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 why the actual results could differ materially from those projected in the forward-looking statements, whether as a result of new information, future events or otherwise.

Critical Accounting Policies

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

Overview

The Company's principal sources of revenue are derived from sales and distribution of wine. Sales revenue for the three months ended March 31, 2009 increased $226,573, or 6.7%, from the comparable prior year period.

Sales revenue growth for the first three months of 2009 versus 2008 is being principally driven by new product placements and order activity from our chain store customers. The main channel of this growth is through our National Sales business unit which deals with out of state customers where product is sold through distributors in each state. Additionally in-state sales were slightly down versus the prior year. The mix of sales in-state has shifted from purchased brands to produced brands mainly due to the availability of three produced Pinot Noir products that became available for sale in the 4th Quarter of 2008. The decrease in purchased brands sales in-state from 2007 to 2008 is largely the result of reduced order activity by on-premise customers whom are experiencing significant reductions in consumer demand in a struggling economy.

Taken as a whole, the three sales departments: National Sales, Oregon Wholesale (Bacchus Fine Wines) and Retail showed increased performance on their net contribution for the three months ended March 31, 2009 versus the comparable prior year period.

Net operating income performance for the quarter ended March 31, 2009 was improved mainly due the increased sales volume in National Sales, coupled with improved gross profit which is slightly offset by increased sales, general and administrative expenses. Cost of sales has decreased mainly due to a shift in the mix of sales from purchased brands to produced brands where we achieve a higher gross profit. Additionally, the Company has seen improved inventory controls resulted in reduced inventory shrinkage and therefore has improved operations. Sales, General and Administrative expense increases are primarily due to higher labor costs including related fringe benefits and increased accounting professional service fees related to the 2008 independent audit.

As a result, the Company generated $0.03 basic earnings per share during the three months ended March 31, 2009, an increase of $0.02 basic earnings per share versus the comparable prior year period.

The winery bottled approximately 68,655 cases in the first quarter of 2009, mainly 2007 vintage Pinot Noir and 2008 vintage Whole Cluster Pinot Noir.

The Company has an asset-based loan agreement with Umpqua Bank that allows it to borrow up to $2,000,000. This loan agreement was recently renewed for 18 months and the new maturity date on this note is June 2010. At March 31, 2009, the Company had a credit line balance of $507,149 and $1,492,851 of available credit. The interest rate charged in the quarter was 4.5%. 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 March 31, 2009 is 3.25%. The loan agreement contains, among other things, certain restrictive financial covenants with respect to total equity, debt-to-equity and debt coverage that must be maintained by the Company on a quarterly basis. As of March 31, 2009, the Company was in compliance with all of the financial covenants.

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

On February 4, 2009 Willamette Valley Vineyards' 2006 Estate Pinot Noir and 2006 Signature Cuvee Pinot Noir both took Gold at the Grand Harvest Awards. This international competition is sponsored by Vineyard & Winery Management Magazine and has a special focus on terroir, meaning that these wines were recognized for how well they represent quality Pinot Noirs specifically from Willamette Valley, Oregon.

In March 2009 several WVV wines won an additional terroir-based award through the Best-of-Appellation awards put on by AppellationAmerica.com. The BOA process rigorously follows the proposition that "The best wines are defined by place, and the character of each appellation is defined by its best wines". Both our 2006 WVV Pinot Noir and our 2006 Tualatin Estate Pinot Noir were recognized with Double Gold awards, and our 2006 Estate Pinot Noir and 2007 Whole Cluster Pinot Noir were recognized with Gold medals.

On March 14, 2009 our 2006 Estate Pinot Noir took Double Gold and was nominated for Best of Show at the Hilton Head Island Wine and Food Festival in South Carolina.

March 28, 2009 marked the conclusion of the first annual Oregon Wine Awards, a competition for and by Oregon wine industry specialists. Three of our wines took Double Gold Awards in their categories, an honor that the competition classifies as "Best of the Best": 2007 WVV Riesling, 2006 WVV Signature Cuvee Pinot Noir and the 2003 Griffin Creek Syrah.

In January of 2009 we launched our Cork ReHarvest program in partnership with Whole Foods, Rainforest Alliance and Western Pulp. Willamette Valley Vineyards was the first winery in the world to receive certification from the Rainforest Alliance for using 100 percent Forest Stewardship Council (FSC) certified cork. With the new Cork Re-Harvest program, we are also the first winery to launch a cradle-to-cradle cork recycling program with zero increase to our carbon footprint. Cork recycling boxes were placed in the 11 Whole Foods stores in Oregon and Washington. When distributors deliver wine to these stores, they pick up the cork and return it to WVV's Turner-based warehouse. The cork will then be delivered to Western Pulp, where it is remanufactured into wine shippers, when WVV makes its current deliveries to the Corvallis warehouse.

Erez Klein, Regional Purchasing Specialist at Whole Foods Market Pacific Northwest Region, said its consumers have been asking for a cork recycling program: "We are thrilled to extend services to our shoppers that benefit the community," Klein said. "Providing the lowest possible carbon footprint in cork recycling is something we are proud to offer. This program is consistent with the core values of our company."

The Cork ReHarvest program has received recognition by such national media as The Oregonian, The Washington Post, The Earth Times, Sustainable Food News and Just-Drinks.com, as well as by several international online news organizations.

The April issue of Shape Magazine, available on shelves in March 2009, debuted Shapes' 2009 Green Living Awards. Starting on page 41, twenty-nine companies and products were recognized for their sustainable efforts. WVV received one of the awards for our commitment to sustainable practices, and producing sustainable products. The sustainable certification of our vineyards through LIVE (Low Input Viticulture and Enology) was highlighted.

RESULTS OF OPERATIONS

Revenue

Net revenue for the three months ended March 31, 2009 increased $226,573 or 6.7%, versus the corresponding period in the preceding year. The increase in the quarter is primarily due to increased product placements in National chain stores and related out-of-state distributors. This is offset slightly by the decrease in in-state wholesale revenue which is driven by the decreased volume of order activity in purchased brands. The reduction in the volume of in-state order activity is mainly due to on-premise accounts that are experiencing significant reductions in consumer demand in a struggling economy. Retail direct to consumer sales for the first three months are favorable over last year by 64.8%. This is mostly offset by decreased Retail sales in the Tasting Room which are down 15.5%.

Our revenues from winery operations are summarized as follows:

                           Three months ended
                                March 31,
                          2009            2008

Retail Sales, Rental
Income and Events      $   533,275     $   529,528
In-state sales           1,656,886       1,713,115
Out-of-state sales       1,528,873       1,252,435
Misc. sales                      -            (245 )
Total Revenue            3,719,034       3,494,132

Less excise taxes          (89,787 )       (91,458 )
Net Revenue            $ 3,629,247     $ 3,402,674

Retail sales, rental income and events for the three months ended March 31, 2009 increased $3,747 or 0.7% compared to the corresponding prior year period. The incremental revenue is primarily due to increased volumes of direct to consumer retail sales in the quarter. This is mostly offset by reduced volume of tasting room sales, on-site room rentals and event revenue versus prior year.

Sales in the state of Oregon, through our wholesale department, Bacchus Fine Wines, decreased $56,229, or -3.3%, for the three months ended March 31, 2009, compared to the corresponding prior year period. The decrease is largely the result of reduced order activity for purchased brands by on-premise customers whom are experiencing significant reductions in consumer demand in a struggling economy. This is mostly offset by the favorable increase in the volume of Willamette Valley Vineyard brand Pinot Noir varietals. The release of the 2007 vintage Pinot Noir in the fourth quarter of 2008, allowed a key customer to begin receiving shipments that were unavailable in the first nine months of 2008. The Company does not anticipate a shortage of the 2007 vintage Pinot Noir in 2009.

Out-of-state sales in the three months ended March 31, 2009 increased $276,438, or 22.1%, versus the comparable prior year period. The increase in the quarter is primarily due to increased volume of 2007 Pinot Gris shipments to a key customer and their related out of state distributors. These distributors are carefully managing their inventory levels even though sales to end consumers are up over last year.

Gross Profit

Gross profit for the three months ended March 31, 2009 increased $217,263, or 13.2%, versus the comparable prior year period.

As a percentage of net revenue, gross profit from winery operations was 51.4% in the three months ended March 31, 2009, compared to 48.5% in the comparable prior year period. The increase in gross profit as a percentage of net revenue is mainly due to the mix of sales towards produced brands versus purchased brands in our in-state wholesale distributor, Bacchus Fine Wines. This shift in the mix of sales represents a higher percentage of total gross profit. This improvement in gross profit percentage is slightly offset by the increase in the volume of out of state sales towards lower margin products versus prior year. The Company continues to focus on improved distribution of higher margin Willamette Valley Vineyards brand products as well as continuing our efforts to reduce grape and production costs.

Selling, General and Administrative Expense

Selling, general and administrative expense for the three months ended March 31, 2009 increased $33,225, or 2.2%, compared to the corresponding prior year period. This increase is due primarily to increased accrued professional service fees for Accounting audit services and legal services. Additionally, incremental labor and related fringe benefit expenses for sales and administrative staff have also unfavorably impacted the quarter versus prior year. As a percentage of net revenues from winery operations, selling, general and administrative expenses decreased to 43.0% for the three months ended March 31, 2009, as compared to 44.9% for the comparable prior year period.

Interest Income, Interest Expense

Interest income decreased $971, or -100%, for the three and months ended March 31, 2009, respectively, compared to the comparable prior year period. Interest expense for the three months ended March 31, 2009 increased $10,335 or 46.3%, compared to the corresponding prior year period. The average interest rate paid for the three months ended March 31, 2009 was 4.6%.

Income Taxes

Income tax expense was $117,542 for the three and nine months ended March 31, 2009, compared to $40,068 for the prior year period. Our estimated tax rate for the three months ended March 31, 2009 was 41.6%.

Net Income and Earnings per Share

As a result of the factors listed above, net income for the three months ended March 31, 2009 was $165,156 compared to net income of $60,102 in the comparable prior year period. Diluted earnings per share was $0.03 for the quarter ended March 31, 2009, compared to $0.01 per diluted share, in the comparable prior year period.

Liquidity and Capital Resources

At March 31, 2009, we had a working capital balance of $9.7 million and a current ratio of 4.86:1. At December 31, 2008, we had a working capital balance of $9.4 million and a current ratio of 4.23:1. We had a cash balance of $0 at March 31, 2009, compared to a cash balance of $350,361 at December 31, 2008. The decrease in cash was primarily due to the payments on grape contracts and trade payables that were previously accrued in the prior year.

Total cash used in operating activities in the three months ended March 31, 2009 was ($841,089) compared to cash used by operating activities of ($811,632) for the same period in the prior year. The increase in cash used in operating activities versus prior year was primarily due to the timing of payments related to trade payables, the payment of grape contracts and the continued build-up of inventory. This is somewhat offset by the favorable increase in net income versus the comparable prior year period.

Total cash used in investing activities in the three months ended March 31, 2009 was ($46,302), compared to ($230,135) in the prior year period. The decrease was mainly due to the reduction in capital expenditures, although the Company anticipates some increased capital expenditures for vehicles and computer upgrades going into the second quarter of 2009.

Total cash provided by financing activities in the three months ended March 31, 2009 was $537,030 compared to $239,765 provided by financing activities in the prior year period. Cash provided by financing activities primarily consists of revolving credit line advances needed to support working capital requirements and payments on a loan to a grape producer. This is offset somewhat by cash used to repay long-term debt. Bank overdrafts are $81,132 for the quarter ended March 31, 2009. These overdrafts represent outstanding checks that have been recorded on the financials but yet to be presented to the bank. These checks are funded by the revolving credit line as they are presented to the bank.

At March 31, 2009, the line of credit balance was $507,149, on a maximum borrowing amount of $2,000,000. We have a loan agreement with Umpqua Bank that contains, among other things, certain restrictive financial covenants with respect to total equity, debt-to-equity and debt coverage that must be maintained by us on a quarterly basis. As of March 31, 2009, we were in compliance with all of the financial covenants.

As of March 31, 2009, we had a total long-term debt balance of $2,447,609, including the portion due in the next year, owed to Farm Credit Services. There was no new long-term debt incurred in the three months ended March 31, 2009. The debt balance represents the debt service with Farm Credit Services which was used to acquire vineyard land, finance our Hospitality Center, invest in new winery equipment to increase our winemaking capacity, and complete a larger storage facility.

At March 31, 2009, we owed $24,837 on grape contracts. For the 2009 harvest, there are grape purchase contracts in place with local growers that will be accrued when the grapes are received, typically in October.

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

Segment Reporting

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

The following table outlines the sales, cost of sales and gross profit, for the three month period ended March 31, 2009 by operating segment:

Three months ended March 31, 2009

                   Bacchus          Produced
                 Distribution         Wine            Total

Net Sales       $      907,526     $ 2,721,721     $ 3,629,247

Cost of Sales   $      642,955     $ 1,120,189     $ 1,763,144

Gross Profit    $      264,571     $ 1,601,532     $ 1,866,103

% of sales                29.2 %          58.8 %          51.4 %

Three months ended March 31, 2008

                   Bacchus          Produced
                 Distribution         Wine            Total

Net Sales       $    1,071,266     $ 2,331,408     $ 3,402,674

Cost of Sales   $      761,341     $   992,493     $ 1,753,834

Gross Profit    $      309,925     $ 1,338,915     $ 1,648,840

% of sales                28.9 %          57.4 %          48.5 %

Total inventory for Bacchus Distribution was $2,098,072 of purchased wines and $226,645 of non-wine merchandise at period end March 31, 2009. This compares to produced wine inventory of $4,210,312 and $4,287,874 of non-wine merchandise and work-in-process for the same period. At March 31, 2008, total inventory for Bacchus Distribution was $1,940,288 of purchased wines and $267,896 of non-wine merchandise. This compares to produced wine inventory of $6,455,241 and $821,933 of non-wine merchandise and work-in-process for the same period.

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