**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

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**FORM 10-Q**

 

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**x****QUARTERLY REPORT PURSUANT TO SECTION 13OR 15(d) OF THE SECURITIES**

**EXCHANGE ACT OF 1934**

 

**For theQuarterly Period Ended March 31, 2008**

 

**o****TRANSITION REPORT UNDER SECTION 13 OR15(d) OF THE EXCHANGE ACT**

 

**CommissionFile Number 0-21522**

 

**WILLAMETTE VALLEY VINEYARDS, INC.**

(Exact name ofregistrant as specified in charter)

 

| **Oregon**                       | ** ** | **93-0981021**          |
|----------------------------------|------------|-------------------------|
| (State or other  jurisdiction of |       | (I.R.S. Employer        |
| incorporation or  organization)  |       | Identification  Number) |

 

**8800Enchanted Way, S.E.**

**Turner,Oregon 97392**

**(503)-588-9463**

(Address,including Zip code, and telephone number,

including areacode, of registrant’s principal executive offices)

 

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Check whether theregistrant (1) filed all reports required to be filed by Section 13or 15(d) of the Exchange Act during the past 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days.

 

|   |   | x  YES         o  NO |
|--------|--------|---------------------------------------------------------------------------------------|

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company. See definitions of“large accelerated filer,” “accelerated filer,” and “smaller reporting company”in Rule 12b-2 of the Exchange Act. (Check one):

 

| Large  accelerated filer o                     |   | Accelerated  filer o         |
|------------------------------------------------|--------|-----------------------------------|
|                                           |   |                              |
| Non-accelerated  filer o                       |   | Smaller  reporting company x |
| (Do not check if  a smaller reporting company) |   |                              |

 

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

 

|   |   | o  YES         x  NO |
|--------|--------|---------------------------------------------------------------------------------------|

 

Number of sharesof common stock outstanding as of March 31, 2008:4,837,828 shares, no par value

 

 

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WILLAMETTE VALLEYVINEYARDS, INC.

INDEX TO FORM 10-Q

 
| Part I –  Financial Information                                                                 |
|-----------------------------------------------------------------------------------------------------------|
|                                                                                                      |
| Item 1 – Financial  Statements                                                                       |
|                                                                                                      |
| Balance Sheet                                                                                             |
|                                                                                                      |
| Statement of Operations                                                                                   |
|                                                                                                      |
| Statement of Cash Flows                                                                                   |
|                                                                                                      |
| Notes to  Interim Unaudited Financial Statements                                                          |
|                                                                                                      |
| Item 2 – Management’s Discussion and  Analysis of Financial Condition and Results of Operations |
|                                                                                                      |
| Item 3 – Quantitative and Qualitative  Disclosures About Market Risk                                 |
|                                                                                                      |
| Item 4 – Controls and Procedures                                                                     |
|                                                                                                      |
| Part II –  Other Information                                                                    |
|                                                                                                      |
| Item 1 – Legal  proceedings                                                                          |
|                                                                                                      |
| Item 2 – Unregistered  Sales of Equity Securities and Use of Proceeds                                |
|                                                                                                      |
| Item 3 –  Defaults Upon Senior Securities                                                            |
|                                                                                                      |
| Item 4 –  Submission of Matters to a Vote of Security Holders                                        |
|                                                                                                      |
| Item 5 – Other  Information                                                                          |
|                                                                                                      |
| Item 6 – Exhibits                                                                                    |
|                                                                                                      |
| Signatures                                                                                                |

 

2

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Part 1                                                                              FINANCIALINFORMATION

 

Item 1                                                                             FINANCIALSTATEMENTS

 

WILLAMETTE VALLEY VINEYARDS, INC.

Balance Sheet

 
| ** **                                                                                                                                                      | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                      | ** ** | **2008**           | ** ** | **2007**              | ** ** |
| ** **                                                                                                                                                      | ** ** | **(unaudited)**    | ** ** | ** **            | ** ** |
| ASSETS                                                                                                                                                          |       |               |       |                  |       |
| Current assets:                                                                                                                                                 |       |               |       |                  |       |
| Cash and cash  equivalents                                                                                                                                      |       | $                  | 281,403    |                  | $          | 1,083,405 |   |
| Accounts  receivable trade, net                                                                                                                                 |       | 1,127,935          |       | 1,804,168             |       |
| Inventories                                                                                                                                                     |       | 9,485,358          |       | 7,976,432             |       |
| Prepaid expenses  and other current assets                                                                                                                      |       | 376,014            |       | 91,981                |       |
| Current portion  of notes receivable                                                                                                                            |       | 62,415             |       | 62,415                |       |
|                                                                                                                                                            |       |               |       |                  |       |
| Total current  assets                                                                                                                                           |       | 11,333,125         |       | 11,018,401            |       |
|                                                                                                                                                            |       |               |       |                  |       |
| Vineyard  development cost, net                                                                                                                                 |       | 1,673,328          |       | 1,690,055             |       |
| Property and  equipment, net                                                                                                                                    |       | 4,299,782          |       | 4,200,155             |       |
| Note receivable                                                                                                                                                 |       | 187,585            |       | 187,585               |       |
| Debt issuance  costs, net                                                                                                                                       |       | 19,318             |       | 21,106                |       |
| Other assets                                                                                                                                                    |       | 7,564              |       | 65,893                |       |
|                                                                                                                                                            |       |               |       |                  |       |
| Total assets                                                                                                                                                    |       | $                  | 17,520,702 |                  | $          | 17,183,195 |   |
|                                                                                                                                                            |       |               |       |                  |       |   |   |
| LIABILITIES AND  SHAREHOLDERS’ EQUITY                                                                                                                      |       |               |       |                  |       |
|                                                                                                                                                            |       |               |       |                  |       |
| Current  liabilities                                                                                                                                            |       |               |       |                  |       |
| Current portion  of long term debt                                                                                                                              |       | $                  | 284,786    |                  | $          | 284,786 |   |
| Revolving credit  line                                                                                                                                          |       | 303,977            |       | —                |       |
| Accounts payable                                                                                                                                                |       | 1,068,776          |       | 564,494               |       |
| Accrued expenses                                                                                                                                                |       | 372,784            |       | 420,825               |       |
| Income taxes  payable                                                                                                                                           |       | 37,470             |       | 76,516                |       |
| Deferred income  taxes                                                                                                                                          |       | 1,000              |       | 1,000                 |       |
| Grapes payable                                                                                                                                                  |       | 116,177            |       | 508,545               |       |
|                                                                                                                                                            |       |               |       |                  |       |
| Total current  liabilities                                                                                                                                      |       | 2,184,970          |       | 1,856,166             |       |
|                                                                                                                                                            |       |               |       |                  |       |
| Long-term debt,  less current portion                                                                                                                           |       | 877,312            |       | 946,372               |       |
| Deferred rent  liability                                                                                                                                        |       | 232,182            |       | 223,936               |       |
| Deferred gain                                                                                                                                                   |       | 370,001            |       | 378,025               |       |
| Deferred income  taxes                                                                                                                                          |       | 262,000            |       | 262,000               |       |
|                                                                                                                                                            |       |               |       |                  |       |
| Total  liabilities                                                                                                                                              |       | 3,926,465          |       | 3,666,499             |       |
|                                                                                                                                                            |       |               |       |                  |       |
| Shareholders’  equity                                                                                                                                      |       |               |       |                  |       |
| Common stock, no  par value - 10,000,000 shares authorized, 4,837,828 and 4,835,902 shares  issued and outstanding at March 31, 2008 and December 31, 2007 |       | 8,442,828          |       | 8,425,389             |       |
| Retained  earnings                                                                                                                                              |       | 5,151,409          |       | 5,091,307             |       |
|                                                                                                                                                            |       |               |       |                  |       |
| Total  shareholders’ equity                                                                                                                                |       | 13,594,237         |       | 13,516,696            |       |
|                                                                                                                                                            |       |               |       |                  |       |
| Total  liabilities and shareholders’ equity                                                                                                                |       | $                  | 17,520,702 |                  | $          | 17,183,195 |   |

 

The accompanying notes are an integral part of this financialstatement.

 

3

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WILLAMETTE VALLEY VINEYARDS, INC.

Statement of Operations

(unaudited)

 
| ** **                                                    | ** ** | **Three months ended March 31,** | ** ** |
|---------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                    | ** ** | **2008**                                             | ** ** | **2007** | ** ** |
| Net revenues                                                  |       |                                                 |       |   |   |
| Case revenue                                                  |       | $                                                    | 3,402,674  |   | $ | 3,586,561 |   |
| Facility Lease                                                |       | —                                               |       | 8,793 |   |
|                                                          |       |                                                 |       |   |   |
| Total net  revenues                                           |       | 3,402,674                                            |       | 3,595,354 |   |
|                                                          |       |                                                 |       |   |   |
| Cost of sales                                                 |       |                                                 |       |   |   |
| Case                                                          |       | 1,753,834                                            |       | 1,896,231 |   |
|                                                          |       |                                                 |       |   |   |
| Total cost of  sales                                          |       | 1,753,834                                            |       | 1,896,231 |   |
|                                                          |       |                                                 |       |   |   |
| Gross profit                                                  |       | 1,648,840                                            |       | 1,699,123 |   |
|                                                          |       |                                                 |       |   |   |
| Selling, general  and administrative expenses                 |       | 1,528,509                                            |       | 1,310,173 |   |
|                                                          |       |                                                 |       |   |   |
| Net operating  income                                         |       | 120,331                                              |       | 388,950 |   |
|                                                          |       |                                                 |       |   |   |
| Other income  (expense)                                       |       |                                                 |       |   |   |
| Interest income                                               |       | 971                                                  |       | 17,058 |   |
| Interest expense                                              |       | (22,328                                              | )          | (28,237 | ) |
| Other income                                                  |       | 1,196                                                |       | 12,667 |   |
|                                                          |       |                                                 |       |   |   |
| Net income  before income taxes                               |       | 100,170                                              |       | 390,438 |   |
|                                                          |       |                                                 |       |   |   |
| Income tax                                                    |       | 40,068                                               |       | 156,175 |   |
|                                                          |       |                                                 |       |   |   |
| Net income                                                    |       | 60,102                                               |       | 234,263 |   |
|                                                          |       |                                                 |       |   |   |
| Retained  earnings beginning of period                        |       | 5,091,307                                            |       | 3,404,646 |   |
|                                                          |       |                                                 |       |   |   |
| Retained  earnings end of period                              |       | $                                                    | 5,151,409  |   | $ | 3,638,909 |   |
|                                                          |       |                                                 |       |   |   |   |   |
| Basic earnings  per common share                              |       | $                                                    | .01        |   | $ | .05 |   |
|                                                          |       |                                                 |       |   |   |   |   |
| Diluted earnings  per common share                            |       | $                                                    | .01        |   | $ | .05 |   |
|                                                          |       |                                                 |       |   |   |
| Weighted average  number of basic common shares outstanding   |       | 4,837,288                                            |       | 4,800,775 |   |
|                                                          |       |                                                 |       |   |   |
| Weighted average  number of diluted common shares outstanding |       | 4,997,082                                            |       | 5,004,810 |   |

 

The accompanying notes are an integral part of this financialstatement.

 

4

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WILLAMETTE VALLEY VINEYARDS, INC.

Statement of Cash Flows

(unaudited)

 
| ** **                                                                            | ** ** | **Three Months ended March 31,** | ** ** |
|---------------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                                            | ** ** | **2008**                                             | ** ** | **2007** | ** ** |
| Cash flows from  operating activities:                                                |       |                                                 |       |   |   |
| Net income                                                                            |       | $                                                    | 60,102     |   | $ | 234,263 |   |
| Reconciliation  of net income to net cash provided by (used in) operating activities: |       |                                                 |       |   |   |
| Depreciation and  amortization                                                        |       | 149,024                                              |       | 133,782 |   |
| Bad debt expense                                                                      |       | —                                               |       | 8,333 |   |
| Stock based  compensation expense                                                     |       | 12,590                                               |       | 14,062 |   |
|                                                                                  |       |                                                 |       |   |   |
| Changes in  operating assets and liabilities:                                         |       |                                                 |       |   |   |
| Accounts  receivable trade                                                            |       | 676,233                                              |       | 459,639 |   |
| Inventories                                                                           |       | (1,508,926                                           | )          | (232,886 | ) |
| Prepaid expenses  and other current assets                                            |       | (284,034                                             | )          | (37,385 | ) |
| Prepaid income  taxes                                                                 |       |                                                 |       | (13,217 | ) |
| Other assets                                                                          |       | 58,329                                               |       | (611 | ) |
| Accounts payable                                                                      |       | 504,282                                              |       | (309,057 | ) |
| Accrued expenses                                                                      |       | (48,040                                              | )          | (49,291 | ) |
| Income taxes  payable                                                                 |       | (39,046                                              | )          | (305,608 | ) |
| Grape payables                                                                        |       | (392,368                                             | )          | (358,255 | ) |
| Deferred rent  liability                                                              |       | 8,246                                                |       | 8,246 |   |
| Deferred gain                                                                         |       | (8,024                                               | )          | (8,023 | ) |
|                                                                                  |       |                                                 |       |   |   |
| Net cash used in  operating activities                                                |       | (811,632                                             | )          | (456,008 | ) |
|                                                                                  |       |                                                 |       |   |   |
| Cash flows from  investing activities;                                                |       |                                                 |       |   |   |
| Additions to  property and equipment                                                  |       | (230,135                                             | )          | (34,732 | ) |
|                                                                                  |       |                                                 |       |   |   |
| Net cash used in  investing activities                                                |       | (230,135                                             | )          | (34,732 | ) |
|                                                                                  |       |                                                 |       |   |   |
| Cash flows from  financing activities:                                                |       |                                                 |       |   |   |
| Proceeds from  stock options exercised                                                |       | 2,250                                                |       | 36,240 |   |
| Revolving line  of credit                                                             |       | 303,977                                              |       | — |   |
| Loan to grape  producer                                                               |       | —                                               |       | (250,000 | ) |
| Repayments of  long-term debt                                                         |       | (69,060                                              | )          | (61,881 | ) |
| Excess tax  benefit on stock option exercises                                         |       | 2,598                                                |       | — |   |
|                                                                                  |       |                                                 |       |   |   |
| Net cash  provided by (used in) financing activities                                  |       | 239,765                                              |       | (25,641 | ) |
|                                                                                  |       |                                                 |       |   |   |
| Net increase  (decrease) in cash and cash equivalents                                 |       | (802,002                                             | )          | (766,381 | ) |
|                                                                                  |       |                                                 |       |   |   |
| Cash and cash  equivalents:                                                           |       |                                                 |       |   |   |
| Beginning of  period                                                                  |       | 1,083,405                                            |       | 1,612,470 |   |
|                                                                                  |       |                                                 |       |   |   |
| End of period                                                                         |       | $                                                    | 281,403    |   | $ | 846,089 |   |

 

The accompanying notes are an integral part of this financialstatement.

 

5

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NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS

 

1) BASIS OF PRESENTATION

 

Theaccompanying unaudited financial statements for the three months ended March 31,2008 and 2007, have been prepared in conformity with accounting principlesgenerally accepted in the United States (“GAAP”). The financial information asof December 31, 2007 is derived from the audited financial statementspresented in the Willamette Valley Vineyards, Inc. (the “Company”) AnnualReport on Form 10-KSB for the year ended December 31, 2007. Certaininformation or footnote disclosures normally included in financial statementsprepared in accordance with GAAP have been condensed or omitted pursuant to therules and regulations of the Securities and Exchange Commission. In theopinion of management, the accompanying financial statements include alladjustments necessary (which are of a normal recurring nature) for the fairstatement of the results of the interim periods presented. The accompanyingfinancial statements should be read in conjunction with the Company’s auditedfinancial statements for the year ended December 31, 2007, as presented inthe Company’s Annual Report on Form 10-KSB.

 

Operatingresults for the three months ended March 31, 2008 are not necessarilyindicative of the results that may be expected for the entire year ending December 31,2008, or any portion thereof.

 

TheCompany historically has reported as a single operating segment consisting ofthe retail, in-state self-distribution and out-of-state sales departments.  These departments have mostly similareconomic characteristics, offer comparable products to customers, and utilizesimilar processes for production and distribution. The in-stateself-distribution business known as Bacchus Fine Wines has the uniquecharacteristic of selling wholesale purchased wines in addition to Companyproduced wines and glassware (non-wine). Effective with the period ended March 31,2008, the Company will report limited financial information for two operatingsegments as follows: Bacchus Distribution and Produced Wines. Discrete financialinformation was not available to allow for segment reporting in prior periods,however, the addition of a new order fulfillment and accounting system nowprovides this additional information.

 

Basic earnings per shareare computed based on the weighted-average number of common shares outstandingeach period. Diluted earnings per share are computed using the weighted averagenumber of shares of common stock and potentially dilutive common sharesoutstanding during the year.  Potentiallydilutive shares from stock options and other potentially dilutive shares areexcluded from the computation when their effect is anti-dilutive. There were nopotentially dilutive shares excluded from the computation for the three monthsended March 31, 2008. 159,794 potentially dilutive shares are included inthe computation of dilutive earnings per share for the three months ended March 31,2008. 204,036 potentiallydilutive shares are included in the computation of dilutive earnings pershare for the three months ended March 31, 2007.

 

2) STOCK BASEDCOMPENSATION

 

The Company has two stockoption plans, the 1992 Stock Incentive Plan (“1992 Plan”) and 2001 Stock OptionPlan (“2001 Plan”).  No additional grantsmay be made under the 1992 Plan.  The2001 Plan, which was approved by the shareholders, permits the grant of stockoptions and restricted stock awards for up to 900,000 shares.  All stock options have an exercise price thatis equal to the fair market value of the Company’s stock on the date theoptions were granted.  Administration ofthe plan, including determination of the number, term, and type of options tobe granted, lies with the Board of Directors or a duly authorized committee ofthe Board of Directors.  Options aregenerally granted based on employee performance with vesting periods rangingfrom date of grant to seven years.  Themaximum term before expiration for all grants is ten years.

 

6

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The following tablepresents information related to the value of outstanding stock options for theperiods shown:

 
| ** **                          | ** ** | **Three months ended** | ** ** |
|-------------------------------------|------------|----------------------------------|------------|
| ** **                          | ** ** | **March 31, 2008**     | ** ** |
| ** **                          | ** ** | ** **                       |       | **Weighted** | ** ** |
| ** **                          | ** ** | ** **                       |       | **average** | ** ** |
| ** **                          | ** ** | ** **                       |       | **exercise** | ** ** |
| ** **                          | ** ** | **Shares**                       |       | **price** | ** ** |
| Outstanding at  beginning of period |       | 434,200                          |       | $ | 3.90 |   |
| Granted                             |       | —                           |       | — |   |
| Exercised                           |       | (1,500                           | )          | — | ** ** |
| Forfeited                           |       | —                           |       | — |   |
|                                |       |                             |       |   |   |
| Outstanding at  end of Period       |       | 432,700                          |       | $ | 3.91 |   |

 

AtJanuary 1, 2006, the Company began recognizing compensation expense forstock options with the adoption of Statement of Financial Accounting Standards(“SFAS”) No. 123 (Revised), “Share-Based Payment,” (“SFAS 123R”). The fairvalue of each stock option granted is estimated on the date of grant using theBlack-Scholes stock option valuation model. This model uses the assumptionslisted in the table below. Expected volatilities are based on impliedvolatilities from the Company’s stock, historical volatility of the Company’sstock, and other factors.  Expecteddividends are based on the Company’s plan not to pay dividends for theforeseeable future.  The Company useshistorical data to estimate option exercises and employee terminations withinthe valuation model. The risk-free rate for periods within the contractual lifeof the option is based on the U.S. Treasury yield curve in effect at the timeof grant.

 

Black-Scholes assumptions

 
| ** **                | ** ** | **March 31, 2008** | ** ** |
|---------------------------|------------|------------------------------|------------|
|                      |       |                         |       |
| Risk Free  interest rates |       | 3.45                         | %          |
| Expected  dividend        |       | 0                            | %          |
| Expected lives,  in years |       | 5-10                         |       |
| Expected  volatility      |       | 44.0                         | %          |

 

TheCompany expenses stock options on a straight-line basis over the options’related vesting term.  For the three monthsended March 31, 2008 and 2007, the Company recognized pretax compensationexpense related to stock options and restricted stock grants of $12,590 and$14,062, respectively.

 

During the three monthsended March 31, 2008, the following transactions related to stock optionexercise occurred:

 
| ** **               | ** ** | ** ** | ** ** | **Exercise** | ** ** |
|--------------------------|------------|------------|------------|--------------|------------|
| ** **               | ** ** | **Shares** | ** ** | **Price**    | ** ** |
|                     |       |       |       |         |       |
| Stock Options  Exercised |       | 1,500      |       | $            | 1.50       |   |
|                          |            |            |            |              |            |  |

 

The exercise of theaforementioned options resulted in a reduction of $2,598 in the Company’s taxliability.  Since the deduction exceedsthe compensation costs recognized in the financial statements, the excess taxbenefit is recognized as additional paid in capital.

 

7

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3) INVENTORIES

 

The Company’sinventories, by major classification, are summarized as follows, as of thedates shown:

 
| ** **                                                                  | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                  | ** ** | **2008**           | ** ** | **2007**              | ** ** |
| ** **                                                                  | ** ** | **(unaudited)**    | ** ** | ** **            | ** ** |
|                                                                        |       |               |       |                  |       |
| Winemaking and  packaging materials                                         |       | $                  | 447,050    |                  | $          | 283,200 |   |
| Work-in-progress  (costs relating to unprocessed and/or bulk wine products) |       | 3,169,763          |       | 2,710,399             |       |
| Finished goods  (bottled wines and related products)                        |       | 5,868,545          |       | 4,982,833             |       |
| Current  inventories                                                        |       | $                  | 9,485,358  |                  | $          | 7,976,432 |   |

 

4) PROPERTY ANDEQUIPMENT

 

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

 
| ** **                              | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|-----------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                              | ** ** | **2008**           | ** ** | **2007**              | ** ** |
| ** **                              | ** ** | **(unaudited)**    | ** ** | ** **            | ** ** |
|                                    |       |               |       |                  |       |
| Land and  improvements                  |       | $                  | 959,064    |                  | $          | 959,064 |   |
| Winery building  and hospitality center |       | 4,834,475          |       | 4,848,249             |       |
| Equipment                               |       | 4,860,951          |       | 4,617,040             |       |
|                                    |       | 10,654,490         |       | 10,424,353            |       |
|                                    |       |               |       |                  |       |
| Less accumulated  depreciation          |       | (6,354,708         | )          | (6,224,198            | )          |
|                                    |       |               |       |                  |       |
|                                    |       | $                  | 4,299,782  |                  | $          | 4,200,155 |   |

 

5) INTEREST AND TAXESPAID

 

During the first quarterended March 31, 2008, the Company paid $314,300 in Federal, State andLocal income taxes and $91,633 in Payroll tax. Additionally, $22,328 was paidin interest on the long-term debt and revolving credit line for the sameperiod.

 

6) SEGMENT REPORTING

 

The Company hasidentified two operating segments, Produced Wine and Bacchus Distribution.Bacchus Distribution (dba Bacchus Fine Wines), is the company’s in-statedistribution division. Bacchus distributes produced wine, purchased wine andglassware at wholesale prices to in-state customers. Produced wine representsall Willamette Valley Vineyard branded wine which is produced at thewinery.  Purchased wines and glasswareare brands purchased from other wine distributors and wineries for sale toin-state customers.  For segment reporting,the produced wines distributed by Bacchus are consolidated with Retail andOut-of-State sales and shown as Produced Wines.

 

Discrete financialinformation for these operating segments was not available in prior periods,which resulted in the segments being aggregated and reflected as a singlesegment.  Effective for the three monthsended March 31, 2008, certain discrete financial information becameavailable with the

 

8

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implementation of newaccounting and inventory tracking software. The two segments reflect how the Company’s operations are evaluated bysenior management and the structure of its internal financial reporting.  The Company evaluates performance based onthe gross profit of the respective business segment.  Sales, general and administrative expensesare not allocated between operating segments, therefore net income informationfor the respective segments is not available. Discrete financial information related to segment assets, other thaninventory, is not available and that information continues to be aggregated.

 

The following tableoutlines the 2008 sales, cost of sales and gross profit, for the two identifiedsegments:

 
| ** **    | ** ** | **Bacchus**      | ** ** | **Produced** | ** ** | ** ** | ** ** |
|---------------|------------|------------------|------------|--------------|------------|------------|------------|
| ** **    | ** ** | **Distribution** | ** ** | **Wine**     | ** ** | **Total**  | ** ** |
| Net Sales     |       | $                | 1,071,266  |         | $          | 2,331,408  |       | $ | 3,402,674 |   |
|          |       |             |       |         |       |       |       |   |   |   |
| Cost of Sales |       | $                | 761,341    |         | $          | 992,493    |       | $ | 1,753,834 |   |
|          |       |             |       |         |       |       |       |   |   |   |
| Gross Profit  |       | $                | 309,925    |         | $          | 1,338,915  |       | $ | 1,648,840 |   |
|          |       |             |       |         |       |       |       |   |   |   |
| % of sales    |       | 28.9%            |       | 57.4%        |       | 48.5%      |       |

 

Total inventory forBacchus Distribution was $1,940,288 of purchased wines and $267,896 of non-winemerchandise at period end March 31, 2008. This compares to Produced Wine wine inventory of $6,455,241 and $821,933of non-wine merchandise and work-in-progress for the same period.

 

Item 2

 

MANAGEMENT’S DISCUSSIONAND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Forward LookingStatements

 

This Management’sDiscussion and Analysis of Financial Condition and Results of Operation andother sections of this Form 10-Q contain forward-looking statements withinthe meaning of the Private Securities Litigation Reform Act of 1995.  These forward-looking statements involverisks and uncertainties that are based on current expectations, estimates andprojections about the Company’s business, and beliefs and assumptions made bymanagement.  Words such as “expects,” “anticipates,”“intends,” “plans,” “believes,” “seeks,” “estimates” and variations of suchwords and similar expressions are intended to identify such forward-lookingstatements.  Therefore, actual outcomesand results may differ materially from what is expressed or forecasted in suchforward-looking statements due to numerous factors, including, but not limitedto:  availability of financing forgrowth, availability of adequate supply of high quality grapes, successfulperformance of internal operations, impact of competition, changes in winebroker or distributor relations or performance, impact of possible adverseweather conditions, impact of reduction in grape quality or supply due todisease, impact of governmental regulatory decisions, and other risks detailedbelow as well as those discussed elsewhere in this Form 10-Q and from timeto time in the Company’s Securities and Exchange Commission filings andreports.  In addition, such statementscould be affected by general industry and market conditions and growth rates,and general domestic economic conditions. The Company undertakes no obligation to revise forward-lookingstatements to reflect events or changes after the date of this discussion or toreflect the occurrence of unanticipated events.

 

Critical Accounting Policies

** **

**The foregoing discussion and analysis of our financialcondition and results of operations are based upon our financial statements,which have been prepared in accordance with accounting principles generallyaccepted in the United States of America. The preparation of these financial statements requires the Company’smanagement to make estimates and judgments that affect the reported amounts ofassets, liabilities, revenues and expenses, and related disclosure**

 

9

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**of contingent assets and liabilities.  On an on-going basis, we evaluate ourestimates, including those related to revenue recognition, collection ofaccounts receivable, valuation of inventories, and amortization of vineyarddevelopment costs.  We base our estimateson historical experience and on various other assumptions that are believed tobe reasonable under the circumstances. Actual results may differ from these estimates under differentassumptions or conditions.  A descriptionof our critical accounting policies and related judgments and estimates thataffect the preparation of our financial statements is set forth in our AnnualReport on Form 10-KSB for the year ended December 31, 2007.  Such policies were unchanged during the threemonths ended March 31, 2008.**

** **

Overview

 

Sales revenue for the first three months ended March 31,2008 decreased $192,680 or 5.4% from the comparable prior year periodprincipally due to the following:

 

Out-of-State distributors ordered less, therebyreducing their inventory levels, even though sales of the winery’s productsfrom the distributors to their restaurant and retail customers increased anaverage of 12% from the comparable prior year period.  Management feels this is in response to theeconomy slow down and general uneasiness regarding future sales growth.

 

Additionally, three Pinot Noir products were out ofstock due to previous year’s sales demand. This resulted in a lost placement to a key in-state customer that has yetto be replaced.  The cellar staff isincreasing production of these products but they won’t be available for saleuntil the fourth quarter of 2008.

 

The Company has increased its sales staff and effortto support the growth in production and inventories.  The Company has also experienced higheradministrative costs in dealing with a variety of increased governmentregulations.  This resulted in selling,general and administrative expenses exceeding prior year by $218,336 or 16.6%.

 

As a result, the Company generated $0.01 basicearnings per share during the three months ended March 31 2008, a decreaseof $0.04 basic earnings per share versus the comparable prior year period.

 

In order to support a growing sales organization, the Companyhas established its sales headquarters in the offices of the Oregon RestaurantAssociation and across the hall from the Northwest Grocery Association toaccommodate a growing sales staff, improve contact with these organizations andreduce the commute winery sales employees were making from the Portland area tothe winery.

 

The winery’s implementation of its new orderfulfillment and accounting system for its Wholesale Department called BacchusFine Wines resulted in significant delays in reconciling cash sales againstdeposits and in accurately valuing the cost of the inventory.  The winery engaged an independent CPA tomanually review all cash entries and discovered a cut-off date problem betweenperiods where sales were recorded in one period and deposits made in a subsequentperiod.  All adjusting entries have beenposted and the process modified to accurately record sales and cash in thecorrect periods.  Additionally, theinvoices of the Bacchus purchased products in inventory have now been manuallyreviewed to ensure the new order fulfillment and accounting system has thecorrect costs entered.

 

The winery bottled approximately 40,000 cases in thequarter, mainly 2007 vintage Whole Cluster Pinot Noir, Pinot Gris and Riesling.

 

The Company has anasset-based loan agreement with Umpqua Bank that allows it to borrow up to$2,000,000.  The maturity date on thisnote is January, 5, 2009.  At March 31,2008, the Company had a credit line balance of $303,977

 

10

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and $1,696,023 of availablecredit. The interest rate in the quarter was 6.0%. The interest rate on thisnote is a variable interest rate and is subject to change from time to timebased on changes in an independent index which is the Prime Rate as publishedin the Wall Street Journal (the “Index”). The index rate at March 31, 2008 is 5.25%. The loan agreementcontains, among other things, certain restrictive financial covenants withrespect to total equity, debt-to-equity and debt coverage that must bemaintained by the Company on a quarterly basis. As of March 31, 2008, the Company was in compliance with all of thefinancial covenants.

 

At the January Board meeting, after duedeliberation on value and related issues, the Board approved of the Companynegotiating the purchase and lease of a centrally located parcel of land whichwould be used for additional vineyard plantings.  Studies have been completed but the sale hasnot been closed. This would expand the Company’s planted acreage byapproximately 204 acres.

 

This year, the company is celebrating its 25thanniversary.  Jim Bernau, Oregonwinegrower, founded Willamette Valley Vineyards in 1983.

 

In January of 2008, Wine Business Monthly, theindustry’s leading trade publication named Willamette Valley Vineyards 2006Pinot Noir “America’s Hottest Small Brand for 2007”, its editor saying “WillametteValley Vineyards is one of those wineries demonstrating that you can increasequality while increasing production, the two aren’t mutually exclusive.”

 

National reviewers continue to rank the winery’s winesamong the nation’s best.  Food and WineMagazine in its March 15, 2008 issue named the winery’s 2006 Pinot Gris asone of “America’s Best Wines” at or under $15 per bottle.  The Wine Spectator rated the ‘05 TualatinEstate Pinot Noir 90 points making it one of Oregon’s top wines of the 2005vintage from Oregon.

 

RESULTS OF OPERATIONS

 

Revenue

 

Netrevenue for the three months ended March 31, 2008 decreased $192,681 or5.4% over the corresponding period in the preceding year. The decrease inrevenue is primarily due to out-of-state distributors ordering less and therebyreducing their inventory levels even though sales to end consumers in thesemarkets are ahead of last year. Additionally, in-state sales decreased versus last year because of lostplacements in key accounts due to outages of certain core Pinot Noir products.

 

Our revenues from wineryoperations are summarized as follows:

 
| ** **                                 | ** ** | **Three months ended March 31,** | ** ** |
|--------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                 | ** ** | **2008**                                             | ** ** | **2007** | ** ** |
|                                       |       |                                                 |       |   |   |
| Tasting  Room Sales and Rental Income |       | $                                                    | 491,295    |   | $ | 445,464 |   |
| On-site and  off-site Festivals            |       | 37,532                                               |       | 50,105 |   |
| In-state sales                             |       | 1,671,058                                            |       | 1,767,226 |   |
| Out-of-state  sales                        |       | 1,294,492                                            |       | 1,408,858 |   |
| Bulk wine/Misc.  sales                     |       | (245                                                 | )          | 8,793 |   |
|                                       |       |                                                 |       |   |   |
| Total Revenue                              |       | 3,494,132                                            |       | 3,680,446 |   |
|                                       |       |                                                 |       |   |   |
| Less excise  taxes                         |       | (91,458                                              | )          | (85,092 | ) |
|                                       |       |                                                 |       |   |   |
| Net Revenue                                |       | $                                                    | 3,402,674  |   | $ | 3,595,354 |   |

 

11

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Tastingroom sales and rental income for the three months ended March 31, 2008increased $45,831 or 10.3% compared to the corresponding prior yearperiods.  The incremental revenue isprimarily due to a higher volume of cases sold in the tasting room offsetslightly by a reduced number of on-site room rentals versus prior year.

 

Sales in the state ofOregon, through our wholesale department, Bacchus Fine Wines, decreased $96,168or 5.4% in the three months ended March 31, 2008 compared to thecorresponding prior year period.  In thethree months ended March 31, 2008, our direct in-state sales to ourlargest customer decreased $201,137 or -59.4%, over the comparable prior yearperiod.  The decrease in the quarter islargely the result of a lost placement with a key customer due to the outage ofspecific Willamette Valley Vineyard brand Pinot Noir varietal.  This was mostly offset by the increasedproduct placements and development of the wholesale department’s portfolio ofbrands produced by wineries outside of Oregon. It is anticipated that the keycustomer lost placement will be renewed in 2008 once the release of the 2007 harvestPinot Noir is complete later this year.

 

Out-of-state sales in thethree months ended March 31, 2008 decreased $114,366 or 8.1% over thecomparable prior year period. The decrease is primarily due to reduced orderactivity by distributors whom are reducing their inventory levels even thoughsales to end consumers are up over last year. It is anticipated that order activity will return to historic levels tosupply increasing demand, although with the slowing economy, distributorinventory levels may remain low.

 

Gross Profit

 

Gross profit for thethree months ended March 31, 2008 decreased $50,174 versus the comparableprior year period.  As a percentage ofnet revenue, gross profit from winery operations was 48.5% in the three monthsended March 31, 2008, as compared to 47.2% in the comparable prior yearperiod.  The improvement in gross profitas a percentage of net revenue is mainly due to the impact of Retail grossprofit which, for this year, represents a higher percentage of total grossprofit.  The Company continues to focuson improved distribution of higher margin Willamette Valley Vineyards brandproducts as well as continuing our efforts to reduce grape and productioncosts.  We anticipate that our increasedrepresentation of brands other than our own through our Oregon sales force andincreases in cost of production may erode future gross margin as a percentageof sales due to the lower margins associated with selling those brands.

 

Selling, General andAdministrative Expense

 

Selling, general andadministrative expenses for the three months ended March 31, 2008increased $218,336 or 16.6%, compared to the corresponding prior yearperiod.  These increases are dueprimarily to higher employee compensation costs related to incremental staffadded to support the anticipated higher, future wine volumes and governmentcompliance.  Additionally, professionalservice fees for Accounting audit services and computer consulting haveincreased versus the comparable prior year period.  As a percentage of net revenues from wineryoperations, selling, general and administrative expenses increased to 44.9% forthe three months ended March 31, 2008, as compared to 36.4% for thecomparable prior year period.

 

Interest Income, OtherIncome and Expense

 

Interest income decreased$16,087 or 94.3% for the three months ended March 31, 2008, compared tothe comparable prior year period. Interest expense for the three months ended March 31, 2008decreased $5,909 or 20.9%, compared to the corresponding prior year period.  The average interest rate paid for the threemonths ended March 31, 2008 was 7.1%.

 

12

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Income Taxes

 

Income tax expense was$40,068 for the three months ended March 31, 2008, compared to $156,175for the prior year period.  Our estimated tax rate for the three monthsended March 31, 2008 and 2007 was 40 percent and 40 percent respectively.  As a result of taking a tax deduction forexercises of stock options in the quarter the current tax liability was reducedby $2,598.  This benefit increasesadditional paid in capital in stockholders equity and is reflected on thestatement of cash flows as excess tax benefits on stock option exercises.

 

Net Income and Earningsper Share

 

As a result of thefactors listed above, net income for the three months ended March 31, 2008was $60,102 or $0.01 per diluted share, compared to net income of $234,263, or$0.05 per diluted share, in the comparable prior year period.

 

# **Liquidityand Capital Resources**

# ** **

At March 31, 2008,we had a working capital balance of $9.1 million and a current ratio of5.05:1.  At December 31, 2007, wehad a working capital balance of $9.1 million and a current ratio of5.91:1.  We had a cash balance of$281,403 at March 31, 2008, compared to a cash balance of $1,083,405 at December 31,2007.  The decrease in cash was primarilydue to decreased sales volumes and the build-up of inventory required tosupport 2008 anticipated higher sales volume.

 

Total cash used inoperating activities in the three months ended March 31, 2008 was($811,632) compared to cash used in operating activities of ($456,008) for thesame period in the prior year.  Theincrease in cash used in operating activities versus prior year was primarilydue to decreased sales and the significant build-up of inventory required tosupport 2008 anticipated higher sales volume.

 

Total cash used ininvesting activities in the three months ended March 31, 2008 was($230,135), compared to ($34,732) in the prior year period.  The decrease was mainly due to newreplacement vehicles added for executive staff and an added delivery vehiclefor Bacchus Fine Wines.

 

Total cash provided byfinancing activities in the three months ended March 31, 2008 was $239,765compared to ($25,641) used in financing activities in the prior yearperiod.  Cash provided by in financingactivities primarily consisted of revolving credit line advances needed tosupport working capital requirements. This is offset somewhat by cash used torepay long-term debt.

 

At March 31, 2008,the line of credit balance was $303,977, on a maximum borrowing amount of$2,000,000.  We have a loan agreementwith Umpqua Bank that contains, among other things, certain restrictivefinancial covenants with respect to total equity, debt-to-equity and debtcoverage that must be maintained by us on a quarterly basis.  As of March 31, 2008, we were incompliance with all of the financial covenants.

 

As of March 31,2008, we had a total long-term debt balance of $1,162,098, including theportion due in the next year, owed to Farm Credit Services. There was no newlong-term debt incurred in the three months ended March 31, 2008. The debtbalance remaining represents the debt service with Farm Credit Services whichwas used to finance our Hospitality Center, invest in new winery equipment toincrease our winemaking capacity and complete a larger storage facility.

 

At March 31, 2008,we owed $116,177 on grape contracts. This amount is primarily owed to a single grape grower, which will bepaid as the wine made from those grapes is sold. For the 2008 harvest, thereare grape purchase

 

13

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contracts in place withlocal growers that will be accrued when the grapes are received, typically inOctober.

 

We believe that cash flowfrom operations and funds available under our existing credit facilities willbe sufficient to meet our foreseeable short and long term needs.

 

Segment Reporting

 

The Company’s in-stateself-distribution business know as Bacchus Fine Wines sells wholesale purchasedwines from other wineries and glassware in addition to Company produced wines.The sale of purchased wines and glassware is a unique characteristic versus theRetail and Out-Of-State sales organizations of the Company and thereforewarrants segment discussion.  Thepurchased wine and glassware segment is shown below as Bacchus Distribution.For purposes of segment reporting the produced wines sold by Bacchus areconsolidated with Retail and Out-of-State sales and shown below as ProducedWines.  Sales, general and administrativeexpenses are not allocated between operating segments, therefore net incomeinformation for the respective segments is not available. This quarter is thefirst quarter that specific segment information for purchased wines andnon-wine has been disclosed.

 

The following tableoutlines the 2008 sales, cost of sales and gross profit, for the two identifiedsegments:

 
| ** **    | ** ** | **Bacchus  Distribution** | ** ** | **Produced  Wine** | ** ** | **Total**  | ** ** |
|---------------|------------|---------------------------|------------|--------------------|------------|------------|------------|
| ** **    | ** ** | ** **                | ** ** | ** **         | ** ** | ** ** | ** ** |
| Net Sales     |       | $                         | 1,071,266  |               | $          | 2,331,408  |       | $ | 3,402,674 |   |
|          |       |                      |       |               |       |       |       |   |   |   |
| Cost of Sales |       | $                         | 761,341    |               | $          | 992,493    |       | $ | 1,753,834 |   |
|          |       |                      |       |               |       |       |       |   |   |   |
| Gross Profit  |       | $                         | 309,925    |               | $          | 1,338,915  |       | $ | 1,648,840 |   |
|          |       |                      |       |               |       |       |       |   |   |   |
| % of sales    |       | 28.9%                     |       | 57.4%              |       | 48.5%      |       |

 

Total inventory forBacchus Distribution was $1,940,288 of purchased wines and $267,896 of non-winemerchandise at period end March 31, 2008. This compares to Produced Wine wine inventory of $6,455,241 and $821,933of non-wine merchandise and work-in-process for the same period.

 

Item 3

 

QUANTITATIVE ANDQUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

As a smaller reportingcompany we are not required to provide the information required by this item.

 

Item 4

 

CONTROLS AND PROCEDURES

 

DisclosureControls and Procedures

 

We maintain disclosurecontrols and procedures that are designed to ensure that information requiredto be disclosed in our reports under the Securities Exchange Act of 1934, asamended (the “Exchange Act”), is recorded, processed, summarized and reportedwithin the time periods specified in the SEC’s rules and forms, and thatsuch information is accumulated and communicated to management, including ourChief Executive Officer, as appropriate, to allow timely decisions regardingrequired disclosure.  For the periodended March 31, 2008, the Company performed an evaluation, under thesupervision and with the participation of the Chief Executive Officer, ChiefFinancial Officer and other management personnel, of the effectiveness of ourdisclosure controls and procedures, as defined in Rules 13a-15(e) and15d-15(e) of the Exchange Act. Based on the existence of materialweaknesses in our internal control over financial reporting discussed below ourmanagement,

 

14

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including our ChiefExecutive Officer and Chief Financial Officer, concluded that the disclosurecontrols and procedures as of March 31, 2008 were not effective at theassurance level as of the end of the period covered by this report.

 

The Company does notexpect that its disclosure controls and procedures will prevent all error andinstances of fraud. A control procedure, no matter how well conceived andoperated, can provide only reasonable, not absolute, assurance that theobjectives of the control procedure are met. Because of the inherentlimitations in all control procedures, no evaluation of controls can provideabsolute assurance that all control issues and instances of fraud, if any,within the Company have been detected. These inherent limitations include therealities that judgments in decision-making can be faulty, and that breakdownscan occur because of simple error or mistake. Additionally, controls can becircumvented by the individual acts of some persons, by collusion of two ormore people, or by management override of the control. The Company consideredthese limitations during the development of its disclosure controls andprocedures, and will continually reevaluate them to ensure they providereasonable assurance that such controls and procedures are effective.

 

Internal Control overFinancial Reporting

 

Management is responsiblefor establishing and maintaining adequate internal control over financialreporting, as defined in Rule 13a-15(f) of the Exchange Act.  Management has assessed the effectiveness ofour internal control over financial reporting as of March 31, 2008, basedon criteria set forth by the Committee of Sponsoring Organizations of theTreadway Commission in Internal Control-Integrated Framework.  Because of its inherent limitations, internalcontrol over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls maybecome inadequate because of the changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate.

 

In our Management’sReport on Internal Control Over Financial Reporting included in the Company’s Form 10-KSBfor the year ended December 31, 2007, management concluded that ourinternal control over financial reporting was not effective due to theexistence of the material weaknesses as of December 31, 2007, discussedbelow.  A material weakness is a controldeficiency, or a combination of control deficiencies, that results in more thana remote likelihood that a material misstatement of the annual or interimfinancial statements will not be prevented or detected.

 

·              Inadequatesegregation of duties within a significant account or process.  We did not have appropriate segregation ofduties within our internal controls that would ensure the consistentapplication of procedures in our financial reporting process by existingpersonnel.  This control deficiency couldresult in a misstatement to substantially all of our financial statementaccounts and disclosures that would result in a material misstatement to theannual or interim financial statements that would not be prevented or detected.Accordingly, management has concluded that this control deficiency constitutesa material weakness.

 

·              Inadequatedocumentation of the components of internal control. We did not maintaindocumented policies and evidence of compliance with our internal controls thatwould ensure the consistent application of procedures in our financialreporting process by existing personnel. This control deficiency could resultin a misstatement to substantially all of our financial statement accounts anddisclosures that would result in a material misstatement to the annual orinterim financial statements that would not be prevented or detected.Accordingly, management has concluded that this control deficiency constitutesa material weakness.

 

15

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The material weaknessesdescribed above comprise control deficiencies that we discovered in the fourthquarter of fiscal year 2007 and in the financial close process for fiscal year2007.

 

Beginning during thefourth quarter of fiscal 2007 and in the first quarter of fiscal year 2008, weformulated a remediation plan and initiated remedial action to address thosematerial weaknesses. The elements of the remediation plan are as follows:

 

**·**              Inadequatesegregation of duties within a significant account or process. We commenced athorough review of our accounting staff’s duties and where necessary we havebeen segregating such duties with other personnel.

 

·              Inadequatedocumentation of the components of internal control. We commenced a thoroughreview of our documentation and where necessary we have put into place policiesand procedures to document such evidence to comply with our internal controlrequirements. We have also retained a financial consultant to assist us infurther reviewing and improving our internal control processes.

 

We believe that thesemeasures, if effectively implemented and maintained, will remediate thematerial weaknesses discussed above.

 

The above remedialmeasures initiated during the fourth quarter of fiscal year 2007 and pursued inthe quarter ended March 31, 2008, have materially affected, or arereasonably likely to materially affect, our internal control over financialreporting.

 

This quarterly reportdoes not include an attestation report of the company’s registered publicaccounting firm regarding internal control over financial reporting. Management’sreport was not subject to attestation by the company’s registered publicaccounting firm pursuant to temporary rules of the Securities and ExchangeCommission that permits the company to provide only management’s report in thisquarterly report.

 

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| 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                                             |
|    |   |                                                          |
|    |   | None.                                                         |

 

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| 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  (Commission File No. 24S-2996) |
|                 |       |                                                                                                                                                                                                           |
| 3.2                  |       | Bylaws of Willamette  Valley Vineyards, Inc. (incorporated by reference from the Company’s  Regulation A Offering Statement on Form 1-A (Commission File  No. 24S-2996)                    |
|                 |       |                                                                                                                                                                                                           |
| 31.1                 |       | Certification by James  W. Bernau pursuant to Rule 13a-14(a) of the Securities Exchange Act  of 1934                                                                                                 |
|                 |       |                                                                                                                                                                                                           |
| 31.2                 |       | Certification by  Jeffrey J. Fox pursuant to Rule 13a-14(a) of the Securities  Exchange Act of 1934                                                                                                  |
|                 |       |                                                                                                                                                                                                           |
| 32.1                 |       | Certification pursuant  to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of  the Sarbanes-Oxley Act of 2002                                                                             |
|                 |       |                                                                                                                                                                                                           |
| 32.2                 |       | Certification pursuant  to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of  the Sarbanes-Oxley Act of 2002                                                                             |

 

18

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SIGNATURES

 

 

Pursuant to therequirements of the Security Exchange Act of 1934, as amended, the Registranthas duly caused this report to be signed on its behalf by the undersignedthereunto duly authorized.

 

 
|   | WILLAMETTE VALLEY  VINEYARDS, INC. |
|--------|------------------------------------|

 
|                           |                         |
|--------------------------------|------------------------------|
| Date:  May  28, 2008 | By /s/ James W. Bernau       |
|                           |   James  W. Bernau |
|                           |   President        |
|                           |                         |
|                           |                         |
| Date:  May  28, 2008 | By /s/ Jeffrey J. Fox        |
|                           |   Jeffrey  J. Fox  |
|                           |   Controller       |

 

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