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                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                                   FORM 10-K

(Mark One)
 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934 (Fee Required)

                  For the fiscal year ended December 31, 1996

 [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934 (No Fee Required)

                   For the transition period from     to

                        COMMISSION FILE NUMBER 0-24048

                            GEERLINGS & WADE, INC.
            (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

            MASSACHUSETTS                              04-2935863
   (STATE OR OTHER JURISDICTION OF        (IRS EMPLOYER IDENTIFICATION NUMBER)
   INCORPORATION OR ORGANIZATION)

      960 TURNPIKE STREET, CANTON,                     02021
             MASSACHUSETTS                           (ZIP CODE)
   (ADDRESS OF PRINCIPAL EXECUTIVE
              OFFICES)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 617-821-4152

          SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

<TABLE>
<CAPTION>
        TITLE OF EACH CLASS       NAME OF EACH EXCHANGE ON WHICH REGISTERED
        -------------------       -----------------------------------------
   <S>                            <C>
   Common Stock, par value $0.01
    per share                         The Nasdaq National Market System
</TABLE>

       SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE

  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. Yes [X]  No [_]

  Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]

  The aggregate market value of Common Stock of the registrant held by non-
affiliates of the registrant was approximately $8,733,491 on March 21, 1997.
For purposes of the foregoing sentence, the term "affiliate" includes each
director and executive officer of the registrant.

      3,779,380 shares of Common Stock were outstanding at March 21, 1997

                      DOCUMENTS INCORPORATED BY REFERENCE

  Portions of the registrant's definitive Proxy Statement relating to the
registrant's 1997 Annual Meeting of Stockholders ("Proxy Statement") to be
filed pursuant to Regulation 14A are incorporated by reference in Part III of
this Report.

                       EXHIBIT INDEX APPEARS ON PAGE  .
                              PAGE 1 OF   PAGES.


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                                    PART I

                          FORWARD LOOKING STATEMENTS

  This Annual Report contains forward-looking statements as defined under the
Federal Securities Laws. Actual results could vary materially. Factors that
could cause actual results to vary materially are described herein and in
other documents. Readers should pay particular attention to the considerations
described in the section of this report entitled "Management' Discussion and
Analysis of Financial Condition and Results of Operations--Factors that May
Affect Future Results." Readers should also carefully review the risk factors
described in the other documents the Company files from time to time with the
Securities and Exchange Commission.

ITEM 1: BUSINESS

GENERAL

  Geerlings & Wade, Inc. ("Geerlings & Wade" or the "Company") is a direct
marketer of premium imported and domestic wines and wine- and cigar-related
merchandise to individual consumers. Through frequent mailings to existing and
potential new customers, the Company offers wines selected on the basis of
their quality and price characteristics. The Company seeks to eliminate the
"intimidation factor" in the consumer's wine purchasing decision by focusing
on a relatively small number of wines and by providing information on their
selection and enjoyment. The Company believes that it is developing a
"Geerlings & Wade" image based on informative mailings, reliable wine
recommendations, value-pricing, ease of ordering and convenient home delivery.

  The Company is required by law to operate licensed facilities or otherwise
be permitted to sell wine to individual consumers in each state in which it
operates. Geerlings & Wade opened its first licensed facility in Massachusetts
in 1988. Since then, the Company has opened additional licensed facilities in
Connecticut (June 1991), New York (September 1991), Illinois (November 1991),
Florida (April 1993), California (May 1993), New Jersey (July 1993),
Washington state (December 1994), Virginia (January 1995), Ohio (April 1995),
Minnesota (July 1995), Colorado (August 1995) and Arizona (September 1995).
The Company may ship wine to consumers in a limited number of additional
states, but to date sales in such states have been relatively insignificant.
The Company's active customers (customers who have made a purchase within the
twelve preceding months) have increased from approximately 96,600 at December
31, 1995 to approximately 98,700 at December 31, 1996.

COMPANY STRATEGY

  The Company, as one of the leading direct marketers of premium wines and
wine- and cigar-related merchandise, hopes to simplify the wine buying
process, educate the wine consumer and develop a loyal and broad customer
base. The key elements of the Company's strategy to achieve these objectives
include:

  Source Quality Wines and Offer Value Pricing. Geerlings & Wade sources its
imported wines directly from producers and negotiants in the countries of
origin. The Company sources domestic wines through wholesale channels with
domestic negotiants, certain wineries and wine producers. The Company selects
those wines which perform well in blind comparative tastings. The Company
promotes value in its selections by offering only those wines which the
Company believes demonstrate a combination of superior quality and price
characteristics. These sourcing and selection techniques, combined with its
ability to purchase in large quantities and manage the consolidation and
transportation of its directly-sourced products, enable Geerlings & Wade to
offer premium wines at attractive prices.

  Facilitate Purchasing Decisions and Educate Consumers. Geerlings & Wade
believes that many consumers who buy wine through traditional retail channels
experience difficulty in their purchasing decisions, due to their limited
personal knowledge of wine and the general lack of dependable advice at the
point of

                                       2
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purchase. The Company seeks to eliminate this "intimidation factor" and
facilitate the wine buying process by focusing each offering on a relatively
small number of wines that performed well in blind comparative tastings and
offering the convenience of telephone ordering and home delivery. The Company
continually provides its customers with information on various wines, growing
regions and vintages, as well as recommendations on the selection, storage and
enjoyment of wine. By educating its customers, the Company strives to give
them greater confidence in their wine purchasing decisions.

  Enhance Productivity of Mailings. Geerlings & Wade seeks to improve the
productivity of mailings to its existing customers by analyzing buying
histories and tailoring the frequency and content of the Company's house
mailings to increase sales and to improve cost efficiencies.

  Apply Computer Systems to Enhance Operations. Geerlings & Wade has developed
and seeks to maintain customized computer systems to integrate all major
aspects of the Company's business to promote operational efficiencies and
provide better customer service. The Company's systems integrate order
processing; inventory planning, ordering and management; customer list and
circulation management and analysis; and accounting and management reporting.

  Expand in Existing Markets. Geerlings & Wade believes that it has penetrated
its current markets to a limited extent and that significant opportunities
exist to increase sales in these markets among both current and new customers.
The Company seeks to increase sales among its current customers by a variety
of means, including enhancing its customers' appreciation of wine through
education, broadening the selection of wine and purchasing options offered and
attempting to make wine buying more convenient and less intimidating. The
Company seeks to acquire new customers within existing markets through
improvements in the content, quality and circulation management of its
prospect mailings, and through direct response print advertising and active
encouragement of referrals from existing customers.

  Enter New Markets. Geerlings & Wade is licensed or otherwise authorized to
sell wine to individual customers in twenty states comprising approximately
72% of the overall U.S. market for table wine. The Company plans to enter the
Michigan market in the 2nd quarter. The State of Michigan, Liquor Control
Commission issued an order granting the Company a retail license once certain
conditions relating to the set up of the facility are met. The Company is
currently evaluating opportunities to obtain licenses in additional states in
order to serve a larger customer base, although no assurance can be given that
it will be successful in obtaining any additional licenses. Those states
representing markets with both high consumption of table wine and a large
number of mail order prospects will be considered based on the Company's
ability to overcome licensing and other regulatory obstacles to serve
customers in such states.

COMPANY LITERATURE AND MAILINGS

  The Company sells wine to individual consumers primarily through targeted
mailings. In addition to describing the distinguishing characteristics of the
featured wines, each mailing contains general information intended to broaden
the customer's knowledge of wines, wine producers and wine producing regions,
along with the Company's tasting notes and ratings.

  The Company's tasting notes and ratings included with the mailing provide
the consumer with detailed information on the subjective and objective
qualities of each wine. The tasting notes describe each wine's most salient
qualities, including color, bouquet and taste characteristics. In 1996, the
Company changed its wine rating system from a 20-point scale to a 100-point
scale and rates each wine it offers for overall quality and price
characteristics. The 100-point scale mirrors other leading wine rating
systems, and the Company believes our customers are more comfortable with the
100-point system.

  Geerlings & Wade distributes two types of promotional wine mailings: "house
mailings" to its file of active customers and qualified leads and "prospect
mailings" to rented mailing lists.


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  House Mailings. Geerlings & Wade distributes house mailings to buyers (those
persons who have made a purchase) and qualified leads (those persons who have
indicated an interest in being placed on the Company's mailing list but who
have not yet purchased). The number and timing of house mailings to any
individual is determined based upon the Company's circulation management
systems, which are designed to optimize the return on the cost of house
mailings. The Company further tailors the frequency and content of each house
mailing and the wines featured to the particular market served. In addition to
information on the featured wines, each mailing includes a personalized
letter, an order form and a business reply envelope. In 1996, the Company sent
approximately 2,694,000 house mailings.

  The Company generally uses two types of house mailings:

    "Brochure Mailings" include a four-page brochure which highlights one or
  two selected wines from a specific region. These brochures contain detailed
  descriptions of the wines being offered, include information on the growing
  region from which they were produced, the vintage and the background of the
  producer and the results of the tastings from which the featured wines were
  selected. In addition to the featured wines, these brochures offer a number
  of additional selections, along with tasting notes and ratings for these
  wines.

    "Odds and Ends Mailings" offer remaining quantities of previously
  featured wines or new wines available in limited quantities. In contrast to
  the other mailings, these mailings typically offer thirty or more wines and
  highlight the limited quantity of remaining cases and may include an insert
  describing especially limited quantity "Telephone Order Only" wines. These
  mailings expressly encourage customers to take advantage of what may be
  their last opportunity to purchase certain wines they may have previously
  purchased. "Odds and Ends" mailings have tended to be among the most
  popular because they offer customers the opportunity to purchase wines they
  may have previously enjoyed.

  Prospect Mailings. The Company's primary method of acquiring new customers
is its prospect mailing program. A typical prospect mailing explains the
Company's selling concept, describes the particular wine being offered and
contains an order form to buy the wine. Excerpts from articles about the
Company are typically included. Names are obtained through the rental of lists
which are screened with a demographic profile consistent with the Company's
existing customers. The Company generally offers prospective customers a 6- or
12- bottle purchasing options.

  Production. All Geerlings & Wade wine mailings are created and designed in-
house on a desktop publishing system. The in-house creation and design of
house and prospect mailings allows flexibility for editorial changes and
results in significant cost and time savings. Fulfillment (collating, folding,
inserting and mailing) is performed commercially. During 1996, the Company
outsourced print production of its mailings to commercial printers utilizing
advanced printing technologies. Mailings generally include a personalized
letter, the offering brochure, an order form and a return envelope.

  Catalog. During 1996, Geerlings & Wade mailed a full color, thirty-six page
Holiday Collection Catalog featuring wine- and cigar-related merchandise and
other products intended to compliment the Company's wine offerings. The
Company mailed the catalog to both prospective and existing customers. In 1997
the Company's intends to develop a spring and a fall catalog. The Company
believes there is an opportunity to enhance sales to existing customers and
expand its customer file through catalog mailings.

MERCHANDISING

  Geerlings & Wade offers its customers premium imported and domestic wines.
Imported wines are sourced primarily from France, Italy, Australia and Chile.
The Company's domestic wines are sourced primarily from California, many of
which are sold under private labels, including the Company's own brands: Glass
Ridge, J. Krant Cellars, Hamilton Estates, Alazar Winery & Vineyards, Amsbury
Winery, Bryan Woods Winery, Devina Estates, Foxtail Vineyards & Winery,
Domaine Paul, Jack Canyon Cellars, Lapis Lazuli Winery & Vineyards, Marc
Cellars, Mariel Winery, Mira Luna, Mischler Estates, Penstemon, Red Brick
Cellars, Rock Rabbit, Rose

                                       4
<PAGE>

Valley, San Valencia Winery and St. Carolyne Winery. In 1997, the Company
intends to promote its best-selling brands and build a long term,
merchandising program that builds brand equity for these brands. By
reinforcing brand recognition vintage after vintage with quality wines, the
Company should encourage a strong demand for these brands among its customers
and generate strong sales growth for these brands.

  The wines offered by the Company to its customers are determined based on
consumption patterns and the Company's prior experience with a particular type
of wine. In 1996, approximately 64% of the cases sold by the Company were
imported wines and 36% were domestic. The Company's wines are generally sold
within the price range of $69 to $1,000 per case, with average case prices of
approximately $110 in 1996.

WINE SOURCING AND PURCHASING

  The Company sources imported and domestic wines through a network of
producers, negotiants (those persons who serve as intermediaries or agents to
producers in the purchasing process), importers and wholesalers. In 1996, the
Company sourced the vast majority of the cases it sold directly from producers
or negotiants.

  The Company's sourcing methods differ from typical sourcing methods of
traditional wine retailers. The Company's sourcing techniques are more typical
of a wholesaler/importer, which actively searches for and identifies wines
from producers or negotiants. With its active role in the sourcing decision,
the Company makes its own determination as to the quality and price
characteristics of the wine it sells, and thereby is assured of its ability to
offer to its customers wines of quality and value. Following selection and
sourcing, both domestic and imported wines are purchased from appropriately
licensed businesses located in each state where the Company maintains licensed
facilities.

  The Company generally selects its wines several months in advance of
offering them for sale in order to coordinate availability, shipping and
promotional mailing schedules. The Company selects most of these wines based
on blind comparative tastings of samples judged on overall quality and price
characteristics. The Company often tastes over fifty wines prior to making a
featured selection and currently rates each wine on a 100-point scale.

  Sourcing Imported Wines. In 1996, the vast majority of imported wines sold
by the Company were sourced directly in the countries of origin. The Company
presently utilizes consultants for sourcing certain imported wines. European
wines are purchased utilizing the services of Mr. Peter van Hoof, a consultant
to the Company, who visits European growers and negotiants and administers
blind comparative tastings from his office in Rotterdam, The Netherlands. The
tastings are performed by panels which include wine connoisseurs as well as
less sophisticated wine consumers who rate each wine. Mr. van Hoof negotiates
the price of imported wines and forwards samples of the top three wines for
each category to Mr. Michael McCann, the Company's Wine Director. Mr. McCann
then selects from these finalists which wine to offer to our customers by
blind tasting these finalists against comparable wines offered nationally.

  Sourcing Domestic Wines. In 1996, the vast majority of the Company's
domestic wines were sourced through wholesale channels with domestic
negotiants, certain wineries and wine producers. The Company sources many
wines through its primary domestic negotiant, Codera Wine Group, Inc.
("Codera") of Emeryville, California. Codera sources wine in the United States
from many high quality producers. Codera continuously reviews wines at various
stages of production and forwards selected samples to the Company. After the
Company has selected a particular wine from among the samples forwarded by
Codera, Codera coordinates finish vinification and bottling of the wine under
a number of private labels, including the Company's own brands. In addition,
Codera has occasionally identified branded products for purchase by the
Company.

  The Company also occasionally sources wines directly from various California
wineries. As a volume purchaser, the Company is frequently approached directly
by wineries and wine producers with offers to purchase wine lots of various
sizes. These wines are reviewed based on the same quality and price
characteristics as other wines sourced by the Company.

                                       5
<PAGE>

  Wines Sourced by Others. Geerlings & Wade also purchases non-proprietary
wines which have been sourced independently of the Company. Due to the
Company's ability to purchase in large quantities, the Company is frequently
approached by importers and wholesalers. Wines forwarded to the Company are
reviewed according to the same quality and price standards as other wines
sourced by the Company. The Company believes by maintaining these
relationships with quality wine suppliers, it can enhance its opportunity of
uncovering the best wines at the best prices.

INFORMATION SYSTEMS AND TECHNOLOGY

  Information systems are central to all phases of the Company's business. The
Company has developed and seeks to maintain computer-based systems to
integrate all major aspects of the Company's business, including order
processing, inventory planning and management, customer list and circulation
management and analysis, and management reporting. The Company's system was
developed in-house and is based on client-server software purchased by the
Company. During 1996, the Company commenced a significant upgrading of its
computer system which will continue into and through 1997. The main focus of
the upgrade is the implementation of Renaissance Direct, a new integrated,
direct marketing software package, and supporting hardware and software
upgrades. To accomplish this software conversion, Geerlings & Wade will also
need to invest in upgrades to existing hardware and software. The Company
expects that new software will form a better foundation for existing programs
and enable the Company to pursue database marketing initiatives that would not
have been previously attainable.

  The Company's customized order processing system integrates order entry with
each of the Company's licensed facilities and provides the on-line, real-time
information processing capabilities necessary for prompt delivery to customers
and resolution of customer service issues. The system allows telephone orders
to be captured on-line and mail orders to be efficiently processed. The names
and addresses of individuals who have responded to mailings by ordering or by
requesting that they be placed on the Company's mailing list are entered in
the Company's database and assigned an "import number" which appears on all
customer correspondence and is used to track account activity. The system
provides the Company's customer service representatives access to an array of
product and customer information during the order processing. The Company
believes the customer information provided by the system, including tasting
notes, purchasing and billing histories, delivery instructions and prospective
shipping dates, enhances the quality of service to its customers. The Company
expects that the new Renaissance Direct will enhance the system's capabilities
including the Company's ability to introduce outbound telemarketing and
continuity programs.

  The Company's system provides real-time inventory management. The Company
maintains access to running totals of case sales by market, warehouse
inventory, incoming product consolidation and transportation and outgoing
delivery logs, all designed to arrange for prompt delivery to customers.
Regulatory requirements have been incorporated into the software to allow the
Company to manage inventory centrally for each of its licensed facilities.

  The Company continually updates its database of customer names and
purchasing histories in order to maximize the productivity of house and
prospect mailings. The system's database provides the Company with a flexible
system that offers highly sophisticated data manipulation which enables the
Company to target marketing programs to specific segments of its customer
base. The system also provides extensive reporting capabilities which allow
the Company to evaluate the effectiveness of its mailings and assist the
Company in its business planning. The Company plans to test LifeTime, a new
software package developed Mr. Huib Geerlings, which dynamically segments
customers based on their purchasing histories. With this analysis, the Company
would contact customers based on their most recent purchasing patterns with
special offers through mailings and/or telemarketing.

  The Company's computerized telephone system allows the Company to monitor
the volume of incoming calls, monitor customer service representatives and
record other useful information. The system is fully expandable, permitting
the Company to add lines as necessary to increase its customer service
capabilities.

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MARKETING

  The goal of the Company's marketing program is to expand and improve the
Company's customer base and establish and maintain customer loyalty through
informative marketing literature. The Company monitors its progress in
attaining this goal by tracking new customer accounts and customer retention
statistics. In 1996, the number of new customers added to the Company's
mailing list was 47,500, as compared to 60,400 in 1995 and 40,800 in 1994.

  The Company's ongoing marketing programs are designed to generate
information concerning existing and new customers and customer groups. This
information is incorporated into the Company's database and is used to target
and acquire new buyers, increase the average order value and average order
size of customer purchases and enhance the Company's customer service
capabilities.

  In addition to its present direct mail formats, the Company plans to test
alternative channels of direct marketing to enhance sales and increase its
customer base. These alternatives include: an Internet web-site with on-line
ordering, a wine continuity program, in which customers receive monthly
deliveries of 2 bottles of wine or bi-monthly deliveries of 6 bottles of wine,
and a corporate affinity programs in which the Company co-markets with
corporate partners such as airlines or hotel franchises. There can be no
assurance that these marketing channels, if implemented, will have a favorable
impact on operations.

  Membership. To increase customer loyalty, Geerlings & Wade offers customers
the opportunity to purchase one- and three-year memberships. The Company
offers memberships in each state in which it operates, with the exceptions of
Connecticut and Ohio. Members are given a personalized membership card,
assured of being maintained on the mailing list, and, except in Massachusetts,
realize savings on each case of wine purchased during the term of the
membership. In order to comply with regulatory restrictions in Massachusetts,
the Company charges its non-members for delivery and offers its members free
delivery of their 12-bottle case purchases. The membership program has from
time to time generated regulatory scrutiny, and there can be no assurance that
the Company will be able to continue its membership programs in their current
forms in existing jurisdictions or that jurisdictions in which the Company may
become licensed in the future will allow the sale of memberships. As of
December 31, 1996, the Company had approximately 35,300 members, constituting
approximately 35% of its active customer base.

CUSTOMER SERVICE

  The Company receives orders by mail, telephone (1-800-782-WINE) and by fax
(1-800-FAX-8466) for processing and transmittal to the appropriate Company
facility seven days a week. The Company's customer service representatives
assist customers in purchasing decisions, process product orders and respond
to customer inquiries on wine information, pricing and availability. The
customer service group responds to approximately 1,000 telephone calls each
day on average. Through the Company's on-line systems, customer service
representatives can quickly access a customer's complete history, including
all prior purchases, payment and delivery information. When processing orders,
customer service representatives have complete listings of all available
products, as well as tasting notes and ratings. When the offices of the
Company are closed, customers may leave orders in a voice messaging system.
The Company accepts the return of unopened bottles from dissatisfied customers
and will credit a customer for all returns. Returns and credits were
approximately two percent of net sales for each of the last three years.

COMPETITION

  The retail wine business is highly competitive. The Company competes with
supermarkets, wine specialty stores, retail liquor stores, wine merchants
which advertise delivery of product in specialty publications and an
increasingly larger number of companies specializing in direct marketing of
wine at retail, including companies which are presently marketing on the
Internet. Many of these competitors have significantly greater resources than
the Company and have access to branded products not offered by the Company.


                                       7
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  The Company believes that by providing a high level of service coupled with
attractive prices, the ability to source wines directly from producers and the
convenience of direct delivery it can achieve a competitive advantage over
supermarkets, retail liquor stores, wine specialty stores and other wine
merchants. The Company believes that it has achieved a competitive advantage
over current direct delivery or direct marketing competitors and potential new
entrants by successfully obtaining retail licenses in each of its markets, by
being an early entrant in many of its markets, by exploiting computer
technology in the management of its operations and its direct marketing
programs and by creating a loyal customer base of repeat buyers. However,
there can be no assurance that the Company will be able to continue to compete
effectively against existing competitors or new competitors that may enter the
market in the future.

COMPANY OPERATIONS WITHIN REGULATORY FRAMEWORK

  Regulatory Framework. The alcoholic beverage industry is highly regulated.
Extensive and complex regulation at the federal and state levels have resulted
in what is known as the "three tier licensing system." At the first tier are
manufacturers and importers which are licensed to sell to the second tier,
wholesalers. Wholesalers in turn supply the third tier, retailers, which
ultimately sell to the public. Each tier is subject to various restrictions on
its activities. In virtually all states, retailers are granted a license which
enables them to sell products solely to consumers within that state. A small
number of states allow interstate sales to those states having reciprocal
licensing arrangements (for example, a retailer may ship from California to
Oregon, Idaho and New Mexico). In addition, regulatory restrictions prohibit a
retailer with licensed facilities in multiple states from transferring
inventories between its own facilities. In order to acquire and maintain a
retail license to sell within a particular state, a retailer must have a
physical presence (for example, own or lease a warehouse or other licensed
facility) in that state. A direct marketer is further limited in its ability
to sell alcoholic beverages by restrictions imposed by various state laws on
the method of delivery to consumers. For example, United Parcel Service (UPS)
is not licensed to provide intrastate delivery of alcoholic beverages sold by
the Company in Massachusetts, New Jersey or Colorado, and many Southern
states, including Alabama, Louisiana, South Carolina, Tennessee and Georgia
prohibit the retail delivery of alcoholic beverages altogether.

  Company Licensing and Regulatory Matters. The Company holds retail licenses
in the thirteen states where it maintains licensed facilities. The Company is
also permitted, from its California or Illinois facilities, to sell and ship
to consumers in Oregon, Idaho, New Mexico, Missouri, and West Virginia under
these states' "reciprocal shipment" laws. In addition, without obtaining
additional licenses, the Company is permitted to sell and/or ship to consumers
in Iowa and Nebraska. Sales to consumers in Missouri and West Virginia to date
have been relatively insignificant because of regulatory restrictions asserted
against direct marketing and consumer advertising in those states.

  Most of the states where the Company is licensed have legal barriers against
the Company also engaging in licensed wholesaler activities in such state. As
such, the Company holds only retail licenses. All domestic and imported
inventories are delivered by independent licensed wholesalers directly to each
of the Company's licensed facilities. Because of the relatively unique nature
of the Company's mail order operations within this regulatory framework, the
Company occasionally receives inquiries from state regulators regarding its
business practices. To date such inquiries made during 1996 have not resulted
in any actions by any such regulators that would have a material effect on the
Company's business. The Company believes that it is in compliance in all
material respects with all applicable licensing and other governmental
regulations and that any failure in the past to comply with such regulations
has not had, and is not expected to have, a material adverse impact on the
Company's business.

  Customer Order Processing and Delivery. All customer orders are processed
centrally and forwarded to an appropriate licensed facility for acceptance and
fulfillment. The Company has developed extensive proprietary software to
manage the process of ordering, consolidating, transporting and accounting for
its inventory. Through computer software and systems, the Company has real-
time access to running totals of case sales by state, warehouse inventory,
incoming product consolidation and transportation and outgoing deliveries, all
designed to

                                       8
<PAGE>

arrange for prompt delivery of wine to customers. The Company's software also
ensures that customer orders are processed for acceptance by the proper
licensed facility.

  The Company's facilities maintain regular hours and sales are made to walk-
in customers. However, most of the Company's sales are made through home or
office delivery. The Company ships wine directly to a customer from its
licensed facility located in the state in which the customer resides (except
with respect to those states to which the Company is authorized to ship from
its California or Illinois facilities). An adult's signature is required for
deliveries in all states.

  In Colorado, Massachusetts, and New Jersey, where UPS or other delivery
companies are not licensed to provide delivery of alcoholic beverages for
retailers, the Company uses its own licensed vehicles and delivery personnel
to make deliveries. The Company coordinates these deliveries from its
Massachusetts headquarters, placing each order as it is received into a
delivery route. The Company has established delivery routes covering each
state and, depending on the frequency and concentration of orders, completes
each route at least once a week. In certain circumstances, if a customer
requires more prompt delivery, the order will be placed in an alternate route
for delivery on an earlier day. Pickup of returns is performed by the drivers
in the course of their normal routes.

  In New York, Connecticut, Illinois, Florida, California, Washington,
Virginia, Ohio, Oregon, Idaho, New Mexico, Nebraska, Iowa, Missouri and West
Virginia, the Company uses UPS to make deliveries, and in Arizona and
Minnesota uses licensed delivery companies to make deliveries. Orders from
customers in the states in which UPS or these other delivery companies is
permitted to ship wine are transmitted on the day they are received to the
appropriate licensed facility. Orders are packed into specially designed
shipping containers and picked up by the delivery company daily. Most of these
orders are shipped within 48 hours of receipt. Returns are picked up by the
delivery company pursuant to issuance of a delivery company call tag request
by a Company customer service representative and returned to the appropriate
licensed facility.

SALES OR USE TAX

  The Company presently collects sales tax in each of the states in which it
holds licenses which apply a sales tax to the sale of wine and wine and cigar
accessories. These states are Arizona, California, Colorado, Connecticut,
Florida, Illinois, Minnesota, New York, New Jersey, Ohio, Virginia, and
Washington. Massachusetts does not impose sales tax on wine but does so on
wine accessories. Since 1993, the Company has shipped wine to Oregon, Idaho,
New Mexico, Missouri and West Virginia without collecting a sales or use tax
or notifying consumers that a use tax payment may be required. Various states
have attempted to impose on direct marketers the burden of collecting use
taxes on the sale of products shipped to state residents. In 1992, the United
States Supreme Court affirmed that it is unconstitutional for a state to
impose use tax collection obligations on an out-of-state mail order company
whose only contacts with the state are the distribution of advertising
materials through the mail and subsequent delivery of purchased goods by
parcel post and interstate common carriers. However, this decision
acknowledged that Congress has the authority to enact legislation authorizing
states to impose such obligations. On March 3, 1995, legislation was
introduced in the United States Senate which would authorize collection of
certain state and local taxes with respect to mail order sales, delivery and
use of tangible personal property. The Company cannot predict whether or when
this legislation will be enacted. Given the Company's ability to collect sales
tax in the jurisdictions indicated above, the Company does not believe the
collection of use taxes would present an undue burden upon the Company in the
event that it were determined that the Company was obligated to collect such
taxes, and would have no significant impact on the administrative expenses of
the Company or the prices charged to customers.

TRADEMARKS

  The following are registered (R) trademarks of the Company: Geerlings & Wade
Personal Wine Service, Geerlings & Wade Personal Wine Importers, J. Krant
Cellars, Alazar Winery, Amsbury Winery, Lapis Lazuli Winery & Vineyards, St.
Carolyne Winery, San Valencia Winery, Mariel Winery, Jack Canyon Cellars,
Bryan

                                       9
<PAGE>

Woods Winery, Mischler Estates, Hamilton Estates, Devina Estates, Domaine
Paul, International Beer and Ale Society and Glass Ridge. The Company has
filed trademark applications with the United States Patent and Trademark
Office for the following names: Red Brick Cellars, Mira Luna, and For the Love
of Wine. The Company believes that its trademarks have significant value and
are an important factor in the marketing of its products and the development
of house brands.

EMPLOYEES

  As of March 21, 1997, the Company employed a total of 78 individuals on a
full-time basis. The Company also uses part time employees on a regular basis
at each of its licensed facilities and at its corporate headquarters. For
example, in December 1996, one of the Company's peak sales periods, the ratio
of full time to part time employees was 11 to 1.

ITEM 2: PROPERTIES

  As of March 21, 1997, Geerlings & Wade operated thirteen licensed
facilities. All of these facilities are leased, with the exception of the
Company's California facility, which is situated in a public warehouse. Each
facility is centrally located with easy access to major routes for delivery
efficiencies. The Company executed a lease for a Michigan facility on January
24, 1997. The State of Michigan Liquor Control Commission has issued an order
granting the Company a retail liquor license subject to certain conditions.

<TABLE>
<CAPTION>
                                       APPROXIMATE
 FACILITY                               LOCATION     SQUARE FOOTAGE EXPIRATION
 --------                            --------------- -------------- ----------
<S>                                  <C>             <C>            <C>
Executive offices, customer service
 and licensed facility.............. Canton, MA          32,000        2000
Licensed facility................... Carmel, NY          10,000        2000
Licensed facility................... Somers, CT           4,500        2001
Licensed facility................... Waukegan, IL         9,600        2001
Licensed facility................... Tampa, FL           10,000        2000
Licensed facility................... South River, NJ      4,000        1996
Licensed facility (public
 warehouse)......................... San Jose, CA            *           *
Licensed facility................... Kent, WA             5,000        1997
Licensed facility................... Chantilly, VA        4,800        1999
Licensed facility................... Miamisburg, OH       5,900        1997
Licensed facility................... Denver, CO           6,800        1998
Licensed facility................... Tempe, AZ            6,600        1998
Licensed facility................... Bloomington, MN      4,700        1998
License pending..................... Ann Arbor, MI        5,300        1999
</TABLE>

* The public warehouse facility provides the Company with storage space on an
  as-needed basis. The Company's agreement with the public warehouse may be
  terminated by the public warehouse on 120-day notice.

  The Company believes that its facilities are adequate for its current needs
and that suitable additional space will be available as needed.

ITEM 3: LEGAL PROCEEDINGS

  In the ordinary course of business, the Company normally both asserts claims
and defends claims asserted by others against it. The Company believes that
its obligations, if any, with respect to all of such claims would have no
material adverse effect on the financial position of the Company.

ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

  None.

                                      10
<PAGE>

                                    PART II

ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

  The Company's Common Stock is quoted on the NASDAQ National Market System
("NASDAQ/NMS") under the symbol "GEER". The following table sets forth, for
the periods indicated, the high and low per share sales prices for the Common
Stock as reported on the NASDAQ/NMS.

<TABLE>
<CAPTION>
                                                           1995         1996
                                                       ------------- -----------
                                                        HIGH   LOW   HIGH   LOW
                                                       ------ ------ ----- -----
     <S>                                               <C>    <C>    <C>   <C>
     First Quarter.................................... 17 3/4 11 1/4 7 1/8 3 3/4
     Second Quarter................................... 17 1/2 14     6     3 3/4
     Third Quarter.................................... 12 1/4  8     7     3 1/2
     Fourth Quarter...................................  9 1/2  4     7 1/4 4
</TABLE>

  As of March 21, 1997, there were approximately 132 holders of record of the
Company's Common Stock.

  The Company's capital stock consists of 10,000,000 authorized shares of
common stock, par value $.01 per share, of which, as of March 21, 1997,
3,779,380 shares were issued and outstanding; and 1,000,000 authorized shares
of preferred stock, par value $.01 per share, of which, as of March 21, 1997,
no such shares were issued and outstanding.

  The Company has never declared a cash dividend on its Common Stock. The
Board of Directors of the Company has no present intention to pay dividends on
Common Stock and does not anticipate doing so within the next several years.
It is the present policy of the Company to retain earnings, if any, to provide
for growth and working capital needs.

ITEM 6: SELECTED FINANCIAL DATA

  The following selected financial data is qualified by reference to, and
should be read in conjunction with, the financial statements, including the
notes thereto, and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this report.

<TABLE>
<CAPTION>
                                            YEARS ENDED DECEMBER 31,
                                     -----------------------------------------
                                      1992    1993     1994    1995     1996
                                     ------  -------  ------- -------  -------
                                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                  <C>     <C>      <C>     <C>      <C>
STATEMENTS OF INCOME DATA:
Sales..............................  $6,429  $12,428  $20,292 $29,718  $31,501
Cost of sales......................   3,511    6,898   10,780  16,138   17,188
                                     ------  -------  ------- -------  -------
Gross profit.......................   2,918    5,530    9,512  13,580   14,313
Selling, general and administrative
 expenses..........................   2,637    4,954    7,849  14,690   14,427
                                     ------  -------  ------- -------  -------
Income (loss) from operations......     281      576    1,663  (1,110)    (113)
Interest income (expense), net.....     (12)     (35)      36     (37)    (257)
Income (loss) before income taxes..     269      541    1,699  (1,147)    (370)
Provision (benefit) for income
 taxes.............................      30       50      403    (470)    (152)
                                     ------  -------  ------- -------  -------
Net income (loss)..................  $  239  $   491  $ 1,296   ($677)   ($218)
                                     ======  =======  ======= =======  =======
PRO FORMA STATEMENTS OF INCOME
 DATA(1):
Income loss before taxes, as
 reported..........................          $   541  $ 1,699 ($1,147)   ($370)
Provision (benefit) for income
 taxes.............................              216      636    (470)    (152)
                                     ------  -------  ------- -------  -------
Net income (loss)..................          $   325  $ 1,063   ($677)   ($218)
                                     ------  -------  ------- -------  -------
Net income (loss) per share........          $  0.13  $  0.34  ($0.18)  ($0.06)
                                     ======  =======  ======= =======  =======
Weighted average number of shares
 outstanding.......................            2,475    3,156   3,755    3,776
</TABLE>

                                      11
<PAGE>

<TABLE>
<CAPTION>
                                                      DECEMBER 31,
                                          -------------------------------------
                                           1992   1993   1994    1995    1996
                                          ------ ------ ------- ------- -------
                                                     (IN THOUSANDS)
<S>                                       <C>    <C>    <C>     <C>     <C>
BALANCE SHEET DATA:
Working capital.......................... $  215 $1,207 $ 9,666 $ 8,694 $ 8,045
Total assets.............................  1,959  4,766  13,529  16,717  12,952
Long-term debt, less current portion.....      5    940     --      --      --
Total stockholders' equity...............    359    546  10,060   9,733   9,526
</TABLE>
--------
(1) Net income and net income per share is reported on a pro forma basis for
    1994 and 1993 to reflect what comparative results would have been had the
    Company been taxed as a C corporation for the entirety of 1994 and 1993.
    Results for 1995 and 1996 are reported on an actual basis.

ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

GENERAL

  Geerlings & Wade is a direct marketer of premium, imported and domestic
wines and wine-and cigar- related merchandise to individual consumers. In
1996, sales increased $1,783,000, or 6% over sales of $29,718,000 in 1995. The
increase in revenues did not meet the Company's expectation. Revenue
expectations were not met due to several of the Company's mailings yielding
lower than anticipated response rates, together with lower retention rates
among customers who made initial purchases in 1995. Notwithstanding the
increase in sales, the Company incurred an operating loss of $113,000 since
selling, general and administrative expenses were reduced in 1996 by only
$263,000 from $14,690,000 in 1995 to $14,427,000 in 1996. The Company reduced
marketing costs in 1996, but invested in personnel to better market our
products, improve the sourcing of quality wines and improve customer service.
The Company operates from 13 licensed facilities in separate states to comply
with alcohol laws and regulations. Having these separate locations creates
inordinately high, fixed operating costs. The Company continuously looks to
lower these fixed costs and manage variable costs to improve operating
margins.

  The Company opened its first licensed facility in 1988, three additional
licensed facilities in each of 1991 and 1993, one facility in 1994 and five
facilities in 1995. From these 13 facilities, the Company is able to serve
customers in twenty states. The Company considers each area served by a
licensed facility to be a separate market. The Company intends to open a
facility in Michigan and begin operations in that state in the second quarter
of 1997. The Company is also exploring the possibility of selling wine and
wine-related products outside of the United States through direct marketing
channels. To find ways to increase revenues, the Company plans to test various
marketing programs, including subscription and continuity plans, corporate
affinity marketing programs and outbound telemarketing programs.

  The Company's revenues are derived from the sale of wine, wine- and cigar-
related accessories and memberships. Sales from memberships and wine- and
cigar-related accessories were approximately 4% of overall revenues in 1996.
The Company's sales growth reflects increased comparative sales for all states
("markets") that were opened during 1994 and 1995 and Florida and Illinois
which were opened in 1993 and 1992, respectively. Comparative sales in Florida
and Illinois increased by 5% and 6%, respectively in 1996, while comparative
sales in Washington, opened in 1994, increased by 15% in 1996. The combined
comparative sales for Massachusetts, Connecticut, New York, California and New
Jersey decreased by 3.8% for 1996. The Company believes that the decrease of
comparative sales in these markets was the result of marketing programs which
encouraged one-time purchases from new customers and from poor response rates
from untested mailings in the fourth quarter of 1996.

                                      12
<PAGE>

  The following table sets forth total sales by market for the periods
indicated:

<TABLE>
<CAPTION>
                                              YEARS ENDED DECEMBER 31,
                                    -------------------------------------------
                                     1992     1993     1994     1995     1996
                MARKET              ------- -------- -------- -------- --------
                                                  (IN THOUSANDS)
   <S>                              <C>     <C>      <C>      <C>      <C>
   Massachusetts................... $ 2,759 $  3,916 $  4,746 $  5,970 $  5,685
   Connecticut.....................   1,198    1,628    2,010    2,246    2,186
   New York........................   1,881    3,176    4,469    5,297    5,078
   Illinois(1).....................     591      891    1,603    2,418    2,563
   Florida.........................              888    1,941    2,679    2,810
   California(1)...................            1,050    2,707    3,541    3,466
   New Jersey......................              879    2,742    3,795    3,637
   Washington (December 1994)......                        74      884    1,017
   Virginia (January 1995).........                              1,398    1,707
   Ohio (April 1995)...............                              1,123    2,017
   Minnesota (July 1995)...........                                134      338
   Colorado (July 1995)............                                151      566
   Arizona (September 1995)........                                 82      431
                                    ------- -------- -------- -------- --------
     Totals........................ $ 6,429 $ 12,428 $ 20,292 $ 29,718 $ 31,501
                                    ======= ======== ======== ======== ========
</TABLE>
--------
(1) Includes authorized sales into additional states.

  The Company believes that as customers develop trust in the Company's
ability to select and deliver quality wines at attractive prices they tend to
make more wine purchases from the Company, including more expensive
selections. In general, the Company sells its more expensive wines at a lower
gross margin percentage than its less expensive wines. Consequently, the
Company's gross profit as a percentage of sales diminishes if the average
price point of the Company's product mix increases. The Company seeks to
manage its gross profit through management of the average price point of its
wines and overall product mix. The Company expects that its gross profit as a
percentage of sales will continue to fluctuate depending upon the average
price point of its product mix in each period, which in turn will be affected
by the number of new customers generated by prospect mailings and other
marketing programs under development.

  The Company sends approximately twenty house mailings per year, twenty-two
in 1996, to each of its active customers, and consequently, the annual cost
per customer of its house mailings is relatively fixed. The Company believes
that the tendency of its customers to increase the size and frequency of their
wine purchases over time has contributed to an increase in revenues.
Consequently, the Company believes that the operating profit margin on house
mailings to repeat customers has increased over time.

  In 1996, the Company sold its wine in quantities of 3, 6 and 12 bottles, and
allowed customers to select a mix of any wines available in stock. In the fall
of 1996, the Company decided to discontinue 3-bottle purchases due to the high
cost of fulfilling each order measured as a percentage of sales. However, the
Company intends to continue to offer 2- or 3- bottle shipments as part of kits
(gift packages) offered in its catalogs or as part of the subscription or
continuity programs to be established in 1997 where the ability to pre-package
shipments affords operating efficiencies that warrant promoting these types of
offers. The Company uses the term "case" as an operating characteristic to
describe any twelve bottle equivalent unit.

RESULTS OF OPERATIONS

  For the periods indicated, the following table sets forth as a percentage of
total sales certain items reflected in the Company's pro forma statements of
income:


                                      13
<PAGE>

<TABLE>
<CAPTION>
                                              YEARS ENDED DECEMBER 31,
                                            ---------------------------------
                                            1992   1993   1994   1995   1996
                                            -----  -----  -----  -----  -----
   <S>                                      <C>    <C>    <C>    <C>    <C>
   Sales................................... 100.0% 100.0% 100.0% 100.0% 100.0%
   Cost of sales...........................  54.6   55.5   53.1   54.3   54.6
   Gross profit............................  45.4   44.5   46.9   45.7   45.4
   Selling, general and administrative
    expenses...............................  41.0   39.9   38.7   49.4   45.8
   Income (loss) from operations...........   4.4    4.6    8.2   (3.7)  (0.4)
   Interest (expense) income, net..........  (0.2)  (0.3)   0.2   (0.2)  (0.8)
   Income (loss) before income taxes.......   4.2    4.3    8.4   (3.9)  (1.2)
   Provision (benefit) for income taxes....   0.5    0.4    2.0   (1.6)  (0.5)
   Net income (loss).......................   3.7    3.9    6.4   (2.3)  (0.7)
   Pro forma income before taxes...........   --     4.3    8.4    --     --
   Pro forma income taxes..................   --     1.7    3.1    --     --
   Pro forma net income....................   --     2.6    5.3    --     --
</TABLE>

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

SALES

  Sales increased $1,783,000 or 6%, from $29,718,000 in 1995 to $31,501,000 in
1996. This net increase was the combination of a 1% sales decline for markets
opened prior to 1995 and a 75% increase for markets opened during 1995. There
were no new markets in 1996. Included in the 6% overall sales increase in 1996
was $868,000 of sales generated from the Company's 1996 Holiday Catalog. The
1996 Holiday Catalog sales increased 81% over 1995 Holiday Catalog sales of
$480,000. Sales increased $9,426,000 or 46%, from $20,292,000 in 1994 to
$29,718,000 in 1995. This increase was attributable to a 28% increase in sales
generated in markets opened prior to 1994 and sales in new markets, including
one new market in 1994 and five new markets in 1995.

  The number of cases sold by the Company increased by 24,747, or 10%, to
278,247 in 1996 from 253,500 in 1995, and by 72,300, or 40%, from 181,200 in
1994. The average case price for cases sold by the Company decreased from
$113.04 in 1995 to $110.19 in 1996, a 2.5% decrease. This average price
decrease was primarily due to price variations in the product mix sold. The
product mix moved toward lower priced product and some discounted product to
reduce inventory in 1996. The average case price for cases sold by the Company
increased from $109.60 in 1994 to $113.04 in 1995, a 3% increase. This average
price increase was primarily due to price increases instituted in 1995 to
offset higher wine costs. The average number of cases purchased per year
increased from 2.64 in 1995 to 2.89 in 1996. This increase was attributable,
in part, to higher circulation of the house mailings which have higher average
orders than acquisition mailings and by the discontinuance of sales of 3-
bottle shipments in the fall of 1996. The average number of cases purchased
per customer decreased from 2.82 in 1994 to 2.64 in 1995. This decrease was
primarily due to the introduction of 3- and 6- bottle cases.

GROSS PROFIT

  In 1996, gross profit increased $733,000, or 5%, from $13,580,000 in 1995 to
$14,313,000 in 1996, while decreasing as a percentage of sales from 45.7% in
1995 to 45.4% in 1996. This decrease in gross profit as a percentage of sales
resulted from higher wine costs and discounting of certain prices to reduce
inventory of certain products. Gross profit increased $4,067,000 or 43%, from
$9,512,000 in 1994 to $13,580,000 in 1995, while decreasing as a percentage of
sales from 46.9% in 1994 to 45.7% in 1995. This decrease in gross profit as a
percentage of sales resulted from higher imported wine costs due to
unfavorable foreign exchange rates and from higher domestic costs for wine.
Gross profit per case was $51.44 in 1996, a decrease of $2.13 per case from
the $53.57 in 1995. Gross profit per case increased 1% in 1995 from 1994 when
the gross profit per case was $53.00.


                                      14
<PAGE>

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

  Selling, general and administrative expenses decreased by $263,000, or 2%,
from $14,690,000 in 1995 to $14,427,000 in 1996, while decreasing as a
percentage of sales from 49.4% in 1995 to 45.8% in 1996. The net decrease in
selling, general, and administrative expenses was primarily attributable to
the combination of a significant reduction in the number of acquisition
mailings and the increases in costs associated with additional personnel hired
to support marketing, operations and the Holiday Catalog. The Company also
incurred higher depreciation costs related to investments made in 1995 and
1996. Delivery expenses were reduced in 1996 by instituting less expensive
packaging and by introducing a shipping and handling charge of $3.95 for 3-,
6- and 12- bottle cases beginning in April 1996. Selling, general and
administrative costs increased as a percentage of sales in 1995 due to
substantial increases in operating expenses required to support a larger sales
base and new markets opened in 1995, together with lower than anticipated
sales in relation to marketing efforts in both new and existing markets.
Selling, general and administrative expenses increased $6,841,000, or 87%,
from $7,849,000 in 1994 to $14,690,000 in 1995, while increasing as a
percentage of sales from 38.7% in 1994 to 49.4% in 1995. This increase in
selling, general and administrative expenses resulted from increased prospect
mailings in new and existing markets, the hiring of additional personnel
needed to support a larger sales base and increased delivery costs related to
increased sales. Selling, general and administrative expenses increased as a
percentage of sales in 1995 as a result of adding five new facilities and
aggressive marketing through increased prospect mailing.

INTEREST INCOME (EXPENSE)

  Net interest expense increased $220,000, or 695%, from net interest expense
of $37,000 in 1995 to net expense of $257,000 in 1996. This increase in net
interest expense was due to increased borrowings to support working capital
needs under the Company's line of credit throughout 1996. Net interest income
decreased $73,000 from income of $36,000 in 1994 to net expense of $37,000 in
1995. The increase in interest expense was primarily due to increased
borrowings under the Company's line of credit to support expansion in 1995
while in 1994 the Company had interest income from investing the proceeds of
the initial public offering ("IPO") that exceeded borrowing costs incurred
earlier in 1994 prior to the IPO.

PROVISION FOR INCOME TAXES

  The Company was subject to corporate level income taxes for the entirety of
1995 and 1996 and approximately the second half of 1994. Prior to June 23,
1994, the Company was treated as an S corporation for federal and certain
state income tax purposes. Income taxes were benefited at approximately 41% in
1995 and 1996. Income taxes were provided, on a pro forma basis, at 37% in
1994. These tax rates are reflective of the Company's effective C corporation
income tax rates in each of these periods.

LIQUIDITY AND CAPITAL RESOURCES

  The Company's primary capital needs continue to be funding the cost of
prospect mailings and purchases of inventory to support sales growth. As of
December 31, 1996, the Company had cash and cash equivalents totaling
$775,000. In addition, the Company has a credit facility with The First
National Bank of Boston ("Bank of Boston") comprised of a revolving
discretionary demand line of credit in the maximum principal amount equal to
the lesser of 50% of qualifying inventory or $5.0 million (the "Line of
Credit"). The Line of Credit bears interest at the Bank of Boston's base rate
(which approximates the prime rate) plus one-quarter percent, and is
collateralized by substantially all of the assets of the Company. As of
December 31, 1996, $939,000 was outstanding under the Line of Credit.

  In 1996, the Company generated $2,432,000 in cash from operating activities
compared to using $6,572,000 in 1995. The increase in cash generated from
operations resulted primarily from a decrease in inventory of $3,674,000 and a
decrease in refundable income taxes of $784,000. Cash was used to reduce
accounts payable by $2,083,000 which resulted from reduced buying activity at
the end of 1996.


                                      15
<PAGE>

  At December 31, 1996 and December 31, 1995 the Company had working capital
of $8,045,000 and $8,694,000, respectively. Working capital decreased in 1996
from 1995 primarily due to the combination of a decrease of $3,674,000 in
inventory levels and $784,000 in refundable income taxes which was offset by a
decrease of $2,076,000 in the line of credit, a cash overdraft increase of
$472,000 and a decrease of $2,083,000 in accounts payable. The Company
believes that inventories were relatively high in 1996, and the Company has
been reducing inventories at all 13 facilities by curtailing inventory
purchasing in the fourth quarter 1996 except for purchases essential to
support specific promotions. The Company intends to continue to lower
inventory levels and expects to reach desired inventory levels in the second
quarter of 1997. The Company expects that once reduced, inventory levels will
fluctuate with seasonal demand and overall sales growth. As a result of the
alcoholic beverage regulatory scheme within which the Company operates, the
Company is required to maintain separate inventories in each of the markets in
which it operates a licensed facility and is not permitted to transfer
inventory between such facilities. As a result, the Company believes that its
overall inventory levels are necessarily higher than would be required if the
Company were not subject to such regulatory requirements.

  During 1996, net cash of $875,000 was used in investing activities. The
Company used cash from operations and borrowings under its line of credit to
invest approximately $776,000 in property and equipment. These purchases
included approximately $351,000 in computer and telephone hardware and
software enhancements, including the installment of Renaissance Direct, and
$349,000 of leasehold improvements and furniture and fixtures purchases. The
Company also invested $44,000 for its website development and $32,000 in
warehouse racking and security systems. The Company has also begun leasing
delivery vans for operation in New Jersey and Massachusetts and sold certain
Company vehicles formerly used for delivery.

  During 1996, total cash used for financing activities was $1,593,000 of
which $2,076,000 was used for repayments of line of credit borrowings.

  The Company believes that cash flows from operations and current cash
balances, together with the line of credit, will be sufficient to meet the
Company's working capital needs and capital expenditure requirements for the
foreseeable future.

EXCHANGE RATES

  The Company engages in currency hedging activities related to firm
commitments for the purchase of inventories in an effort to fix costs and
manage the impact of exchange rate fluctuations. The Company maintains two
separate foreign exchange lines with the Bank of Boston and The Chase
Manhattan Bank, each of which allows the Company to enter into forward
currency exchange contracts of up to $500,000 maturing on any one day. As of
December 31, 1996, the Company had no foreign exchange contracts outstanding.

FACTORS THAT MAY AFFECT FUTURE RESULTS

  This Annual Report on Form 10-K contains certain forward-looking statements
within the meaning of the Federal Securities Laws. Actual results could differ
materially from those projected in the forward-looking statements as a result
of certain risk factors, including but not limited to those set forth below,
other one-time events and other important factors disclosed previously and
from time to time in the Company's other filings at the U.S. Securities and
Exchange Commission.

  Regulation. The alcoholic beverage industry is subject to extensive
specialized regulation under state and federal laws and regulations, including
matters such as licensing; the payment of excise taxes; advertising, trade and
pricing practices; product labeling; sales to minors and intoxicated persons;
changes in officers, directors, ownership or control; and, relationships among
product producers, importers, wholesalers and retailers. While the Company
believes that it is in material compliance with all applicable laws and
regulations, in the event that it should be determined that the Company is not
in compliance with any applicable laws or regulations, the Company could
become subject to cease and desist orders, injunctive proceedings, civil
fines, license revocations and other penalties which could have a material
adverse effect on the Company's business and its results of

                                      16
<PAGE>

operations. There can be no assurance that new or revised laws or regulations,
increased licensing fees, specialized taxes or other regulatory requirements
will not have a material adverse effect on the Company's business and its
results of operations. While to date the Company has been able to obtain and
retain licenses necessary to sell wine at retail, the failure to obtain
renewals or otherwise retain such licenses in one or more of the states in
which the Company operates would have a material adverse effect on the
Company's business and its results of operations. The Company's growth
strategy includes expansion of its business into additional states; however,
there can be no assurance that the Company will be successful in obtaining
licenses in any additional states. Geerlings & Wade offers its customers the
opportunity to purchase one and three year memberships. This membership
program has from time to time generated regulatory scrutiny, and there can be
no assurance that the Company will be able to continue its membership program
in its current form in existing markets or that markets in which the Company
may become licensed in the future will allow the sale of memberships, which
could have a materially adverse effect on the Company's business and its
results of operations.

  Limited Operating History; Management of Growth. Geerlings & Wade has a
limited operating history upon which investors may evaluate its performance.
Although the Company was profitable from 1990 to 1994, in 1995 and 1996 the
Company was not profitable and there can be no assurance that it will operate
profitably in the future. In addition, the Company has only limited
management, operational and financial resources to accommodate continued
growth, should it occur. The Company's ability to manage growth effectively
will require it to continue to implement and improve its operational and
financial systems and to hire and train new employees. These demands are
expected to require additional management resources and the development of
additional expertise by existing management. The failure to manage growth
effectively would have a material adverse effect on the Company. There can be
no assurance that Geerlings & Wade will be able successfully to attract and
retain the skilled and experienced personnel required to manage its business.

  Effectiveness and Cost of Mailings; Cost of Paper. The Company targets
potential new customers and solicits orders from existing customers through
direct mail marketing campaigns. Direct mail marketing campaigns are capital
intensive and the cost-effectiveness of such campaigns depends, to a large
extent, upon the accuracy of assumptions and judgments made by the Company.
There can be no assurance that such direct marketing campaigns will be
completed on a cost-effective basis. The failure of any such marketing
campaign to identify new customers or to generate new purchases from existing
customers on a cost-effective basis may have a material adverse effect on the
Company's business and its results of operations. Increases in the cost of
paper or printing could have a negative impact on the Company's business and
its results of operations to the extent that the Company is unable to pass on
such increases directly to customers. The Company relies on the services of
outside vendors to prepare and send its mailing in accordance with Company
specifications and schedules. The failure of such outside vendors to perform
such services according to Company specifications or to adhere to Company
mailing schedules may have a material adverse effect on the Company's business
and its results of operations.

  Increases in Postage Rates; Dependence on Shippers. The Company's marketing
efforts have traditionally been conducted through direct mail campaigns. As a
result, increases in postage rates may have a material adverse effect on the
Company's business and its results of operations. Except in Massachusetts, New
Jersey and Colorado, the Company is dependent upon delivery services provided
by United Parcel Service ("UPS") or other licensed delivery companies. A work
stoppage, strike or other interruption in service experienced by UPS or the
other delivery companies may have a material adverse effect on the Company's
business and its results of operations.

  Dependence on Wine Selection and Sourcing. To a large extent, the Company's
success depends upon its wine selection and sourcing capabilities. There can
be no assurance that the Company will be able to develop consistently a
selection of wines which will enable the Company to maintain or expand its
customer base. Most of the Company's wine is sourced by the Company, Mr. van
Hoof or the Company's primary domestic negotiant, Codera Wine Group, Inc.
(Negotiants are persons who serve as intermediaries or agents to purchasers in
the wine purchasing process.) The loss of services of either of these parties
could have a material adverse effect on the Company and its results of
operations. In the event that a wine proves to be unpopular for any reason, or
the

                                      17
<PAGE>

Company orders an excessive quantity of one or more wines, the Company may
encounter liquidity problems under these circumstances which may have a
material adverse effect on the Company and its results of operations.

  Dependence on Consumer Spending; Geographic Concentration of Customers. The
success of the Company's business depends upon a number of factors related to
the level of consumer spending, including the general state of the economy,
federal and state tax rates and consumer confidence. Changes in consumer
spending in both the national and regional economies can affect both the
quantity and the price of wines that consumers are willing to purchase.

  Competition; Changes in Consumer Tastes. The Company competes with a broad
range of wine specialty stores, retail liquor stores, other direct mail wine
merchants and certain supermarket stores, many of which may have significantly
greater resources than the Company. Additionally, the Company's wines compete
with other alcoholic and non-alcoholic beverages. There can be no assurance
that the Company will be able to compete successfully with its current or
future competition. Although consumption of premium wines in the United States
has increased, there can be no assurance that changes in consumer preferences
or tastes will not have a material adverse effect on the Company's business
and its results of operations.

  Health Issues. Since 1989, federal law has required health warning labels on
all alcoholic beverages. Although a number of research studies suggest that
health benefits may result from the moderate consumption of wine, these
suggestions have been widely challenged and a number of groups advocate
increased governmental action to restrict consumption of alcoholic beverages.
Restrictions on the sale and consumption of wine or increases in the taxes
imposed on wine in response to concerns regarding health issues may have a
material adverse effect on the Company's business and operating results. There
can be no assurance that there will not be legal or regulatory challenges to
the industry as a whole, and any such legal or regulatory challenge may have a
material adverse effect on the Company's business and its results of
operations.

  Exchange Rates; Currency Fluctuations. The Company sources many of its wines
from certain European countries and Australia and makes payment for such
purchases in local currencies. The Company engages in currency hedging
activities related to firm commitments for the purchase of inventories in an
effort to fix costs and manage the impact of exchange rate fluctuations.
Changes in exchange rates or currency fluctuations that disfavor the U.S.
dollar could have a material adverse effect on the Company's business and its
results of operations.

  Excise Taxes, Customs Duties and Tariffs. The federal government and various
states impose excise taxes, duties and tariffs on wine. Increases in the
federal excise tax on wine, such as the 500% increase which was imposed in
1991, or increases in state excise tax levels, may have a material adverse
effect on the Company's business and its results of operations. In 1996,
approximately 64% of the total cases of wine sold by the Company were
imported. Increases in duty or tariff levels may have a material adverse
effect on the Company's business and its results of operations.

  Agricultural Conditions; Grape Supply. Wine making and grape growing are
subject to a variety of agricultural risks. Various diseases, pest, drought,
frosts and certain other weather conditions may have a material adverse effect
on the quality and quantity of grapes available to producers, thereby having a
material adverse effect on the cost of domestic or imported wines available to
the Company.

ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

  The information called for by this item is indexed on page 25 of this Report
and is contained on the pages following said page 25.

ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

  None.

                                      18
<PAGE>

                                   PART III

ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

  Certain of the information required by this Item is included under the
captions "Executive Officers of the Company", "Election of Directors--Nominee
for Election at the 1997 Annual Meeting," "Directors Whose Term Expire in
1998," "Director Whose Term Expires in 1999" and "Information Concerning the
Board and its Committees" in the Proxy Statement, and is incorporated herein
by reference.

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

  Section 16(a) of the Exchange Act requires the Company's executive officers
and directors, and persons who beneficially own more than ten percent of the
Company's Common Stock, to file reports of ownership and changes in ownership
on Forms 3, 4 and 5 with the SEC. Executive officers, directors and greater
than ten percent stockholders are required by SEC regulation to furnish to the
Company copies of all Forms 3, 4 and 5 they file. Based solely on the
Company's review of the copies of such forms it has received and written
representations from certain reporting persons, the Company believes that,
except as specified below, all of its executive officers, directors and
greater than ten percent beneficial owners complied with all such filing
requirements applicable to them with respect to transactions during fiscal
1996.

  Mr. Curvey's Form 5 was filed with the SEC 31 days late. Mr. Webb's Form 5
was filed with the SEC 27 days late. Mr. Shea's Form 5 was filed with the SEC
24 days late. The Form 4 on which Mr. Shea reported the purchase and sale of
shares of the Company's Common Stock indirectly held by Mr. Shea was filed
several months late. The Form 3 that reported Mr. Pearce's appointment as Vice
President and Chief Financial Officer and which reflected that he beneficially
owned no shares of Common Stock of the Company was filed several months late.

ITEM 11: EXECUTIVE COMPENSATION

  The information required by this Item is included under the captions
"Election of Director--Summary Compensation Table," "Option Grants Under the
Stock Option Plan," "Information Concerning the Board and its Committees" and
"Employment Arrangement with Executive Officer" in the Proxy Statement, and is
incorporated herein by reference.

ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

  The information required by this Item is included under the caption
"Ownership of Common Stock" of the Proxy Statement and is incorporated herein
by reference.

ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

  The information required by this Item is included under the caption "Certain
Transactions" of the Proxy Statement and is incorporated herein by reference.

                                      19
<PAGE>

                                    PART IV

ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

  (a) The financial statements and financial statement schedules filed as part
of this Report are listed and indexed at Page F-1.

  Listed below are all Exhibits filed as part of this Report. Certain Exhibits
are incorporated herein by reference to (i) the Company's Registration
Statement on Form S-1 originally filed on May 5, 1994 (File No. 33- 78624),
and (ii) documents previously filed by the Company with the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended.

<TABLE>
<CAPTION>
                                                                     SEQUENTIAL
 EXHIBIT NO.                      DESCRIPTION                         PAGE NO.
 -----------                      -----------                        ----------
 <C>         <S>                                                     <C>
    3.1      Form of Amended and Restated Articles or Organization
             of the Company./1/
    3.2      Amended and Restated By-laws of the Company./1/
    4.1      Specimen Certificate of Common Stock./1/,/2/
    4.2      Registration Rights Agreement by and among certain
             Stockholders and the Company./1/
    10.1     Lease Agreement between the Company and Naughton
             Company dated April 11, 1994./1/
    10.2     Lease Agreement between the Company and John Hancock
             Mutual Life Insurance Company dated July 31, 1992./1/
    10.3     California Public Warehouse Letter Agreement./1/
    10.4     Form of Employment Agreement for Phillip D. Wade./1/
    10.5     Form of Employment Agreement for Huib E.
             Geerlings./1/
    10.6     Consulting Agreement between the Company and Peter
             van Hoof effective as of April 1, 1994./1/
    10.7     $2,500,000 demand Discretionary Line of Credit dated
             January 7, 1994, as amended by letter agreement dated
             April 27, 1994, between The First National Bank of
             Boston and the Company./1/
    10.8     Promissory Note of the Company in favor of The First
             National Bank of Boston dated January 7, 1994./1/
    10.9     Security Agreement between the Company and The First
             National Bank of Boston dated January 7, 1994./1/
    10.10    Stock Option Plan, as amended.
    10.11    Non-Employee Director Stock Option Plan./1/
    10.12    Employee Stock Purchase Plan./1/
    10.13    Lease Agreement between the Company and Pacific
             Realty Associates, L.P. dated July 18, 1994./1/
    10.14    Lease Agreement between the Company and Flint Lee
             Limited Partnership dated August 31, 1994./4/
    10.15    Lease Agreement between the Company and 47th Avenue
             Industrial Properties dated October 6, 1994./4/
    10.16    Lease Agreement between the Company and Mehland
             Developers dated October 31, 1994./4/
    10.17    Letter Agreement dated as of March 15, 1995 between
             the Company and the First National Bank of Boston./4/
    10.18    Lease agreement between the Company and Hohokam
             Realty Condominiums dated October 31, 1994. /5/
</TABLE>

                                      20
<PAGE>

<TABLE>
<CAPTION>
                                                                     SEQUENTIAL
 EXHIBIT NO.                      DESCRIPTION                         PAGE NO.
 -----------                      -----------                        ----------
 <C>         <S>                                                     <C>
    10.19    Lease agreement between the Company and Bruce K. and
             Gayle J. Hoyt dated November 23, 1994./6/
    10.20    Master Agreement dated as of June 9, 1995 by and
             between Geerlings and Wade, Inc. and Chemical Bank, a
             New York banking corporation./6/
    10.21    Lease Agreement between the Company and The Naughton
             Company dated August 16, 1995./7/
    10.22    Lease Agreement between the Company and Cole Taylor
             Bank dated August 23, 1995./7/
    10.23    $ 5,000,000 demand Discretionary Line of Credit dated
             January 7, 1994, as amended by letter agreement dated
             October 13, 1995, between The First National Bank of
             Boston and the Company./7/
    10.24    Lease Agreement between the Company and Debra
             Campbell dated July 15, 1996./8/
    10.25    Lease Agreement between the Company and Simon
             Champagne dated July 24, 1996./8/
    10.26    Employment letter agreement between the Company and
             Jay L. Essa dated September 9, 1996./8/
    10.27    Lease Agreement between the Company and Enviro-zyme
             International, Incorporated dated January 6, 1997.
    10.28    Lease Agreement between the Company and William Eddy
             dated January 24, 1997.
    10.29    Employment letter agreement between the Company and
             David R. Pearce dated November 8, 1996.
    23       Consent of Arthur Andersen LLP.
</TABLE>
--------
/1/ Filed as an Exhibit to the Company's Registration Statement on Form S-1
    filed on May 5, 1994 (File No. 33-78624) and incorporated by reference
    herein.
/2/ Filed as an Exhibit to Amendment No. 1 to the Company's Registration
    Statement on Form S-1 filed on June 9, 1994 (File No. 33-78624) and
    incorporated by reference herein.
/3/ Filed as an Exhibit to the Company's Form 10-Q for the quarterly period
    ended July 1, 1994 filed on August 15, 1994 (File No. 0-24048) and
    incorporated by reference herein.
/4/ Filed as an Exhibit to the Company's Form 10-K for the year ended December
    31, 1994 (File No. 0-24048) and incorporated by reference herein.
/5/ Filed as an exhibit to the Company's Form 10-Q for the quarterly period
    ended March 31, 1995 filed on May 15, 1995 (File No. 0-24048) and
    incorporated by reference herein.
/6/ Filed as an exhibit to the Company's Form 10-Q for the quarterly period
    ended June 30, 1995 filed on August 14, 1995 (File No. 0-24048) and
    incorporated by reference herein.
/7/ Filed as an exhibit to the Company's Form 10-K for the fiscal year ended
    December 31, 1995 filed on March 29, 1996 (File No. 0-24048) and
    incorporated by reference herein.
/8/ Filed as an exhibit to the Company's Form 10-Q for the quarterly period
    ended September 28, 1996 filed on November 12, 1996 (File No. 0-24048) and
    incorporated by reference herein.

  (b) No Current Reports on Form 8-K were filed by the Company during the
fourth quarter of 1996.

                                      21
<PAGE>

                                  SIGNATURES

  Pursuant to the requirements of Section 13 or 15(d) 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.

                                          GEERLINGS & WADE, INC.

                                                     /s/ Jay L. Essa
                                          _____________________________________
                                                       Jay L. Essa
                                              President and Chief Executive
                                                         Officer

Date: March 28, 1997

                                      22
<PAGE>

                                  SIGNATURES

  Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.

              SIGNATURE                        TITLE                 DATE

        /s/ Huib E. Geerlings          Chairman of the          March 28, 1997
-------------------------------------   Board and Director
          HUIB E. GEERLINGS

           /s/ Jay L. Essa             President and Chief      March 28, 1997
-------------------------------------   Executive Officer
             JAY L. ESSA                (Principal
                                        Executive Officer)

         /s/ David R. Pearce           Vice President,          March 28, 1997
-------------------------------------   Chief Financial
           DAVID R. PEARCE              Officer, and
                                        Treasurer
                                        (Principal
                                        Financial and
                                        Accounting Officer)

         /s/ Phillip D. Wade           Director                 March 28, 1997
-------------------------------------
           PHILLIP D. WADE

         /s/ James C. Curvey           Director                 March 28, 1997
-------------------------------------
           JAMES C. CURVEY

         /s/ William J. Shea           Director                 March 28, 1997
-------------------------------------
           WILLIAM J. SHEA

           /s/ Robert Webb             Director                 March 28, 1997
-------------------------------------
             ROBERT WEBB

                                      23
<PAGE>



                             GEERLINGS & WADE, INC.

             FINANCIAL STATEMENTS AS OF DECEMBER 31, 1996 AND 1995
                         TOGETHER WITH AUDITORS' REPORT

                                       24
<PAGE>

                                     INDEX

<TABLE>
<CAPTION>
                                                                          PAGE
                                                                          ----
<S>                                                                       <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS.................................  26
BALANCE SHEETS AS OF DECEMBER 31, 1996 AND 1995..........................  27
STATEMENTS OF OPERATIONS FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED
 DECEMBER 31, 1996.......................................................  28
STATEMENTS OF STOCKHOLDERS' EQUITY FOR EACH OF THE THREE YEARS IN THE
 PERIOD ENDED DECEMBER 31, 1996..........................................  29
STATEMENTS OF CASH FLOWS FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED
 DECEMBER 31, 1996.......................................................  30
NOTES TO FINANCIAL STATEMENTS............................................  31
</TABLE>

                                       25
<PAGE>

                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Geerlings & Wade, Inc.:

  We have audited the accompanying balance sheets of Geerlings & Wade, Inc. (a
Massachusetts corporation) as of December 31, 1996 and 1995, and the related
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

  We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

  In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Geerlings & Wade, Inc. as
of December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.

                                                        /s/ Arthur Andersen LLP

                                                            Arthur Andersen LLP
Boston, Massachusetts
January 31, 1997

                                      26
<PAGE>

                             GEERLINGS & WADE, INC.

                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                           DECEMBER 31,
                                                      ------------------------
                       ASSETS                            1995         1996
                       ------                         -----------  -----------
<S>                                                   <C>          <C>
Current Assets:
  Cash and cash equivalents.......................... $   809,828  $   774,514
  Accounts receivable................................      61,970      307,409
  Inventory..........................................  12,033,565    8,359,765
  Prepaid mailing costs..............................     800,088      813,208
  Prepaid expenses...................................     407,848      312,158
  Refundable income taxes............................     798,634       14,241
  Deferred income taxes..............................     348,000      500,000
                                                      -----------  -----------
      Total current assets...........................  15,259,933   11,081,295
                                                      -----------  -----------
Property and Equipment, at Cost:
  Office and computer equipment......................   1,361,325    1,988,855
  Motor vehicles.....................................     340,545      177,056
  Furniture and fixtures.............................     217,458      365,749
                                                      -----------  -----------
                                                        1,919,328    2,531,660
  Less--Accumulated depreciation.....................     598,944      910,112
                                                      -----------  -----------
                                                        1,320,384    1,621,548
                                                      -----------  -----------
Other Assets.........................................     136,234      249,425
                                                      -----------  -----------
                                                      $16,716,551  $12,952,268
                                                      ===========  ===========
        LIABILITIES AND STOCKHOLDERS' EQUITY
        ------------------------------------
Current Liabilities:
  Cash overdraft..................................... $       --   $   472,469
  Line of credit.....................................   3,015,412      939,019
  Accounts payable...................................   2,724,862      641,944
  Current portion of deferred revenue................     415,114      542,305
  Accrued sales, income and payroll taxes............     349,883      241,345
  Accrued expenses...................................      60,665      198,803
                                                      -----------  -----------
      Total current liabilities......................   6,565,936    3,035,885
                                                      -----------  -----------
Deferred Revenue, Less Current Portion...............     417,637      390,868
                                                      -----------  -----------
Commitments (Note 4)
Stockholders' Equity:
  Preferred stock, $.01 par value-
    Authorized--1,000,000 shares Outstanding--none...         --           --
  Common stock, $.01 par value-                            37,752       37,774
    Authorized--10,000,000 shares Issued and
     outstanding--3,775,243 shares and 3,777,525
     shares in 1995 and 1996, respectively...........
  Additional paid-in capital.........................   9,705,327    9,716,256
  Accumulated deficit................................     (10,101)    (228,515)
                                                      -----------  -----------
      Total stockholders' equity.....................   9,732,978    9,525,515
                                                      -----------  -----------
                                                      $16,716,551  $12,952,268
                                                      ===========  ===========
</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                       27
<PAGE>

                             GEERLINGS & WADE, INC.

                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                              YEARS ENDED DECEMBER 31,
                                         -------------------------------------
                                            1994         1995         1996
                                         -----------  -----------  -----------
<S>                                      <C>          <C>          <C>
Sales................................... $20,292,426  $29,717,901  $31,501,236
Cost of Sales...........................  10,780,369   16,138,372   17,187,877
                                         -----------  -----------  -----------
    Gross profit........................   9,512,057   13,579,529   14,313,359
Selling, General and Administrative
 Expenses...............................   7,848,687   14,690,116   14,426,514
                                         -----------  -----------  -----------
    Income (loss) from operations.......   1,663,370   (1,110,587)    (113,155)
Interest Income.........................     131,149       67,273          --
Interest Expense........................     (95,344)    (103,831)    (257,259)
                                         -----------  -----------  -----------
    Income (loss) before provision
     (benefit) for income taxes.........   1,699,175   (1,147,145)    (370,414)
Provision (Benefit) for Income Taxes....     403,000     (470,000)    (152,000)
                                         -----------  -----------  -----------
    Net income (loss)................... $ 1,296,175  $  (677,145) $  (218,414)
                                         ===========  ===========  ===========
Pro Forma Earnings Data (Unaudited)
 (Notes 2 and 6):
  Income before taxes................... $ 1,699,175
  Income taxes..........................     636,000
                                         -----------
    Net income.......................... $ 1,063,175
                                         ===========
    Net income (loss) per share......... $      0.34  $     (0.18) $     (0.06)
                                         ===========  ===========  ===========
Weighted Average Shares Outstanding
 (Note 2)...............................   3,156,134    3,754,891    3,776,376
                                         ===========  ===========  ===========
</TABLE>


   The accompanying notes are an integral part of these financial statements.

                                       28
<PAGE>

                             GEERLINGS & WADE, INC.

                       STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                            COMMON STOCK
                         ------------------- ADDITIONAL    RETAINED       TOTAL
                         NUMBER OF   $.01      PAID-IN     EARNINGS   STOCKHOLDERS'
                          SHARES   PAR VALUE   CAPITAL    (DEFICIT)      EQUITY
                         --------- --------- -----------  ----------  -------------
<S>                      <C>       <C>       <C>          <C>         <C>
Balance, December 31,
 1993................... 2,112,004 $ 21,120  $   253,880  $  270,996   $   545,996
  Exercise of common
   stock purchase
   warrants.............   287,996    2,880      445,310         --        448,190
  Proceeds from initial
   public offering, less
   offering expenses.... 1,325,000   13,250    9,026,142         --      9,039,392
  Net income............       --       --           --    1,296,175     1,296,175
  Distributions of
   accumulated S
   corporation earnings
   to stockholders......       --       --      (369,144)   (900,127)   (1,269,271)
                         --------- --------  -----------  ----------   -----------
Balance, December 31,
 1994................... 3,725,000   37,250    9,356,188     667,044    10,060,482
  Exercise of common
   stock options........    50,243      502      349,139         --        349,641
  Net loss..............       --       --           --     (677,145)     (677,145)
                         --------- --------  -----------  ----------   -----------
Balance, December 31,
 1995................... 3,775,243   37,752    9,705,327     (10,101)    9,732,978
  Issuance of stock
   under employee stock
   purchase plan........     2,282       22       10,929         --         10,951
  Net loss..............       --       --           --     (218,414)     (218,414)
                         --------- --------  -----------  ----------   -----------
Balance, December 31,
 1996................... 3,777,525 $ 37,774  $ 9,716,256  $ (228,515)  $ 9,525,515
                         ========= ========  ===========  ==========   ===========
</TABLE>


   The accompanying notes are an integral part of these financial statements.

                                       29
<PAGE>

                            GEERLINGS & WADE, INC.

                           STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                               YEARS ENDED DECEMBER 31,
                                         --------------------------------------
                                            1994         1995          1996
                                         -----------  -----------  ------------
<S>                                      <C>          <C>          <C>
Cash Flows From Operating Activities:
 Net income (loss).....................  $ 1,296,175  $  (677,145) $   (218,414)
 Adjustments to reconcile net income
  (loss) to net cash (used in) provided
  by operating activities-
  Depreciation and amortization........      179,881      463,341       570,605
  Deferred income taxes................     (100,000)    (248,000)     (152,000)
  Gain on disposal of fixed asset......          --           --        (16,102)
  Changes in current assets and
   liabilities-
   Accounts receivable.................      (38,099)       1,098      (245,439)
   Inventory...........................   (2,510,459)  (6,251,498)    3,673,800
   Prepaid mailing costs...............     (482,679)      74,726       (13,120)
   Prepaid expenses....................     (506,313)     284,030         1,298
   Refundable income taxes.............          --      (717,791)      784,393
   Accrued expenses....................          --        60,665       138,138
   Accounts payable....................      760,202      (63,750)   (2,082,918)
   Accounts payable to a related
    party..............................     (565,093)         --            --
   Deferred revenue....................       24,372      439,525       100,422
   Accrued sales, income and payroll
    taxes..............................       55,035       62,597      (108,538)
                                         -----------  -----------  ------------
    Net cash (used in) provided by
     operating activities..............   (1,886,978)  (6,572,202)    2,432,125
                                         -----------  -----------  ------------
Cash Flows From Investing Activities:
 Purchases of property and equipment,
  net..................................     (508,106)  (1,015,150)     (775,820)
 Proceeds from sale of property and
  equipment............................          --        17,956        30,893
 Increase in other assets..............      (14,818)    (121,191)     (129,539)
                                         -----------  -----------  ------------
    Net cash used in investing
     activities........................     (522,924)  (1,118,385)     (874,466)
                                         -----------  -----------  ------------
Cash Flows From Financing Activities:
 Bank overdraft........................          --           --        472,469
 Borrowings under line of credit.......    8,145,455    6,378,412     8,960,890
 Repayments under line of credit.......   (8,145,455)  (3,363,000)  (11,037,283)
 Proceeds from initial public offering,
  net..................................    9,039,392          --            --
 Decrease in deferred financing costs..      114,688        2,606           --
 Payments on long-term debt............     (534,079)         --            --
 Proceeds from long-term debt..........       17,797          --            --
 Distributions to stockholders.........   (1,269,271)         --            --
 Due to stockholder....................      (60,962)         --            --
 Proceeds from issuance of shares under
  the Employee Stock Purchase Plan.....          --       349,641        10,951
                                         -----------  -----------  ------------
    Net cash provided by (used in)
     financing activities..............    7,307,565    3,367,659    (1,592,973)
                                         -----------  -----------  ------------
Net Increase (Decrease) in Cash and
 Cash Equivalents......................    4,897,663   (4,322,928)      (35,314)
Cash and Cash Equivalents, Beginning of
 Year..................................      235,093    5,132,756       809,828
                                         -----------  -----------  ------------
Cash and Cash Equivalents, End of
 Year..................................  $ 5,132,756  $   809,828  $    774,514
                                         ===========  ===========  ============
Supplemental Disclosure of Cash Flow
 Information:
 Cash paid during the year for-
  Interest.............................  $    68,058  $    63,451  $    275,107
                                         ===========  ===========  ============
  Income taxes.........................  $   482,021  $   535,691  $        --
                                         ===========  ===========  ============
Supplemental Disclosure of Noncash
 Financing Activities:
 Conversion of common stock warrants
  under subordinated debt into 287,996
  shares of common stock...............  $   448,190  $       --   $        --
                                         ===========  ===========  ============
</TABLE>

  The accompanying notes are an integral part of these financial statements.

                                      30
<PAGE>

                            GEERLINGS & WADE, INC.

                         NOTES TO FINANCIAL STATEMENTS

                               DECEMBER 31, 1996

(1)OPERATIONS

  Geerlings & Wade, Inc. (the Company) is a direct marketer of premium wines
  and wine-related merchandise to retail consumers. The Company maintains
  licensed facilities in 13 states. Federal, state and local laws strictly
  govern the sale of wine in each market served by the Company.

(2)SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  The accompanying financial statements reflect the application of certain
  accounting policies and use of management's estimates described in this
  note and elsewhere in the accompanying notes to financial statements.

  (a)Management Estimates

    The preparation of financial statements in conformity with generally
    accepted accounting principles requires management to make estimates
    and assumptions that affect the reported amounts of assets and
    liabilities and disclosure of contingent assets and liabilities at the
    date of the financial statements and the reported amounts of revenues
    and expenses during the reporting period. Actual results could differ
    from those estimates.

  (b)Revenue Recognition

    Revenue from merchandise sales is recognized at the time of shipment to
    the customer. The Company currently offers one- and three-year
    membership programs to customers, which provide them with certain
    preferred customer privileges. Revenue derived from memberships is
    recognized over the related membership period. Sales returns, which are
    not material, are recorded in the period of return.

  (c)Cash and Cash Equivalents

    The Company considers all highly liquid investments with original
    maturities of three months or less at the time of purchase to be cash
    equivalents.

  (d)Credit Card Policy

    The Company's agreement with a credit card processing company provides
    for the electronic processing of credit approvals and electronic
    submission of transactions. Payment is transmitted to the Company's
    bank account within two to four days of the order transaction. Credit
    card processing fees amounted to approximately $346,000, $586,000 and
    $634,000 for the years ended December 31, 1994, 1995 and 1996,
    respectively, and are included in selling, general and administrative
    expenses in the accompanying statements of operations.

  (e)Inventory

    The Company values inventory at the lower of cost (first-in, first-out)
    or net realizable market value (estimated proceeds upon sale, net of
    fulfillment expenses).


                                      31
<PAGE>

                            GEERLINGS & WADE, INC.

                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

                               DECEMBER 31, 1996

    During 1996, the Company purchased approximately $3,544,000 of
    inventory through wholesale channels with a single supplier. Total or
    partial loss of the business relationship with this supplier could
    result in a temporary near-term disruption of the Company's ability to
    source domestically produced wine product. Management believes that
    alternative sources of supply are readily available to mitigate the
    Company's potential loss exposure.

    Included in the Company's inventory are approximately $1,900,000 and
    $660,000 of paid reservations of certain vintage wines as of December
    31, 1995 and 1996, respectively. In its efforts to reduce the levels of
    such inventory, the Company sold approximately $532,000 of such
    reserves to its customers during 1996. The Company bears the ultimate
    liability for the wine reservations sold until delivered and acceptance
    by the customers.

  (f)Depreciation

    The Company provides for depreciation using the straight-line method by
    charges to operations in amounts that allocate the cost of the assets
    over their estimated useful lives as follows:

<TABLE>
<CAPTION>
                                                                      ESTIMATED
                          ASSET CLASSIFICATION                       USEFUL LIFE
                          --------------------                       -----------
     <S>                                                             <C>
     Office and computer equipment..................................  3-5 Years
     Motor vehicles.................................................    3 Years
     Furniture and fixtures.........................................    5 Years
</TABLE>

  (g)Preopening Costs

    The Company capitalizes certain direct costs incurred prior to opening
    new licensed facilities and amortizes these costs on a straight-line
    basis over a one-year period. Costs of acquiring liquor licenses are
    amortized on a straight-line basis over five years.

  (h)Prepaid Mailing Costs

    Costs of direct advertising materials mailed to prospective customers
    are capitalized. These costs are expensed as advertising costs in
    relation to the revenues that are derived from the mailings for up to
    five months. Revenue estimates are used to determine the cost recovery
    period of prepaid mailing costs.

    At December 31, 1995 and 1996, approximately $583,000 and $625,000,
    respectively, of these advertising costs were reported as a component
    of prepaid mailing costs in the accompanying balance sheets.
    Advertising expense related to prospective customers included in the
    accompanying statement of operations was $2,460,174, $4,207,110 and
    $2,436,849 in 1994, 1995 and 1996, respectively.

  (i)Deferred Revenue

    Deferred revenue of $832,751 and $933,173 as of December 31, 1995 and
    1996, respectively, represents customer prepayments and deferred
    membership revenues. Of these amounts, $269,894 and $281,436, as of
    December 31, 1995 and 1996, respectively, represent customer
    prepayments, and $562,857 and $629,157, as of December 31, 1995 and
    1996, respectively, represent deferred membership revenues.

  (j)Foreign Currency Transactions

    Periodically, the Company may enter into foreign exchange contracts to
    hedge currency exposure on firm inventory purchase commitments. The
    Company charges foreign currency gains or losses to operations in
    accordance with Statement of Financial Accounting Standards (SFAS) No.
    52, Foreign Currency Translation. Gains and losses are included in cost
    of sales, as these amounts have historically not been material. At
    December 31, 1996, the Company did not have any foreign exchange
    contracts outstanding.

                                      32
<PAGE>

                            GEERLINGS & WADE, INC.

                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

                               DECEMBER 31, 1996


  (k)Pro Forma Earnings Data

    The Company has presented earnings per share information on a pro forma
    basis for 1994 to reflect what earnings per share would have been if
    the Company had been taxed as a C corporation for the entirety of 1994
    (see Note 6).

    Pro forma earnings per share is computed by dividing pro forma net
    income by the weighted average number of shares of common stock and
    common stock equivalents outstanding during the period. Common stock
    equivalents consist of common stock issuable on the exercise of
    outstanding options and warrants and are included when the effect is
    dilutive. They have not been included in 1995 and 1996 due to the net
    loss, as the effect would be antidilutive. In accordance with
    Securities and Exchange Commission requirements, all common stock and
    common stock equivalents issued during the 12 months preceding the
    Company's Initial Public Offering (IPO) have been included in the net
    income per share computation as if they were outstanding for all
    periods preceding the effective date of the Company's IPO using the
    treasury stock method.

    On March 3, 1997, the Financial Accounting Standards Board (FASB)
    issued SFAS No. 128, Earnings per Share. SFAS No. 128 establishes
    standards for computing and presenting earnings per share and applies
    to entities with publicly held common stock or potential common stock.
    This statement is effective for fiscal years ending after December 15,
    1997, and early adoption is not permitted. When adopted, the statement
    will require restatement of prior years' earnings per share. The
    Company will adopt this statement for its fiscal year ended December
    31, 1997. In addition, the Company believes that the adoption of SFAS
    No. 128 will not have a material effect on its financial statements.

  (l)Fiscal Year

    The Company's fiscal year ends on December 31. For interim reporting
    purposes, the Company closes its books on the Saturday of the
    thirteenth week of each interim fiscal quarter.
  (m)Accounting for the Impairment of Long-Lived Assets and for Long-Lived
  Assets To Be Disposed Of


    During March 1995, the FASB issued SFAS No. 121, Accounting for the
    Impairment of Long- Lived Assets and for Long-Lived Assets To Be
    Disposed Of, which is effective for fiscal years beginning after
    December 31, 1995. The adoption of this standard did not have a
    material effect on the Company's financial position or results of
    operations.

  (n)Financial Instruments

    SFAS No. 107, Disclosures About Fair Value of Financial Instruments,
    requires disclosure about fair value of financial instruments.
    Financial instruments consist of cash and cash equivalents, accounts
    receivable, investment in wine futures and notes payable. The estimated
    fair value of these financial instruments approximates their carrying
    value.
  (o)Concentration of Credit Risk


    SFAS No. 105, Disclosure of Information About Financial Instruments
    with Off-Balance- Sheet Risk and Financial Instruments with
    Concentrations of Credit Risk, requires disclosure of any significant
    off-balance-sheet and credit risk concentrations. Financial instruments
    that potentially subject the Company to concentrations of credit risk
    are principally cash equivalents. The Company places its cash
    equivalents in highly rated financial institutions.
  (p)Reclassifications


    Certain amounts in prior year's financial statements have been
    reclassified to conform with the current year's presentation.

                                      33
<PAGE>

                            GEERLINGS & WADE, INC.

                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

                               DECEMBER 31, 1996


(3)LINE OF CREDIT

  The Company has a demand credit line with a bank that allows the Company to
  borrow the lesser of $5,000,000 or 50% of certain inventories, as defined.
  The line of credit bears interest at the bank's base rate (8.25% at
  December 31, 1996) plus 1/4%. No commitment fees apply to the unutilized
  portion of the credit line. The line of credit is subject to periodic
  reviews by the bank. Borrowings under the line are collateralized by all
  assets of the Company. At December 31, 1996, $939,019 was outstanding under
  this line-of-credit agreement.

  The Company issued a standby letter of credit in the original amount of
  $240,000 as security on its Massachusetts lease. The letter of credit is
  reduced ratably over 36 months and expires on August 2, 1998.

  The Company maintains separate foreign exchange facilities with two banks,
  each of which allows the Company to enter into forward exchange contracts
  of up to $500,000, maturing on any one day, for the hedging of future
  foreign currency needs. At December 31, 1996, there were no outstanding
  forward exchange contracts.

(4)COMMITMENTS

  The Company leases facilities under operating lease agreements expiring
  through January 2001. Future minimum rental payments due under these
  agreements as of December 31, 1996 are as follows:

<TABLE>
<CAPTION>
                               FISCAL YEAR                             AMOUNT
                               -----------                           -----------
     <S>                                                             <C>
     1997........................................................... $   884,172
     1998...........................................................     660,528
     1999...........................................................     635,530
     2000...........................................................     473,838
     2001...........................................................      82,116
                                                                     -----------
                                                                     $ 2,736,184
                                                                     ===========
</TABLE>

  Total rental expense under these agreements included in the accompanying
  statements of operations is approximately $242,000, $509,000 and $799,000
  for the years ended December 31, 1994, 1995 and 1996, respectively.

(5)RELATED PARTIES

  For the year ended December 31, 1994, the Company purchased approximately
  $2,336,000 of goods through a wholesaler, of which a former key employee-
  stockholder held an indirect beneficial interest. Management believes these
  purchases were made at terms no less favorable than could have been
  obtained from nonrelated parties. No purchases were made from this
  wholesaler during 1995 and 1996.

(6)INCOME TAXES

  The Company was an S corporation for income tax reporting purposes through
  June 22, 1994, the day prior to the closing date of the IPO. As an S
  corporation, federal and certain state income tax consequences of the
  Company were passed through to the individual stockholders and dividend
  distributions were made to the stockholders for payment of their individual
  taxes.


                                      34
<PAGE>

                            GEERLINGS & WADE, INC.

                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

                               DECEMBER 31, 1996

  Pro forma income taxes, assuming the Company was subject to C corporation
  income taxes for the entirety of 1994, are as follows:

<TABLE>
<CAPTION>
                                                                          1994
                                                                        --------
     <S>                                                                <C>
     Federal........................................................... $534,000
     State taxes, net of federal benefit...............................  102,000
                                                                        --------
                                                                        $636,000
                                                                        ========
</TABLE>

  Income taxes, including pro forma computations, are provided for in
  accordance with SFAS No. 109, Accounting for Income Taxes. Accordingly, a
  deferred tax asset or liability is recorded based on the differences
  between the financial reporting and tax bases of assets and liabilities, as
  measured by the enacted tax rates expected to be in effect when these
  differences reverse. The deferred tax provision (benefit) results from the
  net change during the year of deferred tax assets and liabilities.

  The components of the provision (benefit) for income taxes are as follows:

<TABLE>
<CAPTION>
                                                1994        1995        1996
                                              ---------  ----------  ----------
     <S>                                      <C>        <C>         <C>
     Current-
       Federal............................... $ 351,000  $ (222,000) $       --
       State.................................   152,000         --            -
                                              ---------  ----------  ----------
                                                503,000    (222,000)        --
                                              ---------  ----------  ----------
     Deferred-
       Federal...............................   (78,000)   (212,000)   (119,000)
       State.................................   (22,000)    (36,000)    (33,000)
                                              ---------  ----------  ----------
                                               (100,000)   (248,000)   (152,000)
                                              ---------  ----------  ----------
                                              $ 403,000  $ (470,000) $ (152,000)
                                              =========  ==========  ==========
</TABLE>

  The reconciliation of the federal statutory rate to the pro forma provision
  for the year ended December 31, 1994 and reconciliation of federal
  statutory rate to the effective tax rate for the years ended December 31,
  1995 and 1996 for income taxes are as follows:

<TABLE>
<CAPTION>
                                                             1994  1995  1996
                                                             ----  ----  ----
     <S>                                                     <C>   <C>   <C>
     Income tax provision (benefit) at federal statutory
      rate..................................................  34%  (34)% (34)%
     State taxes, net of federal benefit....................   6    (5)   (6)
     Tax-exempt municipal bond interest.....................  (2)   (3)    -
     Other, net.............................................  (1)    1    (1)
                                                             ---   ----  ----
                                                              37%  (41)% (41)%
                                                             ===   ====  ====
</TABLE>


                                      35
<PAGE>

                            GEERLINGS & WADE, INC.

                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

                               DECEMBER 31, 1996

  Deferred income taxes relate to the following temporary differences as of
  December 31, 1995 and 1996:

<TABLE>
<CAPTION>
                                                             1995       1996
                                                           ---------  ---------
     <S>                                                   <C>        <C>
     Net operating loss carryforward...................... $ 271,000  $ 327,000
     Deferred revenue.....................................   278,000    299,000
     Nondeductible reserves...............................   138,000    194,000
     Depreciation and amortization........................   (68,000)   (49,000)
     Valuation allowance..................................  (271,000)  (271,000)
                                                           ---------  ---------
         Total deferred taxes............................. $ 348,000  $ 500,000
                                                           =========  =========
</TABLE>

  At December 31, 1996, the Company had available net operating loss
  carryforwards of approximately $797,000. These net operating loss
  carryforwards may by used to reduce future taxable income, if any. These
  carryforwards expire through 2011 and are subject to review and possible
  adjustment by the appropriate taxing authorities.

  Due to the uncertainty of the realization of certain of these potential tax
  benefits, the Company has recorded a valuation allowance against a portion
  of its deferred tax assets.

(7)STOCKHOLDERS' EQUITY

  (a)S Corporation Distribution

    In connection with the termination of the Company's S corporation tax
    status on June 22, 1994, the Company made a final distribution of all
    accumulated S corporation taxable earnings. On the date of such
    distribution, taxable earnings were $369,144 in excess of S corporation
    retained earnings.

  (b)Preferred Stock

    On April 8, 1994, the Board of Directors and stockholders voted to
    amend the Company's Articles and By-laws to permit the issuance of up
    to 1,000,000 shares of $.01 par value preferred stock upon the
    effective date of the IPO. The Board of Directors has full authority to
    issue this stock and to fix the voting powers, preferences, rights,
    qualifications, limitations or restrictions thereof, including dividend
    rights, conversion rights, redemption privileges and liquidation
    preferences and the number of shares constituting any series or
    designation of such series. With regard to dividends, redemption
    privileges and liquidation preferences, any particular series of
    preferred stock may rank junior to, on parity with, or senior to any
    other series of preferred stock or the common stock.

  (c)Stock Option Plans

    The Employee Stock Option Plan (Option Plan), which was adopted on June
    24, 1993, subsequently amended on February 28, 1994 and April 8, 1994,
    provides for the granting of options to employees, consultants and
    advisers of the Company. The exercise price of each option is
    determined by the Board of Directors, but in the case of incentive
    stock options, as defined in the Internal Revenue Code, shall be no
    less than 100% of the fair market value of the common stock on the date
    of grant. Options are exercisable within 10 years of the original date
    of grant. A total of 300,000 shares of common stock has been reserved
    for options to be granted under the Option Plan.

    The Nonemployee Directors' Stock Option Plan (Director Plan) was
    adopted by the Board of Directors and the stockholders on April 8, 1994
    to provide for the granting of nonqualified options to Directors of the
    Company. The options under the Director Plan are granted at fair market
    value on the date of grant. Such options are subject to vesting over
    three years and carry a 10-year term. A total of 50,000 shares of
    common stock have been reserved for options to be granted under the
    Director Plan.

                                      36
<PAGE>

                            GEERLINGS & WADE, INC.

                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

                               DECEMBER 31, 1996


    Activity under the Option Plan and Director Plan is summarized as
    follows:

<TABLE>
<CAPTION>
                                      OPTION PLAN                            DIRECTOR PLAN
                         --------------------------------------- --------------------------------------
                                      WEIGHTED                               WEIGHTED
                          NUMBER    AVERAGE PRICE EXERCISE PRICE  NUMBER   AVERAGE PRICE EXERCISE PRICE
                         OF SHARES    PER SHARE     PER SHARE    OF SHARES   PER SHARE     PER SHARE
                         ---------  ------------- -------------- --------- ------------- --------------
<S>                      <C>        <C>           <C>            <C>       <C>           <C>
Outstanding,
 December 31, 1994......   99,495      $ 8.07     $ 1.88-$ 13.25   7,500      $  8.00    $         8.00
                         --------      ------     --------------  ------      -------    --------------
  Granted...............   95,975       12.90         6.50-16.00   7,500        14.25             14.25
  Terminated............  (48,138)      11.78         8.48-13.00     --           --                --
  Exercised.............  (50,243)       5.71          1.88-8.48     --           --                --
                         --------      ------     --------------  ------      -------    --------------
Outstanding,
 December 31, 1995......   97,089       12.20         8.48-16.00  15,000          --         8.00-15.25
                         --------      ------     --------------  ------      -------    --------------
  Granted...............  255,953        5.37          3.63-8.00   7,500         4.50              4.50
  Terminated............ (117,923)      11.24         4.13-16.00     --           --                --
  Exercised.............      --          --                 --      --           --                --
                         --------      ------     --------------  ------      -------    --------------
Outstanding,
 December 31, 1996......  235,119      $ 5.26     $  3.63-$ 8.00  22,500      $  8.92    $ 4.50-$ 15.25
                         ========      ======     ==============  ======      =======    ==============
Exercisable,
 December 31, 1996......   60,734      $ 6.53     $  3.78-$ 8.00   7,500      $ 10.42    $ 8.00-$ 15.25
                         ========      ======     ==============  ======      =======    ==============
</TABLE>

    In October 1995, the FASB issued SFAS No. 123, Accounting for Stock-
    Based Compensation, which requires the measurement of the fair value of
    stock options or warrants to be included in the statement of operations
    or disclosed in the notes to the financial statements. The Company has
    determined that it will continue to account for stock-based
    compensation for employees under Accounting Principles Board Opinion
    No. 25 and elect the disclosure-only alternative under SFAS No. 123.
    Options granted in 1995 and 1996 have been valued using the Black-
    Scholes option pricing model prescribed by SFAS No. 123. The weighted
    average assumptions used for the years ended December 31, 1995 and 1996
    are as follows:


<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                                 ---------------
                                                                  1995    1996
                                                                 ------- -------
     <S>                                                         <C>     <C>
     Risk-free interest rate....................................    6.5%    6.5%
     Expected dividend yield....................................    --      --
     Expected lives............................................. 5 Years 5 Years
     Expected volatility........................................     68%     68%
</TABLE>

    The weighted average grant date fair value of options granted during
    the years ended December 31, 1995 and 1996 under these plans is $4.17
    and $2.51, respectively. As of December 31, 1995 and 1996, the weighted
    average remaining contractual life of outstanding options under these
    plans is 9.16 and 9.44 years, respectively.

    Had compensation cost for the Company's stock option plans and Employee
    Stock Purchase Plan been determined consistent with SFAS No. 123, the
    Company's net loss and net loss per share would have been the following
    pro forma amounts:


                                      37
<PAGE>

                            GEERLINGS & WADE, INC.

                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

                               DECEMBER 31, 1996

<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                                         ----------------------
                                                            1995        1996
                                                         ----------  ----------
     <S>                                                 <C>         <C>
     Net loss-
     As reported........................................ $ (677,145) $ (218,414)
     Pro forma..........................................   (680,065)   (325,799)
     Net loss per share-
     As reported........................................ $    (0.18) $    (0.06)
     Pro forma..........................................      (0.18)      (0.09)
</TABLE>

    The Black-Scholes option pricing model was developed for use in
    estimating the fair value of traded options that have no vesting
    restrictions and are fully transferable. In addition, option pricing
    models require the input of highly subjective assumptions, including
    expected stock price volatility. Because the Company's stock options
    have characteristics significantly different from those of traded
    options and because changes in the subjective input assumptions can
    materially affect the fair value estimate, in management's opinion, the
    existing models do not necessarily provide a reliable single measure of
    the fair value of its stock options.

  (d)Employee Stock Purchase Plan

    The Employee Stock Purchase Plan (the Purchase Plan) was adopted by the
    Board of Directors and the stockholders on April 8, 1994 to allow
    eligible employees, as defined in the Purchase Plan, to purchase shares
    of common stock during one or more six-month periods through payroll
    deductions. A total of 50,000 shares of common stock have been reserved
    for purchase under the Purchase Plan. As of December 31, 1996, 2,282
    shares of common stock have been purchased by employees under the
    Purchase Plan.

(8)EMPLOYEE SAVINGS PLAN

  On January 31, 1996, the Board of Directors of the Company voted to approve
  the adoption of the Geerlings & Wade, Inc. 401(k) Employee Savings Plan
  (the Plan), effective March 1, 1996. The Plan has features that provide for
  tax-deferred employee benefits under section 401(k) of the Internal Revenue
  Code. Employees of the Company may participate in the Plan after one year
  of service. The Company matches 50% of individual contributions, up to 6%
  of base salary, as defined. Employee contributions vest immediately, while
  Company matching contributions fully vest after five years of service, as
  defined. For the fiscal year ended December 31, 1996, the Company's
  contribution expense was $7,808 under the Plan.

                                      38
<PAGE>

                    INDEX OF EXHIBITS FILED WITH THIS REPORT

<TABLE>
<CAPTION>
 EXHIBIT NO.                  DESCRIPTION                  SEQUENTIAL PAGE NO.
 ----------- --------------------------------------------  -------------------
 <C>         <S>                                           <C>
 10.10       Amendment to Stock Option Plan..............
 10.27       Lease Agreement between the Company and
             Enviro-zyme International, Incorporated
             dated January 6, 1997.......................
 10.28       Lease Agreement between the Company and
             William Eddy dated January 24, 1997.........
 10.29       Employment letter agreement between the
             Company and David R. Pearce dated November
             8, 1996.....................................
 23          Consent of Arthur Andersen LLP..............
 27          Financial Data Schedule.....................
</TABLE>


                                       39