in the year was primarily due to the
build-up of inventory and payments on grape contracts related to the 2008
harvest.





Total
cash used in operating activities in the six months ended June 30, 2009 was
($1,147,308) compared to cash used by operating activities of ($862,329) for the
same period in the prior year.  The increase in cash used in operating
activities versus prior year was primarily due to the timing of payments related
to trade payables and a smaller change in trade receivables versus prior year.
This is offset somewhat by a reduced build-up of inventory versus
2008.





Total
cash used in investing activities in the six months ended June 30, 2009 was
($198,930), compared to ($489,132) in the prior year period.  The
decrease was due to the reduction in capital expenditures, although the Company
anticipates some increased capital expenditures for machinery and equipment
going into the third quarter of 2009.





Total
cash provided by financing activities in the six months ended June 30, 2009 was
$995,877 compared to $334,202 provided by financing activities in the prior year
period.  Cash provided by financing activities primarily consists of
revolving credit line advances needed to support working capital requirements.
This is offset somewhat by cash used to repay long-term debt. The Company has a
cash overdraft position of -$76,920 at the period ended June 30,
2009.  This represents check remittances that have not yet cleared the
bank. As these checks post they will be automatically funded by our revolving
line of credit to bring our overdraft position to zero.





At June
30, 2009, the line of credit balance was $1,042,440, on a maximum borrowing
amount of $2,000,000.  We have a loan agreement with Umpqua Bank that
contains, among other things, certain restrictive financial covenants with
respect to total equity, debt-to-equity and debt coverage that must be
maintained by us on a quarterly basis.  As of June 30, 2009, we were
in compliance with all of the financial covenants.


15





As of
June 30, 2009, we had a total long-term debt balance of $2,376,774, including
the portion due in the next year, owed to Farm Credit Services. There was
$15,037 of new long-term debt related to a vehicle purchase incurred in the
quarter ended June 30, 2009. The remaining debt balance mainly represents the
debt service with Farm Credit Services which was used to acquire vineyard land,
finance our Hospitality Center, invest in new winery equipment to increase our
winemaking capacity, and complete a larger storage facility.





At June
30, 2009, we owed $24,837 on grape contracts. For the 2009 harvest, there are
grape purchase contracts in place with local growers that will be accrued when
the grapes are received, typically in October.





We
believe that cash flow from operations and funds available under our existing
credit facilities will be sufficient to meet our foreseeable short and long-term
needs.





Segment
Reporting





The
Company’s in-state self-distribution business know as Bacchus Fine Wines sells
wholesale purchased wines from other wineries and glassware in addition to
Company produced wines. The sale of purchased wines and glassware is a unique
characteristic versus the Retail and Out-Of-State sales organizations of the
Company and therefore warrants segment discussion.  The purchased wine
and glassware segment is shown below as Bacchus Distribution. For purposes of
segment reporting the produced wines sold by Bacchus are consolidated with
Retail and Out-of-State sales and shown below as Produced
Wines.  Sales, general and administrative expenses are not allocated
between operating segments, therefore net income information for the respective
segments is not available.





The
following table outlines the sales, cost of sales and gross profit, for the
three and six month periods ended June 30, 2009 by operating
segment:





Three months ended June 30, 2009Bacchus
                  
                  
                  ProducedDistribution
                  
                  
                  Wine
                  
                  
                  TotalNet
      Sales
                  
                  $
                  1,012,754
                  
                  
                  $
                  3,039,629
                  
                  
                  $
                  4,052,383Cost
      of Sales
                  
                  $
                  774,632
                  
                  
                  $
                  1,282,052
                  
                  
                  $
                  2,056,684Gross
      Profit
                  
                  $
                  238,122
                  
                  
                  $
                  1,757,577
                  
                  
                  $
                  1,995,699%
      of sales
                  
                  
                  23.5
                  %
                  
                  
                  57.8
                  %
                  
                  
                  49.2
                  %





Six months ended June 30, 2009Bacchus
                  
                  
                  ProducedDistribution
                  
                  
                  Wine
                  
                  
                  TotalNet
      Sales
                  
                  $
                  1,920,280
                  
                  
                  $
                  5,772,341
                  
                  
                  $
                  7,692,621Cost
      of Sales
                  
                  $
                  1,417,587
                  
                  
                  $
                  2,402,241
                  
                  
                  $
                  3,819,828Gross
      Profit
                  
                  $
                  502,693
                  
                  
                  $
                  3,370,100
                  
                  
                  $
                  3,872,793%
      of sales
                  
                  
                  26.2
                  %
                  
                  
                  58.4
                  %
                  
                  
                  50.3
                  %


16


Total
inventory for Bacchus Distribution was $2,546,373 of purchased wines and
$413,279 of non-wine merchandise at period end June 30, 2009.  This
compares to produced wine inventory of $4,942,035 and $3,717,976 of non-wine
merchandise and work-in-process for the same period. At June 30, 2008 total
inventory for Bacchus Distribution was $2,230,858 of purchased wines and
$257,485 of non-wine merchandise. This compares to produced wine inventory of
$6,333,354 and $913,279 of non-wine merchandise and work-in-process for the same
period.





Item
3





QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





None.





Item
4





CONTROLS
AND PROCEDURES





Evaluation
of Disclosure Controls and Procedures





We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our reports under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and
forms, and that such information is accumulated and communicated to management,
including our Chief Executive Officer, as appropriate, to allow timely decisions
regarding required disclosure.  For the period ended June 30, 2009,
management performed an evaluation, under the supervision and with the
participation of the Chief Executive Officer, and Chief Financial Officer, of
the effectiveness of our disclosure controls and procedures, as defined in Rules
13a-15(e) and 15d-15(e) of the Exchange Act. Based on this evaluation, the
Chief Executive Officer and Chief Financial Officer have concluded that the
disclosure controls and procedures as of June 30, 2009 were not effective
in providing a reasonable level of assurance that information required to
disclosed by the Company in reports that it files or submits under the Exchange
Act is recorded, processed, summarized and reported with the time periods
specified in the Securities and Exchange Commission’s rules and forms, as a
result of the material weaknesses identified as of December 31, 2008 in our
annual report on Form 10-K and the nature of which are summarized
below.





The
Company does not expect that its disclosure controls and procedures will prevent
all errors and instances of fraud. A control procedure, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance
that the objectives of the control procedure are met. Because of the inherent
limitations in all control procedures, no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any,
within the Company have been detected. These inherent limitations include the
realities that judgments in decision-making can be faulty, and that breakdowns
can occur because of simple error or mistake. Additionally, controls can be
circumvented by the individual acts of some persons, by collusion of two or more
people, or by management override of the control. The Company considered these
limitations during the development of its disclosure controls and procedures,
and will continually reevaluate them to ensure they provide reasonable assurance
that such controls and procedures are effective.





Changes
in Internal Control over Financial Reporting





In our
Management’s Report on Internal Control Over Financial Reporting included in the
Company’s Form 10-K for the year ended December 31, 2008 and 2007, management
concluded that our internal control over financial reporting was not effective
due to the existence of certain material weaknesses.





At
December 31, 2008, the Company identified the following material
weaknesses:


17





•           
Inadequate reconciliations of our general ledger cash balances to the balances
per our bank statements.





•           Lack
of sufficient procedures and controls related to our maintenance of our
perpetual inventory records of in-state purchased wines.





•           Lack
of sufficient procedures and controls related to the allocation of our costs to
our purchased and produced wines.





•           Lack
of adequate accounting and finance personnel and transition/training
of personnel responsible for preparation and review of such reconciliations,
records, and allocations.





In an
attempt to remediate the material weaknesses outlined above, the Company
implemented the following remedial actions during the first and second quarter
of 2009:





•           We
commenced a review of our documentation and where necessary we have put into
place policies and procedures to document such evidence to comply with our
internal control requirements. We also retained a financial consultant to assist
us in further reviewing and improving our internal control
processes.





•           The
Company engaged additional temporary resources in the accounting department at
the end of 2008 and maintained those resources into 2009.  The Company
converted the temporary accounting resources to permanent accounting personnel
during the second quarter of 2009. Management believes we now have the proper
accounting resources to fully alleviate the material weaknesses identified
above.





•           During
the second quarter of 2009, the Company made significant progress in remediating
the cash ledger balance to bank account reconciliation by allocating temporary
accounting resources to review, reconcile and improve the cash reconciliation
process.





We
believe that as of the date hereof, these measures have not fully remediated the
material weaknesses identified above. Management, with oversight of the
Audit Committee of our board of directors, is currently working on a plan to
remediate the material weaknesses noted above.


18





PART
      II.
                OTHER
      INFORMATION





Item
      1.
            Legal
      Proceedings.





From time
to time, we are a party to various judicial and administrative proceedings
arising in the ordinary course of business.  Our management and legal
counsel have reviewed the probable outcome of any proceedings that were pending
during the period covered by this report, the costs and expenses reasonably
expected to be incurred, the availability and limits of our insurance coverage,
and our established liabilities.  While the outcome of legal
proceedings cannot be predicted with certainty, based on our review, we believe
that any unrecorded liability that may result as a result of any legal
proceedings is not likely to have a material effect on our liquidity, financial
condition or results from operations.





Item
      1A.
            Risk
      Factors





As a
smaller reporting company, we are not required to provide the information
required by this item.





Item2.
            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





None.




19




Item
      6.
            Exhibits





Exhibit
      No.
            Description





3.1   Articles
of Incorporation of Willamette Valley Vineyards, Inc. (incorporated by reference
from the Company's Regulation A Offering Statement on Form 1-A, File No.
24S-2996)





3.2   Articles
of Amendment, dated August 22, 2000 (incorporated herein by reference to Exhibit
3.4 to the Company’s Form 10-Q for the quarterly period ended June 30, 2008,
filed August 14, 2008, File No. 000-21522)





3.3   Bylaws
of Willamette Valley Vineyards, Inc. (incorporated herein by reference to
Exhibit 3.5 to the Company’s Form 10-Q for the quarterly period ended June 30,
2008, filed August 14, 2008 File No. 000-21522)





31.1  Certification
of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the
Securities Exchange Act of 1934 (Filed herewith)





31.2  Certification
of Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the
Securities Exchange Act of 1934 (Filed herewith)





32.1  Certification
of James W. Bernau pursuant to 18 U.S.C. Section 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (Furnished, not filed,
herewith)





32.2  Certification
of Jeffrey J. Fox pursuant to 18 U.S.C. Section 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (Furnished, not filed,
herewith)


20


SIGNATURES





Pursuant
to the requirements of the Security Exchange Act of 1934,the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.





WILLAMETTE
      VALLEY VINEYARDS, INC.Date:
      August 14,
      2009
                
                By
      /s/ James W. BernauJames
      W. BernauPresidentDate:
      August 14,
      2009
                
                By
      /s/ Jeffrey J. FoxJeffrey
      J. FoxController


21