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, 2010





 ̈ 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).





 ̈
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 June 30, 2010:


4,888,977
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
      Conditionand
      Results of Operations
                10Item
      3 – Quantitative and Qualitative Disclosures about Market
    Risk
                16Item
      4 - Controls and Procedures
                16Part
      II - Other Information
                18Item
      1 - Legal Proceedings
                18Item
      1A – Risk Factors
                18Item
      2 - Unregistered Sales of Equity Securities and Use of
      Proceeds
                18Item
      3 - Defaults upon Senior Securities
                18Item
      4 - Submission of Matters to a Vote of Security Holders
                18Item
      5 - Other Information
                18Item
      6 – Exhibits
                19Signatures
                20


2




WILLAMETTE
VALLEY VINEYARDS, INC.
  Balance
Sheet
 
 June
      30,
                                                                          
                                                                          
                                                                          December
      312010
                                                                          
                                                                          
                                                                          2009(unaudited)ASSETSCurrent
      Assets:Accounts
      receivable trade,net
                                                                          
                                                                          $
                                                                          931,707
                                                                          
                                                                          
                                                                          $
                                                                          1,458,497Inventories
                                                                          
                                                                          
                                                                          11,607,273
                                                                          
                                                                          
                                                                          
                                                                          12,169,407Prepaid
      expenses and othercurrent
      assets
                                                                          
                                                                          
                                                                          136,183
                                                                          
                                                                          
                                                                          
                                                                          58,746Current
      portion of notes receivable
                                                                          
                                                                          
                                                                          62,415
                                                                          
                                                                          
                                                                          
                                                                          62,415Income
      tax receivable
                                                                          
                                                                          
                                                                          304,996
                                                                          
                                                                          
                                                                          
                                                                          464,958Total
      current assets
                                                                          
                                                                          
                                                                          13,042,574
                                                                          
                                                                          
                                                                          
                                                                          14,214,023Vineyard
      development cost, net
                                                                          
                                                                          
                                                                          1,699,188
                                                                          
                                                                          
                                                                          
                                                                          1,732,979Property
      and equipment, net
                                                                          
                                                                          
                                                                          6,032,100
                                                                          
                                                                          
                                                                          
                                                                          6,192,229Debt
      issuance costs, net
                                                                          
                                                                          
                                                                          36,721
                                                                          
                                                                          
                                                                          
                                                                          41,353Note
      receivable, net of current portion
                                                                          
                                                                          
                                                                          95,981
                                                                          
                                                                          
                                                                          
                                                                          120,248Other
      assets
                                                                          
                                                                          
                                                                          4,456
                                                                          
                                                                          
                                                                          
                                                                          4,456Total
      assets
                                                                          
                                                                          $
                                                                          20,911,020
                                                                          
                                                                          
                                                                          $
                                                                          22,305,288LIABILITIES
      AND SHAREHOLDERS' EQUITYCurrent
      liabilitiesBank
      overdraft
                                                                          
                                                                          $
                                                                          14,209
                                                                          
                                                                          
                                                                          $
                                                                          271,911Line
      of credit
                                                                          
                                                                          
                                                                          134,474
                                                                          
                                                                          
                                                                          
                                                                          140,964Current
      portion of long term debt
                                                                          
                                                                          
                                                                          432,863
                                                                          
                                                                          
                                                                          
                                                                          432,863Accounts
      payable
                                                                          
                                                                          
                                                                          699,434
                                                                          
                                                                          
                                                                          
                                                                          823,517Accrued
      expenses
                                                                          
                                                                          
                                                                          405,823
                                                                          
                                                                          
                                                                          
                                                                          467,588Deferred
      income taxes
                                                                          
                                                                          
                                                                          62,000
                                                                          
                                                                          
                                                                          
                                                                          62,000Grapes
      payable
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          657,371Total
      current liabilities
                                                                          
                                                                          
                                                                          1,748,803
                                                                          
                                                                          
                                                                          
                                                                          2,856,214Long-term
      debt, net of current portion
                                                                          
                                                                          
                                                                          3,074,643
                                                                          
                                                                          
                                                                          
                                                                          3,286,005Deferred
      rent liability
                                                                          
                                                                          
                                                                          216,604
                                                                          
                                                                          
                                                                          
                                                                          218,205Deferred
      gain
                                                                          
                                                                          
                                                                          297,788
                                                                          
                                                                          
                                                                          
                                                                          313,835Deferred
      income taxes
                                                                          
                                                                          
                                                                          491,000
                                                                          
                                                                          
                                                                          
                                                                          491,000Total
      liabilities
                                                                          
                                                                          
                                                                          5,828,838
                                                                          
                                                                          
                                                                          
                                                                          7,165,259Shareholders'
      equityCommon
      stock, no par value - 10,000,000shares
      authorized, 4,888,977 and 4,888,977shares
      issued and outstanding at June 30,2010
      and December 31, 2009
                                                                          
                                                                          
                                                                          8,610,868
                                                                          
                                                                          
                                                                          
                                                                          8,608,658Retained
      Earnings
                                                                          
                                                                          
                                                                          6,471,314
                                                                          
                                                                          
                                                                          
                                                                          6,531,371Total
      shareholders' equity
                                                                          
                                                                          
                                                                          15,082,182
                                                                          
                                                                          
                                                                          
                                                                          15,140,029Total
      liabilities and shareholders' equity
                                                                          
                                                                          $
                                                                          20,911,020
                                                                          
                                                                          
                                                                          $
                                                                          22,305,288
  The
accompanying notes are an integral part of this financial
statement.




3




WILLAMETTE
VALLEY VINEYARDS, INC.
 Statement
of Operations
 (unaudited)
  Three
      months ended
                                                          
                                                          
                                                          Six
      months endedJune
      30,
                                                          
                                                          
                                                          June
      30,2010
                                                          
                                                          
                                                          2009
                                                          
                                                          
                                                          2010
                                                          
                                                          
                                                          2009Net
      revenuesCase
      revenue
                                                          
                                                          $
                                                          4,095,430
                                                          
                                                          
                                                          $
                                                          4,052,383
                                                          
                                                          
                                                          $
                                                          7,649,005
                                                          
                                                          
                                                          $
                                                          7,692,621Total
      net revenues
                                                          
                                                          
                                                          4,095,430
                                                          
                                                          
                                                          
                                                          4,052,383
                                                          
                                                          
                                                          
                                                          7,649,005
                                                          
                                                          
                                                          
                                                          7,692,621Cost
      of salesCase
                                                          
                                                          
                                                          2,237,543
                                                          
                                                          
                                                          
                                                          2,056,684
                                                          
                                                          
                                                          
                                                          4,322,392
                                                          
                                                          
                                                          
                                                          3,819,828Total
      cost of sales
                                                          
                                                          
                                                          2,237,543
                                                          
                                                          
                                                          
                                                          2,056,684
                                                          
                                                          
                                                          
                                                          4,322,392
                                                          
                                                          
                                                          
                                                          3,819,828Gross
      profit
                                                          
                                                          
                                                          1,857,887
                                                          
                                                          
                                                          
                                                          1,995,699
                                                          
                                                          
                                                          
                                                          3,326,613
                                                          
                                                          
                                                          
                                                          3,872,793Selling,
      general andadministrative
      expenses
                                                          
                                                          
                                                          1,594,620
                                                          
                                                          
                                                          
                                                          1,537,775
                                                          
                                                          
                                                          
                                                          3,336,103
                                                          
                                                          
                                                          
                                                          3,099,509Net
      operatingincome
      (loss)
                                                          
                                                          
                                                          263,267
                                                          
                                                          
                                                          
                                                          457,924
                                                          
                                                          
                                                          
                                                          (9,490
                                                          )
                                                          
                                                          
                                                          773,284Other
      income (expense)Interest
      income
                                                          
                                                          
                                                          3,310
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          6,129
                                                          
                                                          
                                                          
                                                          -Interest
      expense
                                                          
                                                          
                                                          (56,393
                                                          )
                                                          
                                                          
                                                          (36,216
                                                          )
                                                          
                                                          
                                                          (109,697
                                                          )
                                                          
                                                          
                                                          (68,878
                                                          )Other
      income (expense)
                                                          
                                                          
                                                          1,884
                                                          
                                                          
                                                          
                                                          1,922
                                                          
                                                          
                                                          
                                                          12,963
                                                          
                                                          
                                                          
                                                          1,922Net
      income (loss) beforeincome
      taxes
                                                          
                                                          
                                                          212,068
                                                          
                                                          
                                                          
                                                          423,630
                                                          
                                                          
                                                          
                                                          (100,095
                                                          )
                                                          
                                                          
                                                          706,328Income
      tax expense/ (benefit)
                                                          
                                                          
                                                          83,781
                                                          
                                                          
                                                          
                                                          169,846
                                                          
                                                          
                                                          
                                                          (40,038
                                                          )
                                                          
                                                          
                                                          287,388Net
      income (loss)
                                                          
                                                          
                                                          128,287
                                                          
                                                          
                                                          
                                                          253,784
                                                          
                                                          
                                                          
                                                          (60,057
                                                          )
                                                          
                                                          
                                                          418,940Retained
      earnings beginningof
      period
                                                          
                                                          
                                                          6,343,027
                                                          
                                                          
                                                          
                                                          5,965,057
                                                          
                                                          
                                                          
                                                          6,531,371
                                                          
                                                          
                                                          
                                                          5,799,901Retained
      earningsend
      of period
                                                          
                                                          $
                                                          6,471,314
                                                          
                                                          
                                                          $
                                                          6,218,841
                                                          
                                                          
                                                          $
                                                          6,471,314
                                                          
                                                          
                                                          $
                                                          6,218,841Basic
      earnings (loss) percommon
      share
                                                          
                                                          $
                                                          0.03
                                                          
                                                          
                                                          $
                                                          0.05
                                                          
                                                          
                                                          $
                                                          (0.01
                                                          )
                                                          
                                                          $
                                                          0.09Diluted
      earnings (loss) per
                                                            common share
                                                          
                                                          $
                                                          0.03
                                                          
                                                          
                                                          $
                                                          0.05
                                                          
                                                          
                                                          $
                                                          (0.01
                                                          )
                                                          
                                                          $
                                                          0.09Weighted
      average number ofbasic
      common sharesoutstanding
                                                          
                                                          
                                                          4,888,977
                                                          
                                                          
                                                          
                                                          4,858,480
                                                          
                                                          
                                                          
                                                          4,888,977
                                                          
                                                          
                                                          
                                                          4,855,379Weighted
      average number ofdiluted
      common sharesoutstanding
                                                          
                                                          
                                                          4,902,345
                                                          
                                                          
                                                          
                                                          4,877,738
                                                          
                                                          
                                                          
                                                          4,903,394
                                                          
                                                          
                                                          
                                                          4,858,146
  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 30,2010
                                          
                                          
                                          2009Cash
      flows from operating activities:Net
      income (loss)
                                          
                                          $
                                          (60,057
                                          )
                                          
                                          $
                                          418,940Reconciliation
      of net income (loss)to
      net cash fromoperating
      activities:Depreciation
      and amortization
                                          
                                          
                                          353,867
                                          
                                          
                                          
                                          326,866Deferred
      gain
                                          
                                          
                                          (16,047
                                          )
                                          
                                          
                                          (16,047
                                          )Deferred
      rent
                                          
                                          
                                          (1,601
                                          )
                                          
                                          
                                          -Stock
      based compensation expense
                                          
                                          
                                          2,210
                                          
                                          
                                          
                                          8,988Changes
      in operating assets andliabilities:Accounts
      receivable trade
                                          
                                          
                                          526,790
                                          
                                          
                                          
                                          63,156Inventories
                                          
                                          
                                          562,134
                                          
                                          
                                          
                                          (1,015,457
                                          )Prepaid
      expenses and othercurrent
      assets
                                          
                                          
                                          (77,437
                                          )
                                          
                                          
                                          (58,845
                                          )Income
      taxes receivable
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (122,961
                                          )Accounts
      payable
                                          
                                          
                                          (124,083
                                          )
                                          
                                          
                                          (205,583
                                          )Accrued
      expenses
                                          
                                          
                                          (61,765
                                          )
                                          
                                          
                                          23,532Income
      taxes payable
                                          
                                          
                                          159,962
                                          
                                          
                                          
                                          -Grape
      payables
                                          
                                          
                                          (657,371
                                          )
                                          
                                          
                                          (569,897
                                          )Net
      cash fromoperating
      activities
                                          
                                          
                                          606,602
                                          
                                          
                                          
                                          (1,147,308
                                          )Cash
      flows from investing activities;Additions
      to property and equipment
                                          
                                          
                                          (152,251
                                          )
                                          
                                          
                                          (206,797
                                          )Additions
      to vineyard development
                                          
                                          
                                          (3,064
                                          )
                                          
                                          
                                          (23,340
                                          )Payments
      received on grape supplier loan
                                          
                                          
                                          24,267
                                          
                                          
                                          
                                          31,207Net
      cash from investing activities
                                          
                                          
                                          (131,048
                                          )
                                          
                                          
                                          (198,930
                                          )Cash
      flow from financing activities:Proceeds
      from stock options exercised
                                          
                                          
                                          -
                                          
                                          
                                          
                                          28,015Bank
      overdraft
                                          
                                          
                                          (257,702
                                          )
                                          
                                          
                                          76,920Net
      borrowings (payments) onrevolving
      line of credit
                                          
                                          
                                          (6,490
                                          )
                                          
                                          
                                          1,042,440Payments
      on long-term debt
                                          
                                          
                                          (211,362
                                          )
                                          
                                          
                                          (156,008
                                          )Excess
      tax benefit on stock option exercises
                                          
                                          
                                          
                                          
                                          
                                          
                                          4,510Net
      cash provided fromfinancing
      activities
                                          
                                          
                                          (475,554
                                          )
                                          
                                          
                                          995,877Net
      change in cash andcash
      equivalents
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (350,361
                                          )Cash
      and cash equivalents:Beginning
      of period
                                          
                                          
                                          -
                                          
                                          
                                          
                                          350,361End
      of period
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          -
  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 months and six months
ended June 30, 2010 and 2009, have been prepared in conformity with accounting
principles generally accepted in the United States (“GAAP”). The financial
information as of December 31, 2009 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, 2009. 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, 2009, as presented in the Company’s Annual
Report on Form 10-K.




Operating
results for the three months and six months ended June 30, 2010 are not
necessarily indicative of the results that may be expected for the entire year
ending December 31, 2010, 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
month periods ended June 30, 2010. 13,368 and 14,417 potentially dilutive shares
are included in the computation of dilutive earnings per share for the three and
six month periods ended June 30, 2010, respectively. 19,258 and 2,767
potentially dilutive shares are included in the computation of dilutive earnings
per share for the three and six month periods ended June 30, 2009,
respectively.





2)
Effects of Recently Issued Accounting Standards





In May
2009, the Financial Accounting Standards Board (“FASB”) issued a new statement
that establishes general standards of accounting for, and disclosure of events
that occur after the balance sheet date but before the financial statements are
issued or are available to be issued. The new statement, located under the FASB
Accounting Standards CodificationTM (“ASC”) Topic 855 “Subsequent Events”
(formerly SFAS 165, Subsequent Events) requires entities to disclose the date
through which subsequent events were evaluated as well as the rationale for why
that date was selected, that is, whether that date represents the date the
financial statements were issued or were available to be issued. The new
statement is effective for interim or annual periods ending after June 15, 2009,
which was the quarter ended June 30, 2009 for the Company. In February 2010, the
FASB amended its guidance removing the requirement for SEC filers to disclose
the date through which an entity has evaluated subsequent events. The adoption
of this new statement did not have a material impact on our financial
statements.





6


3) 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.





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




Three
      months ended
                                      
                                      
                                      Six
      months endedJune
      30, 2010
                                      
                                      
                                      June
      30, 2010Weighted
                                      
                                      
                                      
                                      
                                      
                                      Weightedaverage
                                      
                                      
                                      
                                      
                                      
                                      averageexercise
                                      
                                      
                                      
                                      
                                      
                                      exerciseShares
                                      
                                      
                                      price
                                      
                                      
                                      Shares
                                      
                                      
                                      priceOutstanding
      at beginningof
      period
                                      
                                      
                                      355,700
                                      
                                      
                                      $
                                      4.16
                                      
                                      
                                      
                                      355,700
                                      
                                      
                                      $
                                      4.16Granted
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -Exercised
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -Forfeited
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -Outstanding
      at endof
      Period
                                      
                                      
                                      355,700
                                      
                                      
                                      $
                                      4.16
                                      
                                      
                                      
                                      355,700
                                      
                                      
                                      $
                                      4.16




In
accordance with the current accounting guidance for share-based payments, the
Company recognizes compensation expense for options awarded under its stock
incentive plans. Current accounting guidance requires the grant-date fair value
of all share-based payment awards, including employee stock options, to be
recognized as employee compensation expense over the requisite service period.
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.




7




Black-Scholes
assumptions





June
      30,2010Risk
      Free interest rates
                    
                    
                    2.97
                    %Expected
      dividend
                    
                    
                    0
                    %Expected
      lives, in years
                    
                    
                    5-10Expected
      volatility
                    
                    
                    25.5
                    %





The
Company expenses stock options on a straight-line basis over the options’
related vesting term.  For the three months ended June 30, 2010 and
2009, the Company recognized pretax compensation expense related to stock
options of $ 0 and $ 4,494, respectively; and for the six months ended June 30,
2010 and 2009, the Company recognized pretax compensation expense related to
stock options of $2,210 and $8,988, respectively.





During
the Six months ended June 30, 2010, there were no transactions related to stock
option exercise activity.




4)
INVENTORIES





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




June
      30,
                              
                              
                              December
      31,2010
                              
                              
                              2009(unaudited)Winemaking
      and packaging materials
                              
                              $
                              430,932
                              
                              
                              $
                              336,813Work-in-progress
      (costs relatingto
      unprocessed and/or bulkwine
      products)
                              
                              
                              2,885,932
                              
                              
                              
                              3,068,934Finished
      goods (bottled wines    and related
      products)
                              
                              
                              8,290,409
                              
                              
                              
                              8,763,660Current
      inventories
                              
                              $
                              11,607,273
                              
                              
                              $
                              12,169,407





5)
PROPERTY AND EQUIPMENT





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


June
      30,
                        
                        
                        December
      31,2010
                        
                        
                        2009(unaudited)Construction
      in progress
                        
                        $
                        260,088
                        
                        
                        $
                        142,971Land
      and improvements
                        
                        
                        2,603,763
                        
                        
                        
                        2,594,155Winery
      building and hospitality center
                        
                        
                        5,326,859
                        
                        
                        
                        5,315,163Equipment
                        
                        
                        5,580,587
                        
                        
                        
                        5,566,75713,771,297
                        
                        
                        
                        13,619,046Less
      accumulated depreciation
                        
                        
                        (7,739,197
                        )
                        
                        
                        (7,426,817
                        )$
                        6,032,100
                        
                        
                        $
                        6,192,229





8


6)  INTEREST
AND TAXES PAID





During
the second quarter ended June 30, 2010, the Company paid $0 in federal, state
and local income taxes and $100,315 in payroll tax. Additionally, $ 56,393 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, 2010, the Company paid $0 in
Federal, State and Local income taxes and $212,452 in Payroll tax. Additionally,
$ 109,698 was paid in interest on the long-term debt and revolving credit line
for the same period.





7)
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 Riedel 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 Riedel 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 month and six month periods ended June 30, 2010 and 2009 by operating
segment:





Three
      months ended June 30, 2010Bacchus
                    
                    
                    ProducedDistribution
                    
                    
                    Wine
                    
                    
                    TotalNet
      Sales
                    
                    $
                    1,131,368
                    
                    
                    $
                    2,964,062
                    
                    
                    $
                    4,095,430Cost
      of Sales
                    
                    $
                    792,949
                    
                    
                    $
                    1,444,594
                    
                    
                    $
                    2,237,543Gross
      Profit
                    
                    $
                    338,419
                    
                    
                    $
                    1,519,468
                    
                    
                    $
                    1,857,887%
      of sales
                    
                    
                    29.9
                    %
                    
                    
                    51.3
                    %
                    
                    
                    45.4
                    %




Six
      months ended June 30, 2010Bacchus
                    
                    
                    ProducedDistribution
                    
                    
                    Wine
                    
                    
                    TotalNet
      Sales
                    
                    $
                    2,096,449
                    
                    
                    $
                    5,552,556
                    
                    
                    $
                    7,649,005Cost
      of Sales
                    
                    $
                    1,573,187
                    
                    
                    $
                    2,749,205
                    
                    
                    $
                    4,322,392Gross
      Profit
                    
                    $
                    523,262
                    
                    
                    $
                    2,803,351
                    
                    
                    $
                    3,326,613%
      of sales
                    
                    
                    24.9
                    %
                    
                    
                    50.5
                    %
                    
                    
                    43.5
                    %




9





Total
inventory for Bacchus Distribution was $1,461,997 of purchased wines and
$342,522 of non-wine merchandise at June 30, 2010.  At June 30, 2009
total inventory for Bacchus Distribution was $2,546,373 of purchased wines and
$413,279 of non-wine merchandise, a reduction of $ 1,084,376 of purchased wines
and $ 70,757 of non-wine merchandise from 2009 to 2010. Total inventory for
produced wine inventory was $6,429,662 and $3,373,092 of non-wine merchandise
and work-in-process at June 30, 2010. At June 30, 2009 total produced wine
inventory of $4,942,035 and $3,717,976 of non-wine merchandise and
work-in-process for the same period, an increase of $ 1,487,627 for produced
wine inventory and a reduction of $ 344,884 in work-in-process from 2009 to
2010.





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  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,
2009.  Such policies were unchanged during the three and six months
ended June 30, 2010.





10


Overview





The
Company’s principal sources of revenue are derived from sales and distribution
of wine.  Net income for the second quarter ended June 30, 2010 was $
128,287 compared to net earnings of $ 253,784 for the second quarter ended June
30, 2009, a 49.5% decrease over the comparable prior year period.





As a
result, the Company generated $0.03 basic earnings per share during the three
months ended June 30, 2010, a decrease of $0.02 basic earnings per share versus
the comparable prior year period.





Sales
revenue for the three months ended June 30, 2010 increased $43,047 or 1.06%,
from the comparable prior year period. Sales revenue for the six months ended
June 30, 2010 decreased $ 43,616 or .57% from the comparable prior year
period.





Sales
revenue for the three months ended June 30, 2010 compared to 2009 is up
slightly. The mix of produced brand versus purchased brands sales in-state in
our Bacchus Fine Wines distribution unit is consistent between 2009 and
2010.





Retail
sales in the quarter increased versus the prior year due to the additional sales
provided by the off-site tasting room known as the Wine Center located in
McMinnville, OR as well as a substantial increase in direct sales generated
through our Wine Club and Wine Ambassador program.





Net
operating income for the quarter ended June 30, 2010 was $263,267 which is
$194,657 lower than that of the prior year. This is mainly due to a reduction in
our gross profit margin as a result of the higher cost of produced wines sold
during the period compared to last year and an increase in our general and
administrative expenses. Cost of sales has increased mainly due to the increase
in the cost of produced wines sold in the prior vintages across product
lines.  The increase in Sales, General and Administrative expense is
primarily due to incremental labor costs for shared service departments
including related payroll taxes and fringe benefits. These increased expenses
are somewhat offset by savings in professional service fees for accounting and
legal services versus the prior year.





The
winery bottled approximately 56,400 cases in the second quarter of 2010, mainly
2009 vintage Pinot Gris, 2009 vintage Pinot Noir-Wholecluster and 2009 vintage
Riesling.





The
Company has an asset-based loan agreement with Umpqua Bank that allows it to
borrow up to $2,000,000.  The maturity date on this loan agreement is
June 2011.  At June 30, 2010, the Company had a credit line balance of
$134,474 and $1,865,526 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, 2010 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, 2010,
the Company was in compliance with all of the financial covenants.





Willamette
Valley Vineyards wines continue to receive media recognition for
quality.





11


The June
2010 Wine Enthusiast in
its June issue gave the ‘07 Hannah Pinot Noir 90 points along with calling it
“The return of elegance.” The Wine Spectator selected the ’08 Riesling Wine of
the Week an 89 point score. The ’07 Elton Pinot Noir and ’08 Riesling took Gold
at Tasters Guild Wine Competition.





Patterson’s
Tasting Panel, in their July issue rated the ’08 Dijon Clone Chardonnay with 91
points. It was the first of our wines to carry the Oregon Certified Sustainable
Wine seal.





Wine Enthusiast also gave our
2007 Griffin Creek Merlot 90 points and 2007 Griffin Creek Cabernet Franc 89
points.





Eight of
our wines took a Gold Medal at the Oregon Wine Awards: 2007 Elton Pinot Noir,
2007 Tualatin Estate Vineyard Pinot Noir, 2007 Hannah Pinot Noir, 2007 Signature
Cuvée Pinot Noir, 2008 Riesling, 2009 Tualatin Estate Muscat, 2007 Griffin Creek
Syrah, and 2007 Griffin Creek Merlot.




Wine & Spirits Magazine,in the August issue, named our ‘08 Dry Riesling Best Buy and a Year’s
Best Riesling.





Our 2008
Riesling was selected by the Oregon Wine Press as a Value
Pick in their July edition





The
Summer 2010 edition of Wine
Press Northwest, our 2007 Hannah Pinot Noir was given an “Outstanding,”
2007 Tualatin Pinot Noir an “Excellent,” 2007 Quinta Reserva Port an
“Excellent,” 2008 Gewurztraminer an “Outstanding,” 2009 Semi-Sparkling Muscat
Frizzante an “Outstanding,” 2007 Griffin Creek Syrah an “Outstanding,” and 2007
Griffin Creek Cabernet Franc an “Excellent.”





Additionally,
in the Summer 2010 issue of Wine Press Northwest they did
a feature on ice wines with our 2007 Sweet Muller-Thurgau and 2008 Sweet Hannah
taking home “Excellent” ratings.





The
May/June issue of Northwest
Palate labeled our 2008 Whole Cluster Pinot Noir as a Vintage
Value.





Our
winery was one of fourteen wineries to participate in the Carbon Neutral
Challenge. Portland Monthly
Magazine ran a profile highlighting our participation.





Our
Tasting Room was featured in Summer 2010 issue of Wine Press Northwest as one
of the “10 Great NW Tasting Rooms.”





RESULTS
OF OPERATIONS





Revenue





Net
revenue for the three months ended June 30, 2010 increased $43,047 or 1.06%,
from the comparable prior year period. Sales to out-of-state distributors in the
second quarter of 2010 through our National Sales Department decreased $190,338
or -10.4% but were offset by gains through our other sales departments. Last
year, significant sales through a large national chain were not duplicated this
year due to retailer product rotation.





Oregon
wholesale sales through the department, Bacchus Fine Wines, increased $85,248
and our Direct Sales Department (direct-to-consumer) sales increased by $122,676
or 20.61% versus prior year. These retail gains are due to increased attendance
and related sales activity at the on-site and off-site events as well as a
substantial increase in Wine Club sales during the quarter. The addition of a
new tasting room in McMinnville, OR known as the Wine Center also helped sustain
retail tasting room sales in the second quarter 2010 versus 2009.





12


The
Company sold approximately 37,274 cases during the three months ended June 30,
2010.  Of these cases sold, approximately 27,456 cases were produced
brands and another 9,818 cases were purchased brands.





Our
revenues from winery operations are summarized as follows:




Three
      months ended
                          
                          
                          Six
      months endedJune
      30,
                          
                          
                          June
      30,2010
                          
                          
                          2009
                          
                          
                          2010
                          
                          
                          2009Retail
      Sales, RentalIncome
      and Events
                          
                          $
                          717,932
                          
                          
                          $
                          595,255
                          
                          
                          $
                          1,306,900
                          
                          
                          $
                          1,128,530In-state
      sales
                          
                          
                          1,977,010
                          
                          
                          
                          1,825,696
                          
                          
                          
                          3,393,242
                          
                          
                          
                          3,398,539Out-of-state
      sales
                          
                          
                          1,536,465
                          
                          
                          
                          1,774,850
                          
                          
                          
                          3,160,391
                          
                          
                          
                          3,387,765Total
      Revenue
                          
                          
                          4,231,407
                          
                          
                          
                          4,195,801
                          
                          
                          
                          7,860,533
                          
                          
                          
                          7,914,834Less
      excise taxes
                          
                          
                          (135,977
                          )
                          
                          
                          (143,418
                          )
                          
                          
                          (211,528
                          )
                          
                          
                          (222,213
                          )Net
      Revenue
                          
                          $
                          4,095,430
                          
                          
                          $
                          4,052,383
                          
                          
                          $
                          7,649,005
                          
                          
                          $
                          7,692,621




Sales in
the state of Oregon, through our wholesale department, Bacchus Fine Wines,
increased $151,314 or 8.29%, for the three months ended June 30, 2010, compared
to the corresponding prior year period.





Out-of-state
sales in the three months ended June 30, 2010 decreased $238,382 or -13.43%
versus the comparable prior year period.





Cost of
Goods Sold





Our Cost
of Goods on produced wines have increased sharply from prior vintages sold
resulting in a decrease in Gross Profit of $137,936 over the prior period.
Management expects margins to return to historical levels when the ’09 vintage
wines are sold.





Gross
Profit





Gross
profit for the three months ended June 30, 2010 decreased $137,812 or -6.91%,
versus the second quarter of 2009.





As a
percentage of net revenue, gross profit from winery operations was 45.36% in the
three months ended June 30, 2010, compared to 49.25% in the comparable prior
year period. The decrease in gross profit as a percentage of net revenue for the
three months ended June 31, 2010 is mainly due to the increase in the cost of
our produced brands across our product lines.





Selling,
General and Administrative Expense





Selling,
general and administrative expense for the three months ended June 30, 2010
increased $56,845 or 3.7% compared to the corresponding prior year
period.  This increase is due primarily to incremental labor and
related taxes and benefits for shared service administrative staff. The Company
has experienced significant savings in professional service fees for accounting
and legal services and freight costs for outbound shipments. In total, as a
percentage of net revenues from winery operations, selling, general and
administrative expenses were 38.6% for the three months ended June 30, 2010, as
compared to 37.9% for the comparable prior year period.





13


Interest
Income, Interest Expense





Interest
income for the second quarter 2010 was $3,310 and for the six months ended June
30, 2010 was $ 6,129. Interest expense for the three months ended June 30, 2010
was $ 56,393 an increase of 20,177 or 55.7% compared to the corresponding prior
year period. Interest expense for the six months ended June 30, 2010 was $
109,697 an increase of $40,819 or 59.3% compared to the corresponding prior year
period.  The average interest rate paid for the three months ended
June 30, 2010 was 4.9%.





Income
Taxes





The
income tax expense in the second quarter 2010 was $83,781 for the three months
ended June 30, 2010, compared to income tax expense of $169,846 for the
comparable prior year period. Our estimated tax rate for the three months
ended June 30, 2010 and 2009 was 40.0% and 40.0%, respectively.





Net
Income and Earnings per Share





The
reduction in gross margin combined with higher selling and administrative costs
produced a Net Income for the second quarter ended June 30, 2010 of $128,287
compared to net income of $253,784, a 49.5% decrease over the comparable prior
year period. As a result, the Company generated a $0.03 basic earnings per share
during the three months ended June 30, 2010, a decrease of $0.02 basic earnings
per share versus the comparable prior year period.





The
winery bottled approximately 56,400 cased in the Second Quarter of 2010, mainly
2009 vintage Pinot Gris, 2009 vintage Pinot Noir-Whole Cluster and 2009 vintage
Riesling.





The
record ’09 harvest has significantly added to produced wine inventory and
work-in-progress. However, purchased wine and merchandise inventories are being
brought into balance through tighter sales and purchasing management – a
reduction of $ 882,657 in this carried inventory value since June 30,
2009.





Liquidity
and Capital Resources





At June
30, 2010, we had a working capital balance of $11.3 million and a current
working capital ratio of 7.45:1. At December 31, 2009, we had a working capital
balance of $11.4 million and a current working capital ratio of
4.98:1.  We had a cash balance of $0 at June 30, 2010, compared to a
cash balance of $0 at December 31, 2009.





Total
cash provided by operating activities in the six months ended June 30, 2010 was
$606,602 compared to cash used in operating activities of $1,147,308 for the
same period in the prior year.  The decrease in cash used in operating
activities versus prior year was primarily due to the reduction in on-hand
inventory.





Total
cash used in investing activities in the six months ended June 30, 2010 was
$131,048, compared to $198,930 used in the comparable prior year
period.  The decrease was due to a reduction in the current period of
capital expenditures for property and equipment and vineyard development costs
versus the prior year.





14


Total
cash used in financing activities in the six months ended June 30, 2010 was
$475,554 compared to $995,877 provided by financing activities in the comparable
prior year period. Cash provided by financing activities in the current year
primarily consists of revolving credit line advances needed to support working
capital requirements.





The
Company has an asset-based loan agreement with Umpqua Bank that allows it to
borrow up to $2,000,000. The maturity date on this loan agreement is June 2011.
At June 30, 2010, the Company had a credit line balance of $134,474 and
$1,865,526 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
ot 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, 2010 is 3.25%. The loan agreement contains, among other things,
certain restrictive financial covenants with respect to total equity,
debt-to-equity





As of
June 30, 2010, we had a total long-term debt balance of $3,507,506, including
the portion due in the next year, owed to Farm Credit Services, GMAC and Kubota.
There was no new long-term debt incurred in the quarter ended June 30, 2010. 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 warehouse storage facility.





At June
30, 2010, we owed $0 on grape contracts. For the 2010 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 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 Riedel 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 Riedel 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, 2010 and 2009 by operating
segment:




15




Three
      months ended June 30, 2010Bacchus
                    
                    
                    ProducedDistribution
                    
                    
                    Wine
                    
                    
                    TotalNet
      Sales
                    
                    $
                    1,131,368
                    
                    
                    $
                    2,964,062
                    
                    
                    $
                    4,095,430Cost
      of Sales
                    
                    $
                    792,949
                    
                    
                    $
                    1,444,594
                    
                    
                    $
                    2,237,543Gross
      Profit
                    
                    $
                    338,419
                    
                    
                    $
                    1,519,468
                    
                    
                    $
                    1,857,887%
      of sales
                    
                    
                    29.9
                    %
                    
                    
                    51.3
                    %
                    
                    
                    45.4
                    %




Six
      months ended June 30, 2010Bacchus
                    
                    
                    ProducedDistribution
                    
                    
                    Wine
                    
                    
                    TotalNet
      Sales
                    
                    $
                    2,096,449
                    
                    
                    $
                    5,552,556
                    
                    
                    $
                    7,649,005Cost
      of Sales
                    
                    $
                    1,573,187
                    
                    
                    $
                    2,749,205
                    
                    
                    $
                    4,322,392Gross
      Profit
                    
                    $
                    523,262
                    
                    
                    $
                    2,803,351
                    
                    
                    $
                    3,326,613%
      of sales
                    
                    
                    24.9
                    %
                    
                    
                    50.5
                    %
                    
                    
                    43.5
                    %





Total
inventory for Bacchus Distribution was $1,461,997 of purchased wines and
$342,522 of non-wine merchandise at June 30, 2010.  At June 30, 2009
total inventory for Bacchus Distribution was $2,546,373 of purchased wines and
$413,279 of non-wine merchandise, a reduction of $ 1,084,376 of purchased wines
and $ 70,757 of non-wine merchandise from 2009 to 2010. Total inventory for
produced wine inventory was $6,429,662 and $3,373,092 of non-wine merchandise
and work-in-process at June 30, 2010. At June 30, 2009 total produced wine
inventory of $4,942,035 and $3,717,976 of non-wine merchandise and
work-in-process for the same period, an increase of $ 1,487,627 for produced
wine inventory and a reduction of $ 344,884 in work-in-process from 2009 to
2010.





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, 2010,
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, our Chief
Executive Officer and Chief Financial Officer have concluded that our disclosure
controls and procedures as of June 30, 2010 were not effective in ensuring that
information required to be disclosed in our Exchange Act reports is (1)recorded,
processed, summarized and reported in a timely manner, and (2) accumulated and
communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure. Management’s conclusions are based upon the continued existence of
the material weakness identified in our annual report on Form 10-K for period
ended December 31, 2010, the nature of which is summarized below.





16


As of
December 31, 2009, the Company had identified the following material weakness.
Management has determined this material weakness continued to exist as of June
30, 2010.





·
            Lack
      of sufficient procedures and controls related to the allocation of costs
      to our produced wine. This weakness was identified during the 2008
      year-end audit by management and accounting staff present at the time of
      the audit, in conjunction with our independent auditors, Moss Adams LLP.
      During the 2009 year-end audit significant analysis and review were
      completed and ultimately resulted in an adjustment to inventory and cost
      of goods sold of $373,691.





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, 2009, management concluded
that our internal control over financial reporting was not effective due to the
existence of the material weakness identified above.





In an
attempt to remediate this material weakness, the Company implemented the
following remedial actions during the first six months of 2010:





·
              The
      Company has added additional accounting resources to develop, implement
      and maintain procedures and controls related to the costingof
      our produced wines.  As of June 30, 2010, these controls and
      procedures are in the process but had not been fully developed or
      implemented and the material weakness identified above had not been fully
      remediated.




17


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.





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.




18


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 (Filed herewith)





32.2  Certification
of R. Steven Caldwell pursuant to 18 U.S.C. Section 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (Filed herewith)




19


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 16, 2010
              By
      /s/ James W. BernauJames
      W. BernauPresidentDate:
      August 16, 2010
              By
      /s/ R. Steven CaldwellR.
      Steven CaldwellChief
      Financial Officer


20