---

---

UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

---

FORM 10-Q

(Mark One)

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

For the quarterly period March 31, 2002

or

|o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from  to

Commission File Number: 1-14305

---

GOLDEN STATE VINTNERS, INC.(Exact name of registrant as specified in its charter)

|DELAWARE                                                       |  | 77-0412761                          
|-------------------------------------------------------------- |  | ------------------------------------
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer
Identification No.)
|607 AIRPARK ROAD, NAPA, CALIFORNIA                             |  | 94558                               
|(Address of principal executive offices)                       |  | (Zip Code)                          

(707) 254-4900(Registrant's telephone number,
including area code)

NONE(Former name, former address and former fiscal year,
if changed since last report)

---

Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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

The
number of shares of the Registrant's Class A and Class B Common Stock outstanding as of May 15, 2002 was 4,342,528 and 5,170,459 shares, respectively.

---

---

---



GOLDEN STATE VINTNERS, INC.  TABLE OF CONTENTS

|Item No.                                                                                     |                                                                                                             | Page
|-------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------- | ----
|PART IFINANCIAL INFORMATION                                                                
|Item 1Financial Statements                                                                  |                                                                                                             |     
|                                                                                             | Condensed Consolidated Balance Sheets as of March 31, 2002 and June 30, 2001                                |     
|                                                                                             | Condensed Consolidated Statements of Operations for the Three and Nine Months Ended March 31, 2002 and 2001 |     
|                                                                                             | Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2002 and 2001           |     
|                                                                                             | Notes to Condensed Consolidated Financial Statements                                                        |     
|Item 2Management's Discussion and Analysis of Financial Condition and Results of Operations |                                                                                                             | 11  
|Item 3Quantitative and Qualitative Disclosures About Market Risk                            |                                                                                                             | 16  
|PART IIOTHER INFORMATION                                                                   
|Item 6Exhibits and Reports on Form 8-K                                                      |                                                                                                             | 24  

2

---



PART IFINANCIAL INFORMATION

Item 1. Financial Statements

GOLDEN STATE VINTNERS, INC.        CONDENSED CONSOLIDATED BALANCE SHEETS        (IN THOUSANDS)

|                                           |                                                                                                                                                                 | March 31,
2002                                            |                            | June 30,
2001 |       
|------------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------- | -------------------------- | ------------- | ------
|
|ASSETS                                     |                                                                                                                                                                 |                                                           |                            |               |       
|CURRENT ASSETS:                            |                                                                                                                                                                 |                                                           |                            |               |       
|                                           | Cash and equivalents                                                                                                                                            |                                                           | $                          | 80            |       
|                                           | Trade and other receivablesnet                                                                                                                                 |                                                           |                            | 11,758        |       
|                                           | Inventories                                                                                                                                                     |                                                           |                            | 33,980        |       
|                                           | Refundable income taxes                                                                                                                                         |                                                           |                            | 704           |       
|                                           | Prepaid expenses and other current assets                                                                                                                       |                                                           |                            | 620           |       
|                                           |                                                                                                                                                                 |                                                           |                            |               |       
|                                           |                                                                                                                                                                 |                                                           | Total current assets       |               |       
|PROPERTY, PLANT AND EQUIPMENTNet          |                                                                                                                                                                 |                                                           | 97,152                     |               |       
|OTHER ASSETS                               |                                                                                                                                                                 |                                                           | 1,583                      |               |       
|                                           |                                                                                                                                                                 |                                                           |                            |               |       
|TOTAL ASSETS                               |                                                                                                                                                                 | $                                                         | 145,877                    |               | $     
|                                           |                                                                                                                                                                 |                                                           |                            |               |       
|LIABILITIES AND STOCKHOLDERS' EQUITY       |                                                                                                                                                                 |                                                           |                            |               |       
|CURRENT LIABILITIES:                       |                                                                                                                                                                 |                                                           |                            |               |       
|                                           | Bank line of credit                                                                                                                                             |                                                           | $                          | 12,400        |       
|                                           | Cash overdraft                                                                                                                                                  |                                                           |                            | 2,084         |       
|                                           | Accounts payable                                                                                                                                                |                                                           |                            | 6,036         |       
|                                           | Grower payable                                                                                                                                                  |                                                           |                            | 224           |       
|                                           | Payroll and related liabilities                                                                                                                                 |                                                           |                            | 774           |       
|                                           | Accrued interest                                                                                                                                                |                                                           |                            | 361           |       
|                                           | Other accrued liabilities                                                                                                                                       |                                                           |                            | 180           |       
|                                           | Deferred income taxes                                                                                                                                           |                                                           |                            | 1,701         |       
|                                           | Current portion of long-term debt                                                                                                                               |                                                           |                            | 6,232         |       
|                                           |                                                                                                                                                                 |                                                           |                            |               |       
|                                           |                                                                                                                                                                 |                                                           | Total current liabilities  |               |       
|LONG-TERM DEBT                             |                                                                                                                                                                 |                                                           | 35,069                     |               |       
|DEFERRED COMPENSATION                      |                                                                                                                                                                 |                                                           | 411                        |               |       
|DEFERRED INCOME TAXES                      |                                                                                                                                                                 |                                                           | 12,765                     |               |       
|STOCKHOLDERS' EQUITY:                      |                                                                                                                                                                 |                                                           |                            |               |       
|                                           | Class A common stock, par value $.01; 6,000,000 shares authorized; 4,342,528 shares issued and outstanding at March 31, 2002 and at June 30, 2001, respectively |                                                           |                            | 43            |       
|                                           | Class B common stock, par value $.01; 54,000,000 shares authorized; 5,192,323 shares issued at March 31, 2002 and at June 30, 2001                              |                                                           |                            | 52            |       
|                                           | Paid-in capital                                                                                                                                                 |                                                           |                            | 45,058        |       
|                                           | Retained earnings                                                                                                                                               |                                                           |                            | 22,633        |       
|                                           |                                                                                                                                                                 |                                                           |                            |               |       
|                                           |                                                                                                                                                                 | Total common stock, paid-in capital and retained earnings |                            |               | 67,786
|                                           | Treasury stock (21,884 and 11,884 shares at March 31, 2002 and June 30, 2001, respectively)                                                                     |                                                           |                            | (146          | )     
|                                           |                                                                                                                                                                 |                                                           |                            |               |       
|                                           |                                                                                                                                                                 |                                                           | Total stockholders' equity |               |       
|                                           |                                                                                                                                                                 |                                                           |                            |               |       
|TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |                                                                                                                                                                 | $                                                         | 145,877                    |               | $     
|                                           |                                                                                                                                                                 |                                                           |                            |               |       

See accompanying notes to condensed consolidated financial statements.

3

---



GOLDEN STATE VINTNERS, INC.        CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS        (UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)

|                                             |                     | Three Months Ended
March 31, |                | Nine Months Ended
March 31,
|-------------------------------------------- | ------------------- | ---------------------------- | -------------- | ---------------------------
|
|
|REVENUES:                                    |                     |                              |                |                            
|                                             | Bulk wine and juice |                              | $              | 7,384                      
|                                             | Wine grapes         |                              |                | 117                        
|                                             | Case goods          |                              |                | 8,268                      
|                                             | Brandy and spirits  |                              |                | 434                        
|                                             |                     |                              |                |                            
|                                             |                     |                              | Total revenues |                            
|COST OF SALES                                |                     |                              | 13,142         |                            
|                                             |                     |                              |                |                            
|GROSS PROFIT                                 |                     |                              | 3,061          |                            
|SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES |                     |                              | 2,372          |                            
|                                             |                     |                              |                |                            
|INCOME FROM OPERATIONS                       |                     |                              | 689            |                            
|INTEREST EXPENSE                             |                     |                              | 944            |                            
|                                             |                     |                              |                |                            
|INCOME (LOSS) BEFORE INCOME TAXES            |                     |                              | (255           | )                          
|INCOME TAXES                                 |                     |                              | (90            | )                          
|                                             |                     |                              |                |                            
|NET INCOME (LOSS)                            |                     | $                            | (165           | )                          
|                                             |                     |                              |                |                            
|EARNINGS (LOSS) PER COMMON SHARE:            |                     |                              |                |                            
|                                             | BASIC               |                              | $              | (0.02                      
|                                             |                     |                              |                |                            
|                                             | DILUTED             |                              | $              | (0.02                      
|                                             |                     |                              |                |                            
|WEIGHTED AVERAGE SHARES OUTSTANDING:         |                     |                              |                |                            
|                                             | BASIC               |                              |                | 9,513                      
|                                             |                     |                              |                |                            
|                                             | DILUTED             |                              |                | 9,513                      
|                                             |                     |                              |                |                            

See
accompanying notes to condensed consolidated financial statements.

4

---



GOLDEN STATE VINTNERS, INC.        CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS        (UNAUDITED, IN THOUSANDS)

|                                            |                                                                                             | Nine Months Ended
March 31,                               |                                          
|------------------------------------------- | ------------------------------------------------------------------------------------------- | --------------------------------------------------------- | -----------------------------------------
|
|
|OPERATING ACTIVITIES:                       |                                                                                             |                                                           |                                          
|                                            | Net income                                                                                  |                                                           | $                                        
|                                            | Adjustments to reconcile net income to net cash provided by (used in) operating activities: |                                                           |                                          
|                                            |                                                                                             | Depreciation and amortization                             |                                          
|                                            |                                                                                             | Loss on disposal of assets                                |                                          
|                                            |                                                                                             | Employee stock award                                      |                                          
|                                            |                                                                                             | Change in cash surrender value of life insurance policies |                                          
|                                            |                                                                                             | Deferred income taxes                                     |                                          
|                                            |                                                                                             | Changes in assets and liabilities:                        |                                          
|                                            |                                                                                             |                                                           | Trade and other receivables              
|                                            |                                                                                             |                                                           | Inventories                              
|                                            |                                                                                             |                                                           | Prepaid expenses and other current assets
|                                            |                                                                                             |                                                           | Accounts payable                         
|                                            |                                                                                             |                                                           | Grower payable                           
|                                            |                                                                                             |                                                           | Payroll and related liabilities          
|                                            |                                                                                             |                                                           | Other accrued liabilities                
|                                            |                                                                                             |                                                           | Accrued interest                         
|                                            |                                                                                             |                                                           | Deferred compensation                    
|                                            |                                                                                             |                                                           | Income taxes refundable/payable          
|                                            |                                                                                             |                                                           |                                          
|                                            |                                                                                             |                                                           |                                          
|INVESTING ACTIVITIES:                       |                                                                                             |                                                           |                                          
|                                            | Purchases of property, plant and equipment                                                  |                                                           |                                          
|                                            | Proceeds on sales of property, plant and equipment                                          |                                                           |                                          
|                                            | Purchase of life insurance policies                                                         |                                                           |                                          
|                                            | Refund (payment) of deposits                                                                |                                                           |                                          
|                                            |                                                                                             |                                                           |                                          
|                                            |                                                                                             |                                                           |                                          
|FINANCING ACTIVITIES:                       |                                                                                             |                                                           |                                          
|                                            | Borrowings on line of credit                                                                |                                                           |                                          
|                                            | Payments on line of credit                                                                  |                                                           |                                          
|                                            | Change in cash overdraft                                                                    |                                                           |                                          
|                                            | Repayments of long-term debt                                                                |                                                           |                                          
|                                            | Proceeds from stock option exercises                                                        |                                                           |                                          
|                                            | Treasury stock purchases                                                                    |                                                           |                                          
|                                            |                                                                                             |                                                           |                                          
|                                            |                                                                                             |                                                           |                                          
|                                            |                                                                                             |                                                           |                                          
|INCREASE (DECREASE) IN CASH AND EQUIVALENTS |                                                                                             |                                                           | (408                                     
|CASH AND EQUIVALENTS, BEGINNING OF PERIOD   |                                                                                             |                                                           | 488                                      
|                                            |                                                                                             |                                                           |                                          
|CASH AND EQUIVALENTS, END OF PERIOD         |                                                                                             | $                                                         | 80                                       
|                                            |                                                                                             |                                                           |                                          
|OTHER CASH FLOW INFORMATION:                |                                                                                             |                                                           |                                          
|                                            | Interest paid                                                                               |                                                           | $                                        
|                                            |                                                                                             |                                                           |                                          
|                                            | Income taxes paid (refunded), net                                                           |                                                           | $                                        
|                                            |                                                                                             |                                                           |                                          
|                                            | Property acquired under capital lease                                                       |                                                           | $                                        
|                                            |                                                                                             |                                                           |                                          

See accompanying notes to condensed consolidated financial statements.

5

---



GOLDEN STATE VINTNERS, INC.        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1Basis of Presentation:

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (which include all normal and recurring
adjustments) necessary to present fairly the Company's financial position at March 31, 2002 and its results of operations for the three and nine-month periods ended March 31, 2002 and
2001 and its cash flows for the nine-month periods ended March 31, 2002 and 2001. Certain information and disclosures normally included in the notes to financial statements prepared in
accordance with generally accepted accounting principles have been condensed or omitted from the accompanying financial statements. The unaudited financial statements set forth in this quarterly
report on Form 10-Q should be read in conjunction with the audited financial statements and notes thereto included in the Company's Annual Report on Form 10-K, as amended, (the "10-K") for the fiscal
year ended June 30, 2001, on file at the Securities and Exchange Commission ("SEC"). The Company's results for the three and nine-months ended March 31, 2002 are not necessarily indicative of
the results that may be expected for the fiscal year ending June 30, 2002.

Effective
July 1, 2001, the Company changed its wine and brandy inventory costing method from the last-in, first-out (LIFO) method to the first-in, first-out (FIFO) method. The primary
reasons for the change in accounting method are: management's belief that the FIFO method of accounting better matches revenues and expenses of the Company's wines and brandy sold, and therefore
provides a better method of reporting the Company's results of operations; the FIFO method of accounting will reduce intra-year cost of sales volatility; and the FIFO method of accounting will provide
improved financial comparability to other publicly-traded companies in the industry. The accounting change has been applied to prior years by retroactively restating the financial statements. For the
nine months ended March 31, 2001, the restatement decreased net income by $1.1 million or $0.11 per share. As of July 1, 2001, the effect of this restatement increased current
assets, current liabilities and retained earnings by $0.9 million, $0.5 million and $0.4 million, respectively. For the three months ended March 31, 2001, the restatement
decreased net income by $0.1 million, or $0.01 per share.

Certain
reclassifications have been made to the fiscal 2001 amounts in order for them to conform to the fiscal 2002 presentation.

Note 2Inventories:

Inventories consist of the following (in thousands):

March 31,
2002

June 30,
2001(Restated)Bulk wine

$
20,764

$
10,284Cased and bottled wine


7,040


3,997Brandy


1,225


1,204Supplies and other


1,176


979Unharvested crop costs


3,775


7,195Total

$
33,980

$
23,659


The
Company's bulk wine inventory is $10.4 million greater than at March 31, 2001 and substantially in excess of committed sales contracts. Although management believes
that this excess inventory can be sold on the spot market at prices at or above the carrying value, no assurance can be

6

---

given that the Company will not experience losses on the sale or disposition of a portion of the inventory, and such losses could be material.

Note 3New Accounting Pronouncements

In June 2001, the FASB issued three statements: No. 141,Business Combinations,No. 142, Goodwill and
Other Intangible Assets,and No. 143,Accounting for Assets Retirement Obligations.In August 2001, the FASB issued statement No. 144,Accounting
for the Impairment or Disposal of Long-Lived Assets."SFAS
No. 141 requires the purchase method of accounting for business combinations initiated after June 30, 2001. SFAS No. 142 provides that goodwill and certain identifiable intangible
assets will not be amortized and requires impairment tests for goodwill and certain identifiable intangible assets. SFAS No. 143 provides that asset retirement obligations be measured at fair
value and be discounted. Dismantlement and restoration costs should be recognized as liabilities when incurred. SFAS No. 144 provides that impairment losses be recognized only if the carrying
amount of the long-lived assets is not recoverable from undiscounted cash flows. Any impairment loss recognized would be the difference between the carrying value of the asset and its fair value. The
Company adopted SFAS Nos. 141, 142 and 143 effective July 1, 2001. Adoption of these statements had no material impact on the Company's consolidated financial position, results of
operations or cash flows. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. Management has not completed the process of evaluating the impact of adopting SFAS
No. 144. The Company is therefore unable to disclose the impact that adoptions SFAS No. 144 will have on its financial position, results of operations and cash flows when such statements
are adopted."

Note 4Bank Line of Credit

The Company's $16.0 million revolving bank line of credit expires in July 2002. The balance outstanding under the line was $12.4 million at
March 31, 2002 with no outstanding balance at June 30, 2001. Management is currently negotiating a renewal with the bank and an increase in the amount of the existing line of credit.
Although management believes that it will be successful, no assurance can be given that the line will be renewed or, if renewed, that the amount of the line will be increased.

Note 5Treasury Stock

On November 8, 2000, the Board of Directors of the Company approved the purchase of up to 1,000,000 shares of its outstanding Class B Common
Stock. Through March 31, 2002, the Company has purchased 21,884 shares for approximately $146,200.

Note 6Business Segment Information

The Company's chief decision makers evaluate performance based on the profitability of the following four segments: bulk wine, wine grapes, case goods, and
brandy. The bulk wine segment includes
production and sale of bulk wine, custom crushing services, storage of bulk wine in tanks and barrels and delivery of bulk wine barreling services, such as racking and topping. The Company's wine
grapes segment consists of the farming and harvesting of Company owned vineyards and subsequent sales or internal use of produced grapes as well as grapes purchased by the Company for resale. The case
goods segment includes production of proprietary and private label bottled wine and other

7

---

alcoholic beverages and custom bottling and storage services and custom bottling services for malt-based alcoholic beverages to three major customers on long-term production contracts. The Company's
brandy segment includes production of brandy and spirits and brandy barrel storage and related barreling services. The Company also analyzes information on capital expenditures, depreciation and
amortization and assets utilized by each of the four segments.

8

---

Segment
information as of March 31, 2002 and June 30, 2001 and for the three- and nine-month periods ended March 31, 2002 and 2001 is as follows (in thousands):

|                               |             | Three Months Ended
March 31 |   | Nine Months Ended
March 31
|------------------------------ | ----------- | --------------------------- | - | --------------------------
|
|
|Revenues, net:                 |             |                             |   |                           
|                               | Bulk wine   |                             | $ | 7,384                     
|                               | Wine grapes |                             |   | 117                       
|                               | Case goods  |                             |   | 8,268                     
|                               | Brandy      |                             |   | 434                       
|                               |             |                             |   |                           
|                               |             | Total revenues, net         |   |                           
|Cost of Sales:                 |             |                             |   |                           
|                               | Bulk wine   |                             |   | 5,593                     
|                               | Wine grapes |                             |   | 80                        
|                               | Case goods  |                             |   | 7,208                     
|                               | Brandy      |                             |   | 261                       
|                               |             |                             |   |                           
|                               |             | Total cost of sales         |   |                           
|Gross Profit:                  |             |                             |   |                           
|                               | Bulk wine   |                             |   | 1,791                     
|                               | Wine grapes |                             |   | 37                        
|                               | Case goods  |                             |   | 1,060                     
|                               | Brandy      |                             |   | 173                       
|                               |             |                             |   |                           
|                               |             | Total gross profit          |   | $                         
|                               |             |                             |   |                           
|Capital Expenditures:          |             |                             |   |                           
|                               | Bulk wine   |                             | $ | 759                       
|                               | Wine grapes |                             |   | 106                       
|                               | Case goods  |                             |   | 155                       
|                               | Brandy      |                             |   | 105                       
|                               | Corporate   |                             |   | 400                       
|                               |             |                             |   |                           
|                               |             | Total                       |   | $                         
|                               |             |                             |   |                           
|Depreciation and amortization: |             |                             |   |                           
|                               | Bulk wine   |                             | $ | 663                       
|                               | Wine grapes |                             |   |                          
|                               | Case goods  |                             |   | 442                       
|                               | Brandy      |                             |   | 35                        
|                               | Corporate   |                             |   | 170                       
|                               |             |                             |   |                           
|                               |             | Total                       |   | $                         
|                               |             |                             |   |                           

9

---

March 31,
2002

June 30,
2001(Restated)Total Assets:Bulk wine

$
63,759

$
56,307Wine grapes


28,930


33,484Case goods


36,125


24,485Brandy


6,140


7,080Corporate


10,923


10,762Total

$
145,877

$
132,118


10

---



Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of the financial condition and results of operations of Golden State Vintners, Inc. ("we" or "us" or the "Company") contains
"Forward-Looking Statements," as defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-Looking Statements
are statements other than historical information or statements of current condition and relate to future events or the future financial performance of the Company. Some Forward-Looking Statements may
be identified by use of such terms as "believes," "anticipates," "intends" or "expects." Such Forward-Looking Statements involve known and unknown risks, uncertainties and other factors that may cause
our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such Forward-Looking Statements. Our results may
differ materially from those anticipated in such Forward-Looking Statements as a result of a number of factors, including without limitation, (i) difficulties in the bulk wine market;
(ii) loss of key customers or contracts; (iii) competition from various domestic and foreign wine producers; (iv) interest rates and other business and economic conditions which
could increase significantly the costs and risks of projected capital spending; and (v) the effect of weather and other natural forces on growing conditions and, in turn, the quality and
quantity of grapes we produce. Each of these factors, and other risks pertaining to our business, the premium wine industry and general business and economic conditions, are more fully discussed
herein and from time to time in other filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K, as amended, for the year ended June 30, 2001. We
undertake no obligation to publicly update or revise any Forward-Looking Statements, whether as a result of new information, future events or otherwise.

Recent Developments

Our bulk wine business unit continues to experience downward pressure on sales volumes and margins. This is a result of continued softness in the wine industry
due to surplus domestic and international bulk wine inventories and a reduction in the number of long-term bulk wine sales contracts relative to previous years. As a result, the Company's bulk wine
inventory is $10.4 million greater than at March 31, 2001 and substantially in excess of committed sales contracts. Although management believes that this excess inventory can be sold on
the spot market at prices at or above the carrying value, no assurance can be given that the Company will not experience losses on the sale or disposition of a portion of the inventory, and such
losses could be material.

In
addition, we were notified by a significant customer that they are reducing their requirements by approximately two-thirds for custom processing, storage and barreling services
relative to the 2002 crush. Revenues attributable to this customer for the nine-months ended March 31, 2002 were approximately $2.5 million or 7% of bulk wine segment revenues. Management is
currently seeking replacement customers at consistent pricing levels. There can be no assurance that we will be able to replace this business volume or with business at comparable pricing levels.

Our
new ready-to-drink ("RTD") bottling unit will not meet our originally anticipated profit levels for the year due to lower than expected customer demand, start-up costs, unplanned
capital expenditures and expenditures to maximize bottling line throughput. Furthermore, we were notified that the largest of our three RTD customers intends to exercise a contract provision providing
for termination of the contract within a specified number of months. Accordingly, it is currently anticipated that bottling services under this contract will terminate in December 2002 should this
provision be exercised. Revenues for the nine-months ended March 31, 2002 related to this contract were approximately $3.8 million or 19% of case goods segment revenues. Based on the
anticipated termination of the contract, management is actively pursuing alternate customer relationships.

11

---

We
have been in the process of implementing a new enterprise-wide technology platform over the past two years. In January 2002, we implemented all of the modules of the system with the
exception of the bulk wine module. Due to significant remaining programming and training costs and additional ongoing resources needed to operate the bulk wine module, we are analyzing whether to
implement the bulk wine module. If the decision is made not to continue with the development and implementation of the bulk wine module, the Company will write off all or a substantial portion of the
capitalized cost, which was $5.5 million at March 31, 2002.

Due
to the financial impact of matters discussed above, we anticipate the possibility of experiencing liquidity issues while we negotiate renewal and increase of our existing line of
credit. Our current line provides for up to $16.0 million and expires in July 2002. As of May 6, 2002, the balance on this line was $15.5 million. We are working with our lenders
to increase the credit line and extend the maturity date to ensure our borrowing requirements are met.

We
are in the process of completing the sale of approximately 770 acres of our vineyards located in Fresno County. We anticipate a gain of approximately $1.3 million on this sale
and that it will close in the fourth quarter of the current fiscal year. The anticipated proceeds of approximately $3.3 million from this sale may not be available for operating purposes. The
property collateralizes long-term debt and the lender may require the proceeds to be applied to the loan principal.

Mark
A. Larson, the Company's President and Chief Operating Officer, departed the Company effective May 13, 2002. The Company and Mr. Larson have not finalized severance
arrangements.
Management believes that it has sufficient executive management personnel to direct its current business volume.

In
light of the foregoing developments, the Company is currently examining other options to reduce its cost structure and increase operating efficiencies.



We have experienced and expect to continue to experience seasonal and quarterly fluctuations in our revenues. Because of the inherent seasonality of our
operations, we have historically reported our highest revenues and net income in our second fiscal quarter as we sell most of our bulk wine in the second quarter, immediately after crush, and perform
many of our wine processing services in the first and second quarters. As a result, we typically report lower revenues and net income (loss) in the third and fourth fiscal quarters. In the current
fiscal year, we have experienced decreased bulk wine revenues as a result of a reduced number of long-term bulk wine sales contracts relative to previous years. We believe such decrease in long-term
bulk sales contracts is attributable to 1) plantings of new vineyards 2) current and anticipated lower bulk wine market prices 3) higher levels of wine inventory held by our
customers and 4) increased international competition. We anticipate that these market pressures will continue.



Approximately 13% of our revenues in the first nine months of fiscal 2002 were derived from the sale of wine and wine products internationally. We export bulk
wine and case goods to Europe, Canada and Asia.



Total revenues for the third quarter of fiscal 2002 were $16.2 million, a decrease of $4.7 million or 22.5%, as compared to revenues of
$20.9 million for the third quarter of fiscal 2001. The overall

12

---

decrease in revenues is due to decreases in bulk wine, brandy and wine grape revenues partially offset by increased case goods revenues.

Bulk Wine and Related Services.For the third quarter of fiscal 2002, revenues from bulk wine and related services were
$7.4 million, a decrease of $6.4 million or 46.4%, as compared to revenues of $13.8 million in the second quarter of fiscal 2001. The decrease was a result of a reduced number of
bulk wine contract and spot sales resulting in a decrease of approximately 2.0 million gallons sold at lower average sales prices per gallon partially offset by increased bulk wine storage
revenues.

Case Goods and Related Services.For the third quarter of fiscal 2002, revenues from case goods and related services were
$8.3 million, an increase of $2.3 million or 38.3%, as compared to revenues of $6.0 million in the third quarter of fiscal 2001. In the fourth quarter of fiscal 2001, we commenced
custom bottling services for malt-based alcoholic beverages on our $10 million high-speed bottling line. Revenues recognized on such services were $2.2 million in
the third quarter of fiscal 2002.

Wine Grapes and BrandyOur wine grapes and brandy business segments realized only a modest amount of revenues in the third
quarter of fiscal 2002 consistent with seasonal trends.



For the third quarter of fiscal 2002, total cost of sales was $13.1 million, a decrease of $4.2 million or 24.3%, from $17.3 million in the
second quarter of fiscal 2001. As a percentage of revenues, cost of sales for the third quarter of fiscal 2002 was 81.1%, a decrease from 82.8% in the third quarter of fiscal 2001. The decrease in
cost of sales on a percentage of revenue basis was as a result of prior year additional costs associated with integrating new bottling business activity and write-offs of certain case dry goods and
packaged products not experienced in the current year.

Effective
July 1, 2001, we changed our wine and brandy inventory from the last-in, first-out (LIFO) method to the first-in, first-out (FIFO) method. The change has been applied to prior
periods by retroactively restating the financial statements. For a further discussion of the impact of this accounting change, see Note 1 of Notes to Condensed Consolidated Financial
Statements.



In the third quarter of fiscal 2002, we realized gross profit of $3.1 million, a decrease of $0.5 million or 13.9%, as compared to
$3.6 million in the third quarter of fiscal 2001. As a percentage of revenues, gross profit for the third quarter of fiscal 2002 was 18.8%, an increase from 17.1% in the third quarter of fiscal
2001, for reasons discussed above under "Cost of Sales."



For the third quarter of fiscal 2002, selling, general and administrative expenses were $2.4 million, a decrease of $0.7 million or 22.6%, from
$3.1 million in the third quarter of fiscal 2001. The period to period decrease is due to the reversal in the third quarter of fiscal 2002 of all bonus expense accruals through
December 31, 2001 of approximately $.6 million in fiscal 2002 (compared to bonus expense accrued in the third quarter of fiscal 2001 of approximately $.5 million) partially offset
by increased payroll and related expenses consistent with our goal to strengthen and enhance our management team.



For the third quarter of fiscal 2002, interest expense was $0.9 million, an increase of $0.2 million or 28.6%, as compared to interest expense of
$0.7 million in the third quarter of fiscal 2001. The period to period increase resulted from substantially increased average borrowings on our line of credit

13

---

and long-term debt partially offset by lower overall interest rates. Interest capitalized in the quarters ended March 31, 2002 and 2001 was approximately $4,000 and $104,000 respectively.



The effective tax rate was 35.3% for the third quarter of fiscal 2002 as compared to 39.2% in the third quarter of fiscal 2001. The lower effective tax rate was
primarily the result of an increase in manufacturing tax credits.



For the third quarter of fiscal 2002, net loss was $0.2 million in the third quarter of fiscal 2002 and $0.1 million in the third quarter of fiscal
2001. Net loss for the third quarter of fiscal 2002 was impacted by factors covered above.



For the third quarter of fiscal 2002, diluted loss per share was $0.02 compared to diluted loss per share of $0.01 for the third quarter of fiscal 2001.



Total revenues for the first nine months of fiscal 2002 were $69.6 million, a decrease of $15.1 million or 17.8%, as compared to revenues of
$84.7 million for the first nine months of fiscal 2001. The overall decrease in revenues is due to decreases in bulk wine, wine grapes and brandy revenues as partially offset by increased case
goods revenues.

Bulk Wine and Related Services.For the first nine months of fiscal 2002, revenues from bulk wine and related services were
$37.2 million, a decrease of $13.4 million or 26.5%, as compared to revenues of $50.6 million in the first nine months of fiscal 2001. The period to period decrease was a result
of a reduced number of bulk wine contract and spot sales resulting in a decrease of approximately 5.4 million gallons sold at lower average sales prices per gallon partially offset by increased
bulk wine storage revenues.

Wine Grapes.In the first nine months of fiscal 2002, revenues from grape sales were $2.4 million, a decrease of $4.4
million or 64.7%, as compared to revenues of $6.8 million in the first nine months of
2001. The decline in this segment's revenues is due to reduced volume sold and price declines of Company grown grapes consistent with our plan to use more Company grown grapes in our operations.

Case Goods and Related Services.For the first nine months of fiscal 2002, revenues from case goods and related services were
$20.3 million, an increase of $6.1 million or 43.0%, as compared to revenues of $14.2 million in the first nine months of fiscal 2001. The increase is a result of revenues
recognized on custom bottling services for malt-based alcoholic beverages of $6.4 million for the nine months ended March 31, 2002. Malt-based alcoholic beverage custom bottling services
commenced in the fourth quarter of fiscal 2001.

Brandy.For the first nine months of fiscal 2002, revenues from the sale of brandy and grape spirits were
$9.7 million, a decrease of $3.3 million or 25.4%, as compared to revenues of $13.0 million for the first nine months of fiscal 2001. The period to period decrease in brandy
revenue was due to decreased proof gallons sold at reduced contracted prices.

14

---



For the first nine months of fiscal 2002, total cost of sales was $55.2 million, a decrease of $12.9 or 18.9%, from $68.1 million for the
first nine months of fiscal 2001. As a percentage of revenues, cost of sales for the first nine months of fiscal 2002 was 79.3%, a decrease from 80.4% for the first nine months of fiscal 2001. The
decrease in cost of sales on a percentage of revenue basis was a result of the decreased grape cost component of bulk wine and case goods costs relative to decreased average sales prices per gallon
and increased sales prices per case respectively partially offset by reduced pricing per proof gallon of brandy sold.



In the first nine months of fiscal 2002, we realized gross profit of $14.4 million, a decrease of $2.2 million or 13.3%, as compared to
$16.6 million in the first nine months of fiscal 2001. As a percentage of revenues, gross profit for the first nine months of fiscal 2002 was 20.7%, an increase from 19.6% in the first nine
months of fiscal 2001, for reasons discussed above under "Cost of Sales."



For the first nine months of fiscal 2002, selling, general and administrative expenses were $7.8 million, an increase of $0.4 million or 5.4%, from
$7.4 million in the first nine months of fiscal 2001. The period to period increase was due to increased payroll and related expenses consistent with our goal to strengthen and enhance our
management team partially offset by elimination of accrued bonuses in the current year as discussed above.



For the first nine months of fiscal 2002, interest expense was $2.7 million, an increase of $0.1 million or 3.8%, as compared to interest expense of
$2.6 million in the first nine months of fiscal 2001. The period to period increase resulted from increased average borrowings on our line of credit and long-term debt partially offset by more
interest capitalized related to an increased average balance of capital projects in progress and lower overall interest rates. Interest capitalized in the nine month periods ended March 31,
2002 and 2001 was approximately $0.3 and $0.2 million, respectively.



The effective tax rate was 34.6% for the nine months ended March 31, 2002 as compared to 35.3% for the nine months ended March 31, 2001. The lower
effective rate was primarily the result of an increase in manufacturing tax credits.



For the first nine months of fiscal 2002, net income was $2.5 million, a decrease of $1.8 million or 41.9%, as compared to net income of
$4.3 million in the first nine months of fiscal 2001. Net income for the first nine months of fiscal 2002 was impacted by factors covered above.



For the first nine months of fiscal 2002, diluted earnings per share was $0.26 compared to diluted earnings per share of $0.43 for the first nine months of fiscal
2001.



Our working capital position at March 31, 2002 was $17.2 million, compared to $21.3 million at June 30, 2001. The decrease in working capital is due
to cash expenditures funded with short-term

15

---

debt. Historically, our investments in receivables and inventories are at their highest in the second quarter and are reduced in the third and fourth quarters, however, investments in inventories
remain high due to current difficult market conditions. We maintain a revolving line of credit for working capital purposes which is secured by inventory, accounts receivable, the current year's wine
grape crop and other collateral. Borrowings under the line typically peak in November, during our second fiscal quarter. The revolving line of credit balance was $12.4 million at
March 31, 2002, with no outstanding balance at June 30, 2001. Unused availability under the line of credit was $3.6 million at March 31, 2002. Due primarily to factors
discussed under "Recent Developments" above, we currently anticipate the possibility of liquidity issues while we negotiate renewal and increase of our existing line of credit. As of May 6,
2002, the revolving line of credit balance was $15.5 million. We are working with our lenders to increase the credit line and extend the maturity date to ensure our borrowing requirements are
met. If we are unable to renew and increase our existing line of credit, the Company's liquidity will be materially adversely affected.

The
Company's revolving line of credit and long-term debt financing agreements contain certain financial covenants. As a result of the factors discussed above under "Recent
Developments," we currently anticipate that we may be out of compliance with certain financial covenents at the end of our fiscal year. We have initiated discussions with our lenders with respect to
waiver or amendment of such financial covenants. While we currently believe that we will be successful in obtaining any necessary waiver or amendment, there can be no assurance that such waiver or
amendment can be obtained on terms acceptable to us. If we are not in compliance with financial covenants at the end of our fiscal year, our future financial results and liquidity could be materially
adversely affected.

Net
cash used in operating activities for the first nine months of fiscal 2002 was $2.2 million, compared to net cash provided by operations of $12.7 million for the first
nine months of fiscal 2001. The decrease in cash provided by operations resulted from reduced income and increased inventories.

The
change to the FIFO method of accounting discussed above will result in incremental taxes of approximately $2.0 million to be paid over four years beginning with the fiscal
2001 tax return. Payment of these incremental taxes will not change our effective tax rate.

Capital
expenditures for the first nine months of fiscal 2002 were $9.0 million, compared to $12.8 million in the first nine months of fiscal 2001. We are funding these
expenditures from our working capital line. We intend to partially finance current and future capital expenditures through long-term financing arrangements. If we successfully renew and increase our
existing line of credit, we believe operating and working capital line sources are adequate for our current capital expenditure programs. There can be no assurance that we will be able to renew and
increase our existing line of credit on terms favorable to the Company.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We can choose from several variable rate options on certain of our debt. All of our balance sheet items and sales are in U.S. dollars, therefore we have no
foreign currency exchange rate risk related to these financial data. We do not use financial instruments for trading purposes.

16

---

Certain
of our debt is subject to variable interest rate options. The following chart indicates our fixed and variable rate long and short-term debt at March 31, 2002, and
estimates the balances of such debt in future periods ($ millions):

|                     |                | March 31,                        |  | June 30, |     
|-------------------- | -------------- | -------------------------------- |  | -------- | ----
|
|Bank line of credit: |                |                                  |  |          |     
|                     | Variable Rate: |                                  |  |          |     
|                     |                | Average Outstanding*             |  | $        | 9.1 
|                     |                | Weighted average rate per period |  |          | 3.7 
|                     |                |                                  |  |          |     
|Long-term Debt:      |                |                                  |  |          |     
|                     | Fixed Rate:    |                                  |  |          |     
|                     |                | Average Outstanding              |  | $        | 42.7
|                     |                | Weighted average rate per period |  |          | 8.4 

---

During
our annual business cycle, we utilize a variable interest rate working capital line at various borrowing levels. Our existing working capital loan agreement offers
interest rate options at spreads over LIBOR and/or lender cost of funds, at maturities we selected. For the nine months ended March 31, 2002, the average outstanding balance under this line was
approximately $9.1 million, with a weighted average interest rate of approximately 3.7%.

At
March 31, 2002, the balance on our fixed rate long-term debt was $41.3 million and carried a weighted average interest rate of approximately 8.5%. The weighted average
interest rate for the nine months ended March 31, 2002 for all our debt was approximately 7.6%.

For
strategic reasons, we enter into forward product sales and material supply contracts, most of which have staggered maturity dates. Under SFAS 133 and the corresponding
amendments under SFAS 138, these contracts qualify as normal sales and purchases contracts, under which we expect to take physical delivery. Of our four primary lines of business, bulk wine,
grape sales and brandy production are subject to multi-year contracts, while case goods sales occur on a short-term basis. The primary raw
material component for most of our products is wine grapes. We enter into long and short-term grape purchase contracts to ensure an adequate and cost effective source of raw material for production.
We currently have several contracts to purchase grapes at costs anticipated to exceed market for the 2002 crush. We are in the process of renegotiating such contracts but no assurance can be given
that such efforts will be successful. Product sales contracts are substantially fixed over the term of the contract as to quantity and price. Wine grape contract terms are similarly fixed at inception
for the term of the contract, although a portion of these contracts contains annual harvest market price adjustment clauses, including individual harvest year minimum pricing. For fiscal 2002, or the
2001 harvest year, none of our total wine grape purchases on a dollar basis were adjusted upward against contract minimum prices following the harvest.

A
significant portion of our annual wine and brandy production is committed under sales contracts. We maintain a certain amount of uncommitted product inventory to meet customer demand.
At March 31, 2002, our reported inventory value of bulk wine and brandy was approximately $22.0 million, of which approximately $6.4 million, or 29%, is committed to sales
contracts. Uncommitted inventory of approximately $15.6 million, or 71% is reserved for future case goods sales and for spot market bulk wine sales. We generally match preproduction contractual
sales with contracted material supply agreements and will continue to maintain certain uncommitted inventory.

17

---

RISK FACTORS

In evaluating the Company, its business, operations and financial position, the following risk factors should be carefully considered, in
addition to the other information contained in this Form 10-Q. The following factors, among others, could affect the Company's actual future operating results and could cause such results to
differ from the results discussed elsewhere in this Form 10-Q.

Much of Our Revenues Are Derived From Only a Few Customers, the Loss of Any One of Which Would Harm Our Business

During fiscal 2001, five of our customers accounted for approximately 44% of our revenues, with Heaven Hill and Constellation accounting for approximately 14% and
13%, respectively. While some of our largest customers have entered into some form of long-term contract with us, there can be no assurance that each of these relationships will continue following the
expiration of these contracts or that the volume of business we are currently conducting with such customers will continue at such levels. The loss of any one of our major customers or a significant
reduction in the volume of their business with us could have a material adverse effect on our business, financial condition and results of operations. See "Recent Developments" in Management's
Discussion and Analysis where we discuss current issues with two of our customers.

Loss of a Major Bulk Wine Customer Could Adversely Affect Our Operations

Bulk wine and related services accounted for approximately 59% of our revenues in fiscal 2001. We continue to provide resources for expanding this portion of our
business. Any loss of a major bulk wine customer could reduce our bulk wine revenues, which could have a material adverse effect on our business, financial condition and results of operations. See
"Recent Developments" in Management's Discussion and Analysis where we discuss a current issue with one of our bulk wine customers.

Decreased Demand for Our Case Goods Could Harm Our Business

Sales of case goods and related services accounted for approximately 21% of revenues in fiscal 2001. A significant portion of our case goods revenues consists of
short-term private label case goods sales. Additionally, our higher margin proprietary case goods revenues resulted from sales of our relatively unknown proprietary brands of premium wines. Any
significant increase in the supply of premium wine in the California wine market that is not met by a corresponding demand could adversely affect our case goods sales. See "Recent Developments" in
Management's Discussion and Analysis where we discuss the effect of reduced demand in our case goods business.

Wine Grape and Bulk Wine Price Declines Would Harm Our Business

Recent developments resulted in certain California wine grape and bulk wine prices declining significantly, which could have a material adverse effect on our
business, financial condition and results of operations. Such developments include (1) plantings of new vineyards, (2) yield enhancements through technological advances and (3) denser plantings
of vines. Anticipated high levels of grape production will continue to exert pressure on our bulk wine sales volume and margins. As a result, we may experience lower than expected revenues and
increased inventories which would materially adversely affect our business and future results. See "Recent Developments" in Management's Discussion and Analysis where we discuss the effect of current
difficulties in the bulk wine market on our business.

A Decrease in Customer Spending Would Harm Our Business

The growth of the wine industry and the success of our business depend to a significant extent on a number of factors relating to discretionary consumer spending,
including the general condition of the

18

---

economy, general levels of consumer confidence, federal, state and local taxation, and the deductibility of business entertainment expenses under federal and state tax laws. The current economic
downturn
both in the U.S. and abroad could adversely affect discretionary consumer spending generally, or purchases of wine specifically, which could have a material adverse effect on our business. Current
market pressures could negatively impact our lower of cost or market reserves for inventories. In addition, reduced sales could result in increased inventories on hand and possible deterioration of
inventory quality.

Decreased Cash Flow Could Limit Our Ability to Service Our Debt

As a result of incurring debt, we are subject to the risks normally associated with debt financing, including the risk that cash flow from operations will be
insufficient to meet required payments of principal and interest. Our ability to satisfy our obligations to pay interest and to repay debt is dependent on our future performance. Our performance
depends, in part, on prevailing economic conditions and financial, business and other factors, including factors beyond our control. To the extent we use a substantial portion of our cash flow from
operations to pay the principal and interest on our indebtedness, that cash flow will not be available to fund future operations and capital expenditures. Our debt level may also limit our ability to
obtain additional financing to fund future capital expenditures, debt service, working capital and other general corporate requirements. It could also make us more vulnerable to general economic
downturns and competitive pressures. We can give no assurances that our operating cash flow will be sufficient to fund our future capital expenditure and debt service requirements or to fund future
operations. In addition, our debt is secured by substantially all of our assets. If we are unable to meet our debt service obligations due to adverse economic conditions, we risk the loss of some or
all of our assets to foreclosure. See "Liquidity and Capital Resources" in Management's Discussion and Analysis where we discuss our existing line of credit.

Our Debt Financing Agreements Contain Restrictive Covenants with Which We May Not Be Able to Comply

Our existing line of credit and long-term debt financing agreements contain restrictive financial covenants. These covenants require us, among other things, to
maintain specified levels of net income, working capital, tangible net worth and financial ratios. Primarily as a result of the conditions described in "Recent Developments" in Management's Discussion
and Analysis, we currently project that we may be out of compliance with certain financial covenants at the end of our fiscal year. We have initiated discussions with our lenders with respect to
waiver or amendment of such financial covenants. While we currently believe that we will be successful in obtaining any necessary waiver or amendment, there can be no assurance that such waiver or
amendment can be obtained on terms acceptable to us.

Our
ability to comply with restrictive financial covenants depends upon our future operating performance. Our future operating performance depends, in part, on general industry
conditions and other factors beyond our control. We can give no assurance that we will be able to comply with these covenants. If we fail to comply with these covenants in the future, we may not
succeed in renegotiating our debt financing agreements or otherwise obtaining relief from the covenants. If we default under some or all of our debt financial agreements, our lenders may require that
we immediately repay the full outstanding amount we owe them. In such event, we may have to pursue alternative financing
arrangements. If we are not in compliance with financial covenants at the end of any compliance period, our future results of operations and liquidity could be materially adversely affected.

Bad Weather, Pests and Diseases Could Adversely Affect Our Business

Grape production is subject to a variety of agricultural risks. Extreme weather conditions can materially and adversely affect the quality and quantity of grapes
produced. There can be no assurance

19

---

that inclement weather in the future will not affect a substantial portion of our vineyards in any year and have a material adverse effect on our business, financial condition and results of
operations.

Vineyards
are also susceptible to certain diseases, insects and pests, which can increase operating expenses, reduce yields and damage or kill vines. In recent years phylloxera, a louse
that feeds on and may ultimately destroy the roots of grape vines, has infested many vineyards in the wine grape producing regions of California, causing grape yields to decrease. Phylloxera
infestation has been widespread in California, particularly in Napa, Sonoma, Mendocino and Monterey Counties, where the soil and climate provide an ideal environment for the pest. As a result of this
widespread infestation, thousands of vineyard acres throughout the State of California have been replanted with phylloxera-resistant rootstock or, in some cases, taken out of production completely.
The cost of controlling this pest was significant to affected vineyard owners.

Substantially
all of our vineyards are planted on their own rootstock that is not phylloxera-resistant. In the fall of 1997, phylloxera was discovered in certain acres of our vineyards
located in Fresno County. We believe that the scope of this phylloxera infestation is modest, though there can be no assurance in that regard. Additionally, we believe the climate, soil and water
conditions in California's San Joaquin Valley slow the development of phylloxera in vineyard roots. Further, recent harvest yields from our phylloxera-infested acres were not notably lower than
yields from surrounding, non-infested acreage. There can, however, be no assurance that phylloxera will not spread throughout adjoining vineyard acres, or infest any of our other vineyards which could
reduce yields and require a significant investment in replanting with disease-resistant root stock, all of which would have a material adverse effect on the Company.

In
recent years the Glassy-Winged Sharpshooter ("GWSS") has emerged as an efficient vector of Pierce's disease. Pierce's disease is a serious threat to wine grapes and combined with
large GWSS populations can destroy vineyards over a several year period. The GWSS has been discovered in low populations throughout many of California's grape regions. A number of vineyards in a small
grape growing region in Southern California have been destroyed by Pierce's disease. We have engaged a consultant to monitor the pest and advise regarding the latest research developments. To date,
the GWSS has not been found on our vineyards and we believe there is no immediate Pierce's threat. While the grape industry is hopeful the spread of Pierce's disease can be controlled, an infestation
of our vineyards would have a materially adverse effect on our operations and profitability.

Other
pests that may infest vineyards include leafhoppers, thrips, nematodes, mites, insects, orange tortrix and various grapevine diseases. Pesticides and the selection of resistant
rootstocks reduce losses from these pests, but do not eliminate the risk of such loss. Gophers, rabbits, deer and birds can also pose a problem for vineyards, and wine grapevines are also susceptible
to certain viral infections which may cause reduction of yields. In addition, the presence of potentially harmful nematodes in relatively high numbers has been detected in certain acres of our
vineyards. While we believe that none of these infestations or infections currently poses a major threat to our vineyards, they could do so in the future and could subject our vineyards to severe
damage, which could have a material adverse effect on our business, financial position and results of operations.

Intense Competition in the Wine Industry Could Adversely Affect Our Business

The wine industry is extremely competitive. We compete with several well-capitalized companies in the production of bulk wine. Further, many of our current and
prospective competitors have substantially greater financial, production, personnel and other resources than us. In order to meet near-term shortfalls in supply, a number of wineries have commenced
purchases of wine from foreign sources. Because of higher production costs in the United States some wineries can achieve significant cost savings, even after taking into account shipping costs, by
importing bulk wine from abroad. Some countries, such as France and Australia, have launched marketing campaigns to increase their sales in

20

---

the United States. Foreign competition can be expected to continue and increase. In addition, our principal winery customers compete with each other and with other wineries located in the United
States, Europe, South America, South Africa and Australia. Wine also competes with other alcoholic, and to a lesser degree, nonalcoholic beverages, and to the extent wine consumers reduce consumption
of wine in favor of such other beverages, demand for wine and the Company's products and services could decline.

Difficulties in Production of Bulk Wine Could Affect Our Financial Condition

While we have substantial experience in producing and processing bulk wine, we may still experience production difficulties and delays with respect to the
delivery of finished wine. We generally guarantee the quality of the wine produced, which could result in our bearing financial responsibility for wine that fails to meet agreed upon quality
standards. From time to time, we have received claims from customers based on alleged defects in wine we produce. Such production difficulties could have a material adverse effect on our business,
results of operations and financial condition.

Adverse Public Opinion About Alcohol May Harm Our Business

In
recent years there has been substantial publicity regarding the possible health benefits of moderate wine consumption. The results of a number of studies suggest that moderate
consumption of wine (or other alcoholic beverages) could result in decreased mortality and other health benefits. Alternatively, anti-alcohol groups have, in the past, successfully advocated more
stringent labeling requirements and other regulations designed to discourage consumption of alcoholic beverages, including wine. More restrictive regulations, negative publicity regarding alcohol
consumption, publication of studies that indicate a significant health risk from moderate consumption of alcohol or changes in consumer perceptions of the relative healthfulness or safety of wine
generally could adversely affect the sale and consumption of wine and the demand for wine and wine grapes and could have a material adverse effect on our business, financial condition and results of
operations.

We Use Pesticides and Other Hazardous Substances in Our Business

Our current operations emit ethanol and require the periodic use of various chemical herbicides, fungicides and pesticides, some of which contain hazardous or
toxic substances. The emission and usage of these chemicals are, to varying degrees, subject to federal and state regulation. We believe that our properties and operations have been and continue to be
in material compliance with relevant environmental regulations. At the same time, if hazardous substances are discovered to have emanated from our properties, we could be subject to material liability
arising from the remediation of such potential harm. Additionally our processing operations generally require the disposal of water-based effluents. As environmental regulations tighten we cannot be
assured our current waste water management practices will meet such standards.

The Seasonality of Our Business Could Cause Our Stock Price to Fluctuate

The wine grape business is extremely seasonal and we recognize the vast majority of our revenues in the first six months of our fiscal year. We are not positioned
to maximize quarter-to-quarter results, and our quarterly results should not be considered indicative of those to be expected for a full year. We recorded 65% of our revenues during the first six
months of our 2001 fiscal year. We have historically operated at a loss in the last two fiscal quarters due to limited sales during such quarters. Seasonality of revenues also affects our cash flow
requirements. In the past, we have borrowed funds under lines of credit from late summer through the fall to finance inventory build-up during the fall crush season. We also historically borrow funds
through the spring and summer to finance crop production costs through harvest. Such seasonality in revenues and borrowings may lead to significant fluctuations in our

21

---

reported quarterly results. See "Management's Discussion and Analysis of Financial Condition and Results of Operations."

Utility Supplies and Costs Could Adversely Affect Our Operations

California has recently experienced volatility in energy costs and supply. Our operations depend on predictable sources of electricity and natural gas for
efficient and cost effective performance. To ensure such sources, we have, in certain circumstances, obtained supply contracts for purchases of natural gas during the peak use period of the grape
crush season. We have developed contingency plans to mitigate the effects of possible power outages and increased utility costs which include shifting certain operating processes to off-peak hours.
Nevertheless, there can be no assurance that our energy sources will be available on a consistent and reliable basis in the future without an adverse impact on our operations and profitability.

Because We Have Fixed Farming Costs, a Weak Harvest Would Reduce Our Profit

We incur relatively fixed annual farming costs per vineyard acre. Revenues from grape sales and wine processing and production are not realized until harvest and
vary depending upon numerous factors. Vineyard productivity varies from year to year depending upon weather and other factors, and significant variations in annual yields should be expected from time
to time. Because production costs are not significantly variable in light of productivity or revenue levels, weak harvests or lower grape prices cannot be fully mitigated by cost reductions and could
have an adverse effect upon our profitability.

Loss of Key Personnel Could Harm Our Operations

We believe our continued success depends on the active involvement of Jeffrey B. O'Neill, the Company's Chief Executive Officer, and our key personnel,
including John G. Kelleher, the Company's Chief Financial Officer. There can be no assurance that these persons will remain in their management positions, and the loss of the services of any of
these persons could have an adverse effect on our business, financial condition and results of operations. See "Recent Developments" in Management's Discussion and Analysis where we discuss the
departure of Mark A. Larson, the Company's President and Chief Operating Officer.

New or Changed Regulations Could Significantly Impact Our Business

We are subject to a broad range of federal and state regulatory requirements regarding our operations and practices. These regulations are subject to change and
conceivably could have a significant impact
on operating practices, chemical usage and other aspects of our business. There can be no assurance that new or revised regulations pertaining to the wine grape production industry will not have a
material adverse effect on our business, financial condition and results of operations.

Wine
production and sales are subject to extensive regulation by the Federal Bureau of Alcohol, Tobacco and Firearms, the California Department of Alcohol Beverage Control and other
state, local and federal governmental authorities that regulate licensing, trade and pricing practices, labeling, advertising and other activities. In recent years, federal and state authorities have
required warning labels on beverages containing alcohol. Restrictions imposed by government authorities on the sale of wine could increase the retail price of wine, which could have an adverse effect
on demand for wine in general. In addition, imposition of excise or other taxes on wine could also negatively impact the wine industry by increasing wine prices for consumers. There can be no
assurance that there will not be new or revised laws or regulations pertaining to the wine industry which could have a negative impact on our business.

22

---

Our Stock Price May Be Volatile

The market price of the shares of our Class B Common Stock has declined sharply since our initial public offering in late July 1998. The market price for
such shares could continue to be volatile and may be significantly affected by factors such as actual or anticipated fluctuations in our operating results, industry consolidation, conditions and
trends in the wine industry, changes in recommendations and estimates by security analysts, general market conditions and other factors. There can be no assurance that an active trading market of our
Class B Common Stock will be sustained. In addition, stock markets from time to time have experienced price and volume fluctuations that have affected the market price for many companies and
that frequently have been unrelated to the operating performance of those companies. Such market fluctuations may adversely affect the market price of our Class B Common Stock.

23

---



PART IIOTHER INFORMATION

Item 6. Exhibits and Reports On Form 8-K.

Exhibit
Number



24

---



SIGNATURES

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

|                 |  |  |  | Golden State Vintners, Inc.
(Registrant)                                                
|---------------- |  |  |  | ----------------------------------------------------------------------------------------
|May 15, 2002Date |  |  |  | /S/ JOHN G. KELLEHERJohn G. Kelleher Duly Authorized Officer and
Chief Financial Officer

25

---

QuickLinks