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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

                  For the fiscal year ended December 31, 2000

                                       to

 [_]
  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                                  ACT OF 1934

                  For the transition period from     to

                         Commission File Number 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)

                                  781-821-4152
              (Registrant's telephone number, including area code)

                               ----------------

        Securities Registered Pursuant to Section 12(b) of the Act: None

          Securities Registered Pursuant to Section 12(g) of the Act:

             Geerlings & Wade, Inc.'s common stock, par value $.01,
          trades on The NASDAQ Stock Market(R) under the symbol GEER.

   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 $7,229,888 on March 19, 2001.
For purposes of the foregoing sentence, the term "affiliate" includes each
director and executive officer of the registrant.

   3,855,940 shares of Common Stock were outstanding at March 19, 2001.

                      DOCUMENTS INCORPORATED BY REFERENCE

   Portions of the registrant's definitive Proxy Statement relating to the
registrant's 2001 Annual Meeting of Stockholders to be filed pursuant to
Regulation 14A are incorporated by reference in Part III of this Report.

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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's Discussion and
Analysis of Financial Condition and Results of Operations--Risk 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"), incorporated
in Massachusetts in 1986, is a direct marketer and Internet retailer of
premium, imported and domestic wines and wine-related merchandise to individual
consumers. Through frequent mailings to existing and potential customers and
through e-commerce websites, the Company offers wines selected on the basis of
their quality and price characteristics. Sales levels largely depend on
response rates to and circulation of "house mailings", "catalogs", "region
studies" and "Huib Geerlings' letters," which are product offerings sent via
the United States Postal Service to existing customers; "house e-mails," which
are product offerings sent via e-mail to existing customers; and "acquisition
mailings," which are product offerings sent via the United States Postal
Service to potential customers. Customers place orders in person or by mail,
telephone, facsimile, e-mail or through the Internet. The Company believes that
it has developed a "Geerlings & Wade" image based on informative mailings and
e-commerce websites, reliable wine recommendations, value pricing, ease of
ordering and convenient delivery.

   In 1998, the Company established an e-commerce website, geerwade.com,
through which customers may place orders for wine. In 1999, the Company
redesigned the geerwade.com website and integrated the website with its new
order management computer system, which provides real-time inventory,
electronic transfers of orders and order status and dynamic page generation to
keep the website current. In the first quarter of 1999, the Company began
offering wine accessories on geerwade.com, and during the course of the year,
migrated most of its accessory sales from accessory catalogs to geerwade.com.
In November 1999, the Company launched WineBins.com as a separate e-commerce
site through which customers can purchase many of the national wine brands that
are customarily offered in wine stores. The WineBins.com site has similar
functionality as geerwade.com. During 2000, the Company redesigned the
appearance of geerwade.com and added functionality to enhance its usefulness
for customers. In late spring of 2000, the Company commenced sending e-mails to
its customers who have provided e-mail addresses to reinforce its mail
promotions. Approximately 15% of the Company's sales in 2000 were transacted
over the Internet by customers responding to offers e-mail or placing orders
through one of the Company's websites.

   The Company seeks to comply with a myriad of applicable laws and regulations
which govern the sale of wine on a federal, state and local level. The Company
is required by law to operate licensed facilities or otherwise be permitted to
sell wine pursuant to rights granted by law to individual consumers in each
state in which it operates. Geerlings & Wade opened its first licensed facility
in Canton, Massachusetts in 1988. The Company operates additional licensed
facilities in Arizona, California, Colorado, Connecticut, Florida, Illinois,
Michigan, Minnesota, New Jersey, New York, Ohio, Texas, Virginia, and
Washington (state) and most recently opened a licensed facility in North
Carolina in May 2000. Pursuant to reciprocal rights under certain states' laws,
the Company ships wine to consumers in a limited number of additional states,
but sales in such states have been relatively insignificant to date. Certain
other states permit direct shipment of wine from out-of-state retailers, so the
Company commenced shipping into Nevada in 1997 and into Louisiana in 1998.
Residents of Alaska, New Hampshire, North Dakota and Rhode Island also began
purchasing wine from the Company's

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licensed facilities in 1999. The Company's active customers (customers who have
made a purchase within the twelve preceding months) have decreased 7.4% from
approximately 135,000 at December 31, 1999 to approximately 125,000 at December
31, 2000. All of the Company's revenues for each of the last three fiscal years
have been generated from sales in the United States.

Company Strategy

   Geerlings & Wade, as one of the leading direct marketers and e-tailers of
premium wines, seeks 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:

   Sourcing Quality Wines and Offering Value Pricing. Geerlings & Wade
primarily sources its imported wines directly from producers and negociants
(intermediaries or agents to producers in the purchasing process) in the
countries of each wine's origin. The Company mainly sources domestic wines
through wholesale channels with domestic negociants, certain wineries and wine
producers. In the case of both foreign and domestic wines, the Company at times
purchases wine in the more traditional manner by placing orders with
wholesalers. The Company has developed new relationships with domestic wine
suppliers to improve the quality and selection of wines for its customers and
has begun to add a greater assortment of nationally branded wines to its
product mix. When choosing non-branded wine, the Company selects only those
wines that perform well in blind, comparative tastings. The Company promotes
value in its selections by offering only those wines the Company believes
demonstrate a combination of superior quality and price characteristics. These
sourcing and selection techniques combined with an 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. The Company encourages repeat purchases by customers by providing the
highest quality wine it can source at each price point. Geerlings & Wade
customers rely on the Company to select and provide high quality wines rather
than relying on brand recognition, third party endorsements or independent
ratings of wine. Geerlings & Wade strives to maintain this relationship of
trust, which is critical to the success of the Company.

   Facilitating Purchasing Decisions and Educating Consumers. Geerlings & Wade
believes that many consumers who buy wine through traditional retail channels
experience difficulty in their purchasing decisions due to limited personal
knowledge of wine and lack of dependable advice at the time of 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 either have performed well in blind comparative tastings or, in the case
of branded wines, are highly rated by third party wine experts. The Company
continually provides its customers with information on various wine varietals
(grape types), grape-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. In November 2000, the Company launched a new marketing program
called "region studies" to further educate its customers about winemaking and
the particular attributes of various winemaking regions around the world. These
mailings are large format newsletters in which the Company discusses wine-
related topics about a particular wine region and offer wines from that region.
This program targets higher-end wine consumers in an effort to retain and build
this segment of the Company's customer base. The Company has received positive
feedback regarding these "region studies".

   Increasing Customer Access to Products. The Company offers its customers the
convenience of ordering products in person or by telephone, facsimile, mail, e-
mail, or the Internet, with delivery of each order directly to their home or
office as quickly as possible to states in which the Company is permitted to
ship wine. As of March 2001, the Company shipped from 16 facilities in 16
states.

   Enhancing Productivity of Mailings and E-mail. Geerlings & Wade seeks to
improve the productivity of mailings to its existing customers by analyzing
buying histories and tailoring the frequency and content of house mailings. The
Company mails promotional offers between seven and eight times per year to
acquire new

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customers and build the list of repeat customers (the "house file"). Customers
that purchase within the prior 12-month period are referred to as the Company's
12-month buyers. The Company employs techniques designed to enhance response
rates to promotional mail, to decrease costs and ultimately to find new
customers who will consistently place frequent and high dollar value orders.
The Company also sends e-mails to its customers who have provided e-mail
addresses offering the same products that are presented in its house mailings,
and letters from one of Geerlings & Wade's founders and the chairman of the
board, Huib Geerlings. The Company encourages its customers to respond to these
e-mails by replying through e-mail or by placing orders on its e-commerce sites
to reduce fulfillment and marketing costs. The Company plans to further
integrate the marketing activities of its direct mail efforts and its Internet
offerings to optimize the effectiveness of these two marketing channels. The
Company encourages customers to use the order channel that suits their
particular needs by making all channels accessible and user-friendly.

   Applying Computer Systems to Enhance Operations. The Company's software
system, developed by Avexxis Corporation, provides an order entry interface for
the Company's telephone sales representatives, electronic order entry over the
Internet, inventory management, facilities fulfillment support, purchasing,
accounting, marketing analysis and management reporting. All customer orders
are entered in the system and accepted and fulfilled at one of 16 retail
facilities. The Company depends on its computer systems to efficiently process
and account for all transactions. The Company has also developed a marketing
and merchandising database that provides valuable information used to operate
the business.

   In the fall of 2000 the Company began using software developed by Verbind,
Inc. which is intended to assist the Company in becoming more directed in its
approach to marketing and fulfilling its customers' needs. This software
provides real-time analyses of customer behavior so that the Company can
promptly respond with promotions based on the customer behavior.

   Utilizing E-commerce. The Company maintains three websites: geerwade.com
(launched in 1998), WineBins.com (launched in 1999) and topwine.com (acquired
as part of the Company's acquisition of Passort Wine Club in 1998).
Geerwade.com features the Company's traditional wine offerings, enables
customers to search the site and has real-time inventory management and
shopping cart functionality. WineBins.com, which has the same features as
geerwade.com, offers national wine brands to customers. Topwine.com offers
continuity programs through which customers receive monthly shipments of wine.
Through these websites, but primarily through geerwade.com, Internet revenue
reached nearly $5,538,000, excluding shipping revenue, in 2000. Geerlings &
Wade uses direct mail promotions to acquire new Internet customers, which
historically have been the most effective and efficient means by which to
acquire new customers. The Company plans to further develop and test customer
acquisition programs using geerwade.com. The Company has advertised
geerwade.com to its existing customers by including promotions in its house
mailings, catalogs and e-mails. In 2000, new customers used geerwade.com to
make their initial purchases at approximately the same rate as existing
customers used the website to place orders. In 2000, the Company tested several
online partnerships as a means to acquire new Internet customers. The Company
plans to pursue other online partnerships and advertising on a limited basis in
2001 to acquire new Internet customers.

   Expanding in Existing Markets. Geerlings & Wade believes that it has
penetrated its current markets but that opportunities exist to increase sales
in these markets to both current and new customers. The Company seeks to
increase sales to its current customers by further enhancing customers'
appreciation of wine through education, broadening the selection of wine and
purchasing options offered and attempting to make buying wine more convenient
and less intimidating. The Company seeks to acquire new customers through
improvements in the content, quality and circulation management of its mailings
to potential customers and through active encouragement of referrals from
existing customers. The Company believes that significant sales growth can be
achieved by increasing its conversion rates of one-time buyers to multi-buyers
and by retaining multi-buyers. The Company has taken steps to accomplish these
objectives, including adding promotional pieces that address the demands of
experienced wine consumers. Specifically, the Company launched the region study
mailing series in November 2000, which offers a range of wines at different
price points from a particular

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winemaking region. Additionally, the Company has developed special promotional
mail offers for new customers to encourage repeat purchases and convert these
one-time buyers into frequent customers. The Company has also concentrated on
integrating all of its marketing and order channels so that customers
experience consistent branding and a high level of service through all
channels. Finally, the Company strives to source the best wines available and
believes it has met this challenge as evidenced by the 60 medals awarded to its
wines over the last two years.

   Entering New Markets. Geerlings & Wade is licensed or otherwise authorized
to sell wine to individual customers in 30 states, comprising approximately 82%
of the overall United States market for table wines as of March 2001. Most
recently in May 2000, the Company opened a retail facility in North Carolina.
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 or other regulatory obstacles to
serving customers in such states.

Company Literature and Mailings

   The Company sells wine to individual consumers who are 21 years of age or
older mainly 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 100-point-scale 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 salient qualities, including color, bouquet and taste
characteristics. The Company also recommends foods and recipes to pair with the
featured wines and compares the featured wines with nationally branded wines
and wines tasted during its selection process. Geerlings & Wade distributes
primarily two types of promotional wine mailings: mailings to its file of
active customers and qualified leads, and acquisition mailings to prospective
customers obtained from rented mailing lists.

   House Mailings. Geerlings & Wade distributes house mailings to customers 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 Geerlings & Wade
products). The marketing department determines the number and timing of house
mailings based on such factors as the wines offered, prices, wine ratings, the
season and frequency and amount of customer purchases. The Company uses its
marketing database to select and analyze which customers to target and strives
to optimize sales, average order value and response rates to mailings in
relation to marketing expenses.

   The Company uses five types of house mailings:

     Brochure Mailings include a four-page brochure, which highlights one or
  two selected wines from a specific wine making region. These brochures
  contain detailed descriptions of the wines being offered and information on
  the region from which they were produced, the vintage and the background of
  the producer and the quantitative and qualitative results of the tastings
  from which the featured wines were selected. In addition to the featured
  wines, these brochures typically offer eight additional wine selections,
  along with tasting notes and ratings for these wines. Each mailing includes
  a personalized letter, an order form and a business reply envelope. The
  Company mailed 18 separate brochure mailings to its customers in 2000. Not
  all customers receive each brochure mailing.

     Odds & Ends Mailings offer a large selection of previously featured or
  promoted wines. These mailings expressly encourage customers to take
  advantage of what may be their last opportunity to purchase certain wines
  that they may have previously purchased and enjoyed. The prices of some
  wines offered through the Odds & Ends mailings are reduced. The Company
  normally mails one Odds & Ends mailing per quarter.

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     Preferred Customer and Membership Mailings. Geerlings & Wade also
  creates and mails special offers to its members and other customers based
  on their purchasing records. For example, during the 2000 holiday season,
  the Company mailed a letter from Huib Geerlings, one of the Company's
  founders and the chairman of the board, offering wines that recently were
  awarded medals to members and customers the Company had reason to believe
  would likely purchase some of these wines. These preferred offers, which
  typically are in the form of letters from Geerlings & Wade's chairman of
  the board, generate high responses from customers and enhance the personal
  touch of the Company's wine-selling service. The Company mailed 11
  preferred customer mailings in 2000.

     Special Mailings. In 2000, Geerlings & Wade mailed special offers to its
  new customers to encourage repurchases and further familiarize customers
  with the benefits and services offered by the Company. The Company also
  maintains a reactivation program in which it sends special offers to
  customers who have not purchased for two to three years in an effort to
  reactivate these older customers. The Company mailed four separate
  reactivation offers during 2000.

     Region Studies. In November 2000, the Company launched a marketing
  program called the "region study" series in the form of a newsletter to
  experienced wine consumers. Each region study profiles the unique
  attributes of a particular wine making region in the world. In these
  studies, the Company may focus on winemakers, climate as it relates to
  viticulture (the cultivation of grapes) and wine making, history, wineries,
  foods and wines of that region. The Company mailed two region studies in
  2000.

   Acquisition Mailings. The Company's primary method of acquiring new
customers is its acquisition mailing program. A typical acquisition mailing
explains the Company's selling concept, describes the particular wine being
offered and contains an order form and business reply envelope. Potential
customer names are obtained by renting lists with a demographic profile
consistent with the Company's existing customers. These lists are repeatedly
rented based on favorable historic performance. The Company generally presents
prospective customers with an offer to buy six bottles of wine for their first
purchase. After the customer purchases from the Company, they are encouraged to
buy a minimum of six bottles per order. Repeat buyers purchase 1.3 cases per
order on average.

   Production. Most of Geerlings & Wade's promotional mailings are created and
designed in-house on a desktop publishing system. The in-house creation and
design of house and acquisition mailings allow flexibility for editorial
changes and result in significant cost- and time-savings. Printing, production
and fulfillment (collating, folding, inserting and mailing) are performed
commercially off-site. The Company seeks to reduce creative, printing and
mailing costs to maximize the availability of funding for the purpose of
acquiring new customers. Mailings generally include a personalized letter, an
offering brochure, an order form and a return envelope.

   Catalogs. During 2000, Geerlings & Wade mailed three separate wine and
accessory catalogs to prospective and existing customers. One catalog was
mailed in the first quarter of 2000, and two were mailed in the third and
fourth quarter of 2000. The wine and accessory catalogs featured wines and wine
accessories from around the world and offered wine gift samplers to facilitate
customer's gift buying needs. The Company plans to continue mailing catalogs in
2001, which will focus primarily on wine. The Company believes there is an
opportunity to enhance sales to existing customers and expand its customer base
through catalog mailings, but there is no assurance that this marketing vehicle
will provide sales growth for the Company.

   Passport Wine Club Mailings. In July 1998, the Company acquired Passport
Wine Club, which sells much of its wine as part of its various continuity
programs. Continuity programs entail delivering monthly shipments of two, four,
or six bottles of wine for three, six or 12 months or for an open-ended period
until the customer cancels. Passport closely ties its marketing concept to
written narratives of trips to the wine growing regions and wineries from which
it offers wine. The Company promotes Passport programs through Passport's
website topwine.com and through a link from the geerwade.com website to the
topwine.com website. The Company also promotes Passport programs to its
existing customers by inserting advertising in house mailings and with orders
delivered to customers. In 2001, the Company plans to contact its Passport
customers to encourage repurchases of wines delivered as part of the continuity
program.

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Merchandising

   Geerlings & Wade offers its customers premium imported and domestic wines.
Imported wines are sourced primarily from France, Italy, Australia and Chile.
The Company also sources a few wines each year from Argentina, New Zealand,
South Africa, Germany and Spain. The Company's domestic wines are sourced
primarily from California, most of which are sold under private labels,
including the Company's own brands: Glass Ridge, J. Krant Cellars, Hamilton
Estates, Alazar Winery, Amsbury Winery, Bryan Woods Winery, Devina Estates,
Domaine Paul, Jack Canyon Cellars, Lapis Lazuli Winery & Vineyards, Mariel
Winery, Mira Luna, Mischler Estates, Red Brick Cellars, San Valencia Winery and
St. Carolyne Winery. The Company promotes its best-selling brands and aims to
build a long-term merchandising program that creates brand equity for these
brands. By reinforcing brand recognition vintage after vintage and by selling
quality wines, the Company encourages strong demand for these brands among its
customers and strong sales growth for these brands.

   The wines offered by the Company are based on consumption patterns and the
Company's prior experience with wines from particular wine-producing regions
and varietals. In 2000, approximately 66% of the cases sold by the Company were
imported wines and 34% were domestic. The Company's wines are generally sold
within the price range of $69 to $1,000 per 12-bottle case, with average case
prices of approximately $99.10 in 2000 for repeat customers.

   The Company offers a limited selection of nationally branded wines to its
customers through its house mailings and on its website, geerwade.com. In
November 1999, the Company launched WineBins.com, which sells nationally
branded wines exclusively. These wines are primarily purchased from licensed
wholesalers on a state by state basis and are not typically sourced through the
Company's traditional methods.

   Sales of wine accounted for 91.8%, 90.9% and 91.8% of total revenues for
each of 2000, 1999 and 1998, respectively.

Wine Sourcing and Purchasing

   The Company sources imported and domestic wines through a network of
producers, negociants, importers and wholesalers. In 2000, the Company sourced
a majority of the cases it sold directly from producers or negociants. In
addition, nationally branded wines are purchased from licensed wholesalers on a
state by state basis.

   The Company's sourcing methods for non-branded wines differ from typical
sourcing methods of wine retailers. The Company's sourcing techniques are more
typical of a wholesaler/importer in that it actively searches for and
identifies wines from producers or negociants. Through 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 its customers wines of quality and value. Following selection
and sourcing, the Company purchases both domestic and imported wines from
licensed wholesalers located in each state where the Company maintains licensed
facilities.

   The Company generally selects wines between five to eight months in advance
of offering them for sale to coordinate availability, shipping and promotional
mailing schedules. Management develops an annual merchandising plan for each
wine to be featured in its house mailing brochures. This plan specifies wine
varietals, producing region of origin and price point for each of these
features. The merchandising department then develops and purchases a
complementary product mix of eight wines to be offered with each feature in the
brochure mailings. 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 50 wines prior to selecting a
wine feature and currently rates each wine on a 100-point scale. In order to
foster movement of inventory, the majority of wine is specifically purchased to
meet the Company's promotional mailing schedule. Purchase quantities are based
on sales forecasts for the particular promotions in which the wine will be
offered. Wines for the Company's other mailings are sourced in a similar
manner. For the preferred customer and membership

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mailings, the Company has a specific range of wines it wants to offer but with
a flexible merchandising plan that can take advantage of buying exceptional
wines for this program. When buying for the Passport continuity program, the
catalogs and region studies, the Company buys in smaller lots based on expected
sales and circulation of mailings and strives to use wines in as many programs
as possible to minimize the SKU count and maximize purchasing economies of
scale.

   Sourcing Imported Wines. In 2000, the vast majority of imported wines sold
by the Company were sourced directly from the countries of origin. Many
European wines are purchased using the services of a consultant to the Company,
Mr. Peter Van Hoof, who visits European growers and negociants and administers
blind comparative tastings from his office in Rotterdam, The Netherlands. At
the Company's headquarters, wine samples, including those submitted by Mr. Van
Hoof, are tasted, compared and selected on a blind comparison basis by the
Company's Wine Director, Mr. Francis Sanders. Mr. Sanders also compares the
samples against widely available, brand name wines. When purchasing from New
Zealand, South Africa and Australia, Mr. Sanders purchases from negotiants
representing wineries from those countries. Mr. Guy Davis, the Company's
primary domestic buying agent, has begun sourcing South American wines for the
Company.

   Sourcing Domestic Wines. In 2000, a majority of the Company's domestic wines
were sourced through wholesale channels with domestic negociants and certain
wineries and wine producers. The remaining wines, national brands, were
purchased from licensed wholesalers. Mr. Davis, one of the Company's primary
negociants for the United States, sources many of the California wines sold by
the Company. Certain domestic negociants and wineries continuously review wines
at various stages of production and forward selected samples to the Company.
After the Company has selected a particular wine from among the samples
forwarded by a sourcing agent, the winery coordinates finish vinification and
bottling of the wine under a number of private labels, including the Company's
own brands.

   The Company also sources wines directly from various California wineries. As
a high-volume purchaser, the Company is directly approached by wineries and
wine producers with offers to sell wine lots of various sizes. These wines are
reviewed based on their quality and price characteristics.

   Wines Sourced by Others. Geerlings & Wade also purchases wines that have
been sourced independently for the Company by negociants, importers and
wholesalers. Due to the Company's ability to purchase in large quantities, it
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 that by maintaining these
relationships with quality wine suppliers, it can enhance its opportunity of
uncovering wines of high quality that can be sold at attractive prices.

   Inventory Management. The Company manages inventory levels and stock keeping
units (SKUs) several ways. The most important inventory management technique
involves accurate forecasting of each wine by promotion and by state over
discrete selling time frames. Unlike many retailers who constantly repurchase
products based on recent sales history of each product, Geerlings & Wade
introduces hundreds of new products each year and rarely reorders products.
This creates an unusual challenge since the Company does not have a sales
history that can be used to determine purchase quantities. However, the Company
has a high degree of control over what it sells through its promotions and has
information and reporting capabilities that enable it to accurately forecast
purchase quantities. The Company further manages inventory quantities by
selling excess wine, which did not sell in response to its intended promotion,
through special promotions. For example, the Company sells excess wine in its
Odds & Ends mailing four times per year, as "back page" wines in its house
brochure mailings approximately six times per year in 2001, as featured wines
in approximately two "Huib Geerlings" letters each year, as upsell or cross-
sell wines during telephone order taking and on its clearance page on
geerwade.com. The "Odds & Ends" mailings generate approximately 16% of the
Company's sales and are the primary promotions used to sell excess inventory.
The Company also manages the number of SKUs it purchases by only buying wines
for specific promotions and by limiting the number of SKUs it promotes since it
can be uneconomical for the Company to promote a wine of which it only holds a
small quantity.

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Information Systems and Technology

   The Company maintains computer-based systems to integrate all major aspects
of the Company's business, including order processing and acceptance, facility
fulfillment, inventory planning and management, merchandising, customer list
and circulation management and analysis, and financial and management
reporting. The Company's order management computer system integrates order
entry with each of the Company's licensed facilities and provides the online,
real-time information processing capabilities necessary for prompt fulfillment
and delivery to customers and resolution of customer service issues. Facilities
personnel access the system remotely to process customer order information. The
names and addresses of individuals who have ordered from the Company or
requested inclusion in 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 against each marketing
promotion that is sent to a customer. The system also provides the Company's
customer service representatives access to an array of product and customer
information during 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 order management computer system also provides real-time inventory
management. The Company maintains access to running totals of case sales by
market, facility inventory and customer delivery logs, all designed to arrange
for prompt and convenient delivery to customers. Regulatory requirements have
been incorporated into the order management software to allow the Company to
manage centrally inventory for each of its licensed facilities.

   The order management computer system continually updates the Company's
current database of customer names and purchasing histories to facilitate the
maximum productivity of house and acquisition mailings. In 2000, the Company
developed another database for marketing analyses and reporting. The Company
exports data from the order management system to this marketing database for
data manipulation. This marketing database enables the Company to target its
marketing programs to specific segments of its customer base. The marketing
database provides extensive reporting capabilities that allow the Company to
evaluate the effectiveness of its mailings and assists the Company in its
business planning.

   The Company's order management computer system also provides merchandising
forecasting and purchasing, links to accounts payable and accounts receivable,
and general ledger modules for accounting analysis and circulation management.

   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 expandable, permitting the
Company to add lines as necessary to increase its customer service capabilities

   The Company's websites, geerwade.com and WineBins.com, allow for interactive
queries and order requests from customers. For example, customers can query the
web server to obtain real-time information about inventory and their order
status. Accepted orders, including regulatory compliance verification data, are
electronically entered via the order management computer system and e-mails are
sent back to customers notifying them of order receipt. Inventory updates are
performed automatically based on order status in the order management system.
This e-commerce solution has generated strong customer satisfaction and allows
the Company to keep its websites current with minimal cost to the Company. This
allows the Company to focus on the website content and on marketing initiatives
to increase e-commerce sales.

   In the fall of 2000 the Company began using software developed by Verbind,
Inc. which is intended to assist the Company in becoming more directed in its
approach to marketing and fulfilling its customers' needs. The new software
provides real-time analyses of customer behavior so that the Company can
promptly respond with promotions based on customer behavior. For example, while
a customer is placing an order through the call center, the system provides
call center representatives a list of recommended wines from inventory that the

                                       8
<PAGE>

customer is likely to prefer based on his or her past purchase history. The
representative then offers these wines to customers as potential additional
purchases after the initial order. During 2001, the Company plans to further
integrate this software system into all of its marketing communications
channels.

Marketing

   The goal of the Company's marketing program is to increase the size of the
Company's customer base through acquisition, retention, repurchase, and upsell
programs delivered through targeted, high-value marketing communications that
offer quality wines at competitive prices. Marketing communications are
delivered primarily through the mail, with increasing use of Internet channels.
In 2000, the Company continued to develop its direct mail and e-mail marketing
campaigns, but, for the most part, limited its use of online and print
advertising.

   The Company's ongoing marketing programs are designed to generate
information concerning existing and new customers. This information is
incorporated into the Company's database and is used to target and acquire new
customers, increase the average order value of customer purchases and enhance
the Company's customer service capabilities. Increasingly, this data, along
with customer purchase behavior and buying preferences, will be leveraged to
define differentiated customer contact strategies.

   The Company monitors its progress in attaining its goals by tracking new and
existing customer purchase behaviors, customer retention statistics, and
individual marketing campaign performance. A primary focus is placed on
repurchase behaviors of first- and second-time buyers, high-value customers,
and multi-order customers who have not purchased in the last 12 months.

   E-Commerce. The Company participates in the e-commerce channel by
maintaining several websites through which customers can place order
information for wine and wine accessories. Geerwade.com is a vehicle by which
customers can learn about the Company, its products and, most importantly,
initiate electronic orders for wine and wine accessories. The Company's
Passport Wine Club sells monthly subscriptions of wine from its website,
topwine.com. Customers can access topwine.com directly or through geerwade.com.
Through WineBins.com, the Company offers nationally branded wines at
competitive prices. The Company created this new online store with the intent
of attracting wine consumers that prefer nationally branded wines to the
Company's traditional privately-sourced wines. The Company continues to sell
from WineBins.com but has limited the promotion of this site.

   The Company has attracted new customers to its websites and converted direct
mail customers to Internet customers. In 2000, more than 15% of the Company's
sales were placed through its websites. In 2001 and beyond, the Company plans
to promote sales growth through its Internet websites and attract customers
seeking to purchase wine through the Internet. The Company intends to continue
developing this interactive channel by expanding the number of its wine and
wine accessories available through its websites. In addition, the Company plans
to test new products and promotions on all of its websites and update website
content and functionality. The Company seeks to arrange affiliations with e-
tailers and advertising with other online companies to promote the awareness of
the Company and generate additional Internet sales. The Company plans to
continue developing and testing direct mail campaigns aimed at acquiring
customers who will make their first and follow-on purchases through any of the
Company's websites.

   Membership. To increase customer loyalty, Geerlings & Wade offers customers
the opportunity to purchase one- or three-year memberships. The Company offers
memberships in all states in which it operates where such offers are legally
permissible. Members receive a personalized membership card, are uniquely
maintained on mailing lists, and 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 offers its members free delivery on
their 12-bottle case purchases. On occasion, the membership program has
generated regulatory scrutiny, and there is no assurance that the Company will
be able to continue its membership programs in their current forms in existing
jurisdictions or those jurisdictions in which the Company may become licensed
in the future. As of December 31, 2000, the Company had approximately 33,800
members.

                                       9
<PAGE>

Customer Service

   Customers can make purchases in person at the Company's licensed facilities
or send the Company order information by e-mail, mail, telephone (1-800-782-
WINE) and facsimile (1-800-FAX-8466) and through the Internet (geerwade.com,
WineBins.com and topwine.com). The Company accepts orders and makes sales in
accordance with applicable law. Sales are consummated in the appropriate
Company licensed facility. The Company's customer service representatives
assist customers in purchasing decisions, process product orders and respond to
customer inquiries on wine information, pricing, availability and deliveries.
The customer service group responds to an average of approximately 800
telephone calls each day. Through the Company's on-line systems, customer
service representatives can quickly access a customer's complete transaction
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 on a voice messaging
system. The Company accepts the return of unopened bottles from dissatisfied
customers and credits a customer for all returns where permitted by law.
Returns and credits were approximately 1% and 2% of net sales for 1999 and
2000, respectively. The customer service group is divided between sales and
service representatives. The sales group receives inbound calls for orders,
recommends additional wines during the order and calls existing customers to
obtain reorders. The customer service group responds to all issues related to
orders and deliveries for all order channels including e-mail, facsimile, U.S.
mail, inbound calls, e-commerce and in store orders. The Company has strived to
enhance the level of customer service to improve customer satisfaction and
retention.

Competition

   The retail wine business is highly competitive. The Company competes with
supermarkets, wine specialty stores, retail liquor stores, wine merchants who
advertise delivery of products in specialty publications, and companies
specializing in direct retail marketing of wine through the Internet and other
channels. Many of these competitors have significantly greater resources than
the Company and sell mostly branded products, many of which are not offered by
the Company.

   The Company believes that by providing quality wines at competitive prices
as well as by providing a high level of service, 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, being an early entrant in many of its markets,
capitalizing on computer technology in the management of its operations and its
direct marketing programs and creating a loyal customer base. However, there
can be no assurance that the Company will be able to continue to compete
effectively against existing or new competitors.

Company Operations Within Regulatory Framework

   Regulatory Framework. The alcoholic beverage industry is highly regulated
and subject to change. Extensive and complex regulation at the federal and
state levels has resulted in what is known as the "three-tier licensing
system." At the first tier are wine makers, manufacturers, and importers who
are licensed to sell wine to the second tier, licensed wholesalers. Wholesalers
in turn supply the third tier, licensed retailers, who ultimately sell wine to
the public for personal use and not for resale. Each tier is subject to various
restrictions on its activities. Geerlings & Wade operates in the third tier. In
virtually all states, retailers are granted a license that enables them to sell
products solely to consumers within that state. A small number of states allows
interstate sales to those states having reciprocal licensing arrangements. The
Company is permitted from its California or Illinois facilities to sell and
ship to consumers in Idaho, New Mexico, Missouri and West Virginia under these
states' "reciprocal shipment" laws. In addition, without obtaining additional
facilities, the Company is permitted to sell and/or ship into Alaska, Iowa,
Louisiana, Nebraska, Nevada, New Hampshire, North Dakota, Oregon and Rhode
Island. Montana residents purchase wine under Montana's personal

                                       10
<PAGE>

importation laws from the Company's licensed facilities. Sales to consumers in
Alaska, Missouri, Montana and West Virginia to date have been relatively
insignificant because of regulatory restrictions asserted against direct
marketing and consumer advertising in those states.

   Regulatory restrictions prohibit a retailer with licensed facilities in
multiple states from transferring inventories between its 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 retailer engaged in direct
marketing 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 Arizona,
Colorado, Connecticut, Florida, Massachusetts, New Jersey, North Carolina or
Texas. In 1999, UPS stopped delivering wine for the Company in Nevada, Florida
and Connecticut, and the Company began to use higher cost, third party couriers
in these states. In addition, some states, including Alabama, South Carolina,
Tennessee and Georgia prohibit the retail delivery of alcoholic beverages
altogether. Accordingly, the Company delivers most of its own products in New
Jersey and Massachusetts and contracts with licensed, local couriers in Alaska,
Arizona, Colorado, Connecticut, Florida, Minnesota, Nevada, New Hampshire,
North Carolina, North Dakota and Texas to deliver orders to the Company's
customers. In New Jersey and Massachusetts, the Company also contracts with
local couriers to deliver some orders to its customers.

   Company Licensing and Regulatory Matters. As of December 31, 2000, the
Company held retail licenses in the 16 states where it maintains licensed
facilities, which are typically renewed on a yearly basis. As most of the
states where the Company is licensed have legal barriers against the Company
also engaging in licensed wholesaler activities in that or any other states,
the Company holds only retail licenses. All domestic and imported inventories
are sold and 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 and Internet operations within this regulatory
framework, the Company occasionally receives inquiries from state regulators
regarding its business practices. To date, such inquiries made during or prior
to 2000 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 order information is
processed centrally in Canton, Massachusetts and forwarded to an appropriate
licensed facility for acceptance and fulfillment. The Company manages the
process of ordering, order fulfillment and accounting for its inventory with
its computerized order management system, through which the Company has real-
time access to running totals of case sales by state, facility inventory, in-
transit wine purchases and customer deliveries, all designed to 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
customers who visit licensed facilities. 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 out-of-state licensed facilities, such as from California to the
Company's Nevada customers). An adult's signature is required for deliveries of
wine in all states, and in all states where required and in general, customer
payments are received prior to the delivery of product.

   In Massachusetts and in New Jersey, where UPS is not currently 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

                                       11
<PAGE>

on the frequency and concentration of orders, services 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.
The drivers in the course of their normal routes perform pickup of returns. In
Massachusetts and New Jersey, third party couriers also deliver wine for the
Company.

   Orders from customers in the states into which UPS or other delivery
companies are permitted to ship wine are retrieved as soon as possible during
the regular work week by Company employees at 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
operates a facility and which apply a sales tax to the sale of wine and wine
accessories. These states are Arizona, California, Colorado, Connecticut,
Florida, Illinois, Michigan, Minnesota, North Carolina, New York, New Jersey,
Ohio, Texas, Virginia and Washington. Massachusetts does not impose sales tax
on wine but does so on wine accessories. The Company collects and remits sales
tax on accessory sales in states in which it has nexus based on it operating a
retail facility in such state. Additionally, certain states have enacted
legislation permitting the delivery of wine to residents of their states by
licensed, out-of-state shippers on the condition that certain sales, wine
excise and/or other taxes are imposed on the customer and remitted to the state
by the shipper and/or the customer. These states include Louisiana, Nevada, New
Hampshire and Rhode Island. Since 1993, the Company has shipped wine to Idaho,
Missouri, New Mexico, Oregon and West Virginia under "reciprocity laws" without
collecting sales or use tax or notifying consumers that a use tax payment may
be required. Also, the Company does not impose or collect sales tax on orders
shipped to Alaska, Iowa, Montana, Nebraska, and North Dakota. 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. Legislation is introduced from time to time in Congress, 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 legislation of this type 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 trademarks or service marks of the Company:
Geerlings & Wade Personal Wine Service, J. Krant Cellars, Glass Ridge, Alazar
Winery, Amsbury Winery, Brava Terra, Lapis Lazuli Winery & Vineyards, St.
Carolyne Winery, San Valencia Winery, Mariel Winery, Jack Canyon Cellars,
Redbrick Cellars, Bryan Woods Winery, Mischler Estates, Hamilton Estates, Mira
Luna, Passport Wine Club, Passport Wine Club and Design, International Beer and
Ale Society, Devina Estates, Domaine Paul, Expeditions, and Vintage Impressions
Plus. The Company has filed trademark or service mark applications with the
United States Patent and Trademark Office for the following names: WineBins.com
and WineBins.com Wine Redefined. The Company believes that its trademarks or
service marks have significant value and are an important factor in the
marketing of its products and the development of its private label product
line.

                                       12
<PAGE>

Employees

   As of December 31, 2000, the Company employed a total of 79 individuals on a
full-time basis. The Company also uses part-time and contract employees on a
regular basis at each of its licensed facilities and at its corporate
headquarters.

Nasdaq Listing

   The Company has been notified by Nasdaq that the Company fails to comply
with the minimum market value of public float requirement for continued listing
under Maintenance Standard 1 as set forth in Marketplace Rule 4450(a)(2), and
that its common stock is, therefore, subject to delisting from The Nasdaq
National Market. The Company requested an oral hearing before a Nasdaq Listing
Qualifications Panel to review the Staff Determination and seek continued
listing. The Company appeared at this hearing on March 8, 2001 and provided
information supporting its position that its common stock should continue to be
listed on The Nasdaq National Market. The Panel's determination is expected to
be released by early April 2001. There can be no assurance the Panel will grant
the Company's request for continued listing. Pending a determination of the
Panel, the Company's common stock will continue to trade on The Nasdaq National
Market. In the event the Panel determines to discontinue the listing of the
Company's securities on The Nasdaq National Market, the Company believes, based
on indications at the hearing, that there is a strong likelihood that the
Company's listing will be transferred to The Nasdaq SmallCap Market.

Item 2: Properties

   As of December 31, 2000, Geerlings & Wade operated 17 licensed facilities
located in 16 states. The Company leases all of these facilities. Each facility
is centrally located with easy access to major routes for delivery
efficiencies. As of February 2001, the Company closed the Boston, MA retail
facility due to limited sales growth opportunities and did not renew its lease
that expired in March 2001.

<TABLE>
<CAPTION>
                                                        Approximate
                                                          Square
      Facility                             Location       Footage   Expiration
      --------                          --------------- ----------- ----------
      <S>                               <C>             <C>         <C>
      Executive offices, customer
       service and licensed facility... Canton, MA        32,000       2005
      Licensed facility................ Carmel, NY        10,600       2003
      Licensed facility................ Somers, CT         4,500       2001
      Licensed facility................ Waukegan, IL       9,600       2004
      Licensed facility................ Tampa, FL         10,000       2005
      Licensed facility................ South River, NJ    4,000        *
      Licensed facility................ Petaluma, CA      10,900       2004
      Licensed facility................ Kent, WA           5,000       2003
      Licensed facility................ Chantilly, VA      4,800       2002
      Licensed facility................ Miamisburg, OH     5,900       2004
      Licensed facility................ Denver, CO         6,800       2005
      Licensed facility................ Tempe, AZ          6,600       2001
      Licensed facility................ Bloomington, MN    4,700       2002
      Licensed facility................ Ann Arbor, MI      5,300       2002
      Licensed facility................ Stafford, TX       5,700       2001
      Licensed facility................ Greensboro, NC     7,000       2005
</TABLE>
--------
*  The Company presently rents the facility on a month-to-month basis and
   intends to do so for the foreseeable future.

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

                                       13
<PAGE>

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 results of operation or financial position of the
Company.

Item 4: Submission of Matters to a Vote of Security Holders

   None.

                                    PART II

Item 5: Market for Registrant's Common Equity and Related Stockholder Matters

   The Company's common stock trades on The NASDAQ Stock Market(R) 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 Nasdaq.

<TABLE>
<CAPTION>
                                                            1999        2000
                                                         ----------- -----------
                                                         High   Low  High   Low
                                                         ----- ----- ----- -----
      <S>                                                <C>   <C>   <C>   <C>
      First Quarter..................................... $9.09 $4.00 $8.25 $4.59
      Second Quarter....................................  8.25  4.63  4.97  3.00
      Third Quarter.....................................  9.00  5.50  3.20  1.89
      Fourth Quarter....................................  9.63  5.69  2.31  1.50
</TABLE>

   Over-the-counter market quotations reflect inter-dealer prices, without
retail mark-up, markdown or commissions and may not necessarily represent
actual transactions.

   As of March 19, 2001, there were approximately 142 holders of record of the
Company's common stock. Cede & Co., a nominee of the Depository Trust Company
("DTC"), owned of record 2,313,241 shares of the Company's common stock, or
approximately 60%. DTC is a securities depository for brokers, dealers and
other institutional investors. Securities are deposited with the DTC for the
purposes of permitting book entry transfers of securities among such investors.
The Company does not know the names of beneficial owners of shares that have
been deposited at the DTC.

   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 19, 2001,
3,855,940 shares were issued and outstanding; and 1,000,000 authorized shares
of preferred stock, par value $.01 per share, of which, as of March 19, 2001,
no 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.

                                       14
<PAGE>

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,
                                  -------------------------------------------
                                   1996     1997     1998     1999     2000
                                  -------  -------  -------  -------  -------
                                   (in thousands, except per share data)
<S>                               <C>      <C>      <C>      <C>      <C>
Statements of operations data:
Sales............................ $32,139  $35,247  $36,626  $38,863  $37,153
Cost of sales....................  17,188   18,185   18,160   18,940   17,304
                                  -------  -------  -------  -------  -------
  Gross profit...................  14,951   17,062   18,466   19,923   19,849
Selling, general and
 administrative expenses.........  15,080   15,618   16,712   20,578   21,314
Merger related expenses..........     --       --       --       825       49
                                  -------  -------  -------  -------  -------
  (Loss) income from operations..    (129)   1,444    1,754   (1,480)  (1,514)
Gain (Loss) on disposal of fixed
 asset...........................      16        6      --       (59)     (69)
Purchase price advance from
 Liquid Holdings.................     --       --       --       --     1,250
Interest (expense) income, net...    (257)     (23)     (10)      45     (138)
                                  -------  -------  -------  -------  -------
  (Loss) income before income
   taxes.........................    (370)   1,427    1,764   (1,494)    (471)
(Benefit) provision for income
 taxes...........................    (152)     604      751      ---     ----
                                  -------  -------  -------  -------  -------
  Net (loss) income.............. $  (218) $   823  $ 1,013  $(1,494) $  (471)
                                  =======  =======  =======  =======  =======
Net (loss) income per share
  Basic.......................... $ (0.06) $  0.22  $  0.27  $ (0.39) $ (0.12)
                                  =======  =======  =======  =======  =======
  Diluted........................ $ (0.06) $  0.22  $  0.27  $ (0.39) $ (0.12)
                                  =======  =======  =======  =======  =======
Weighted average common shares
 outstanding
  Basic..........................   3,776    3,780    3,786    3,843    3,855
  Diluted........................   3,776    3,796    3,801    3,843    3,855
<CAPTION>
                                            As of December 31,
                                  -------------------------------------------
                                   1996     1997     1998     1999     2000
                                  -------  -------  -------  -------  -------
                                              (in thousands)
<S>                               <C>      <C>      <C>      <C>      <C>
Balance sheet data:
Working capital.................. $ 8,045  $ 9,303  $ 9,977  $10,054  $ 8,745
Total assets.....................  12,952   16,124   17,205   17,755   18,158
Total stockholders' equity.......   9,526   10,362   11,405   10,227    9,788
</TABLE>

   No cash dividends have been declared per common share for each year shown.

Item 7: Management's Discussion and Analysis of Financial Condition and Results
of Operations

   The following discussion and analysis of the Company's financial condition
contains forward-looking statements, including statements about the Company's
earnings, expenses, strategies and objectives. Any such statements are subject
to risks and uncertainties that could cause the Company's actual results to
differ materially from those discussed in such forward-looking statements.
Prospective information is based on management's then current expectations or
forecasts. Such information is subject to the risk that such expectations or
forecasts, or the assumptions underlying such expectations or forecast, become
inaccurate. Factors that could affect the Company's actual results and could
cause such results to differ materially from those contained in forward-looking
statements made by or on behalf of the Company include, but are not

                                       15
<PAGE>

limited to, those discussed below under the heading "Risk Factors That May
Affect Future Results," other one-time events and other important factors
disclosed previously and from time to time disclosed in the Company's other
filings with the Securities and Exchange Commission.

Results of Operations

   The following tables set forth the percentage which certain items in the
Company's statements of income for the periods indicated bear to total sales
and the Company's sales by market for the periods indicated:

<TABLE>
<CAPTION>
                                           Years Ended December 31,
                                    -------------------------------------------
                                     1996     1997     1998     1999     2000
                                    -------  -------  -------  -------  -------
   <S>                              <C>      <C>      <C>      <C>      <C>
   Sales..........................    100.0%   100.0%   100.0%   100.0%   100.0%
   Cost of sales..................     53.5     51.6     49.6     48.7     46.6
   Gross profit...................     46.5     48.4     50.4     51.3     53.4
   Selling, general and
    administrative expenses.......     46.9     44.3     45.6     53.0     57.4
   Merger related expenses........      --       --       --       2.1      0.1
   (Loss) income from operations..     (0.4)     4.1      4.8     (3.8)    (4.1)
   Loss on disposal of fixed
    asset.........................      --       --       --       --       0.2
   Purchase price advance from
    Liquid Holdings...............      --       --       --       --       3.4
   Interest (expense) income,
    net...........................     (0.8)    (0.1)     --       0.1     (0.4)
   (Loss) income before income
    taxes.........................     (1.2)     4.0      4.8     (3.8)    (1.3)
   (Benefit) provision for income
    taxes.........................     (0.5)     1.7      2.1      --       --
   Net (loss) income .............     (0.7)     2.3      2.7     (3.8)    (1.3)
<CAPTION>
                                           Years Ended December 31,
                                    -------------------------------------------
   Market (excludes shipping
   revenue)                          1996     1997     1998     1999     2000
   -------------------------        -------  -------  -------  -------  -------
                                                (in thousands)
   <S>                              <C>      <C>      <C>      <C>      <C>
   Massachusetts(1)...............  $ 5,685  $ 6,310  $ 5,960  $ 6,553  $ 5,780
   Connecticut (2)................    2,186    2,025    2,079    2,257    2,135
   New York.......................    5,078    4,929    5,061    5,065    4,775
   Illinois(2)....................    2,563    2,702    2,805    2,939    2,726
   Florida........................    2,810    3,066    3,194    3,413    3,177
   California(2)..................    3,466    3,530    3,833    3,943    3,883
   New Jersey.....................    3,637    3,658    3,559    3,634    3,592
   Washington.....................    1,017    1,093    1,049    1,043      840
   Virginia.......................    1,707    1,963    1,996    1,889    1,795
   Ohio...........................    2,017    2,401    2,566    2,622    2,265
   Minnesota (2)..................      338      413      436      494      511
   Colorado.......................      566      713      718      769      780
   Arizona........................      431      542      601      639      668
   Michigan (June 1997)...........      --       356      917    1,126    1,234
   Texas (March 1999).............      --       --       --       480      781
   North Carolina (May 2000)......                                          359
                                    -------  -------  -------  -------  -------
     Totals.......................  $31,501  $33,701  $34,774  $36,866  $35,301
                                    =======  =======  =======  =======  =======
</TABLE>
--------
(1)  Includes sales from catalog accessories and from the Newbury Street,
     Boston store.
(2)  Includes authorized sales into additional states.

                                       16
<PAGE>

Years Ended December 31, 2000, 1999 and 1998

   Sales. The Company's revenues are derived from the sale of wine, wine-
related accessories, delivery income and memberships. In 2000, sales decreased
$1,710,000 or 4.4%, from $38,863,000 in 1999 to $37,153,000 in 2000. From 1998
to 1999, sales increased by $2,237,000, or 6.1%, from $36,626,000 in 1998.
Revenues declined in 2000 as a result of several decisions the Company made to
improve marketing efficiencies. In 2000, the Company decided to terminate
outbound telemarketing, which resulted in a sales decline of $728,000, and
decided not to mail accessory only catalogs. Accessory sales were lower in 2000
by $438,000, due to this decision and due to weaker responses to the holiday
catalogs, especially in December 2000. Additionally, sales from wine futures
and delivery income were lower by approximately $170,000 and $146,000,
respectively. Futures decreased primarily due to higher pricing and to lower
quality wines from that vintage. Delivery income declined as a result of
greater use of free shipping offers in 2000 as compared to 1999. Acquisition
sales declined by $138,000 as a result of significantly weaker response rates
to these mailings. The Company plans to continue testing new lists and creative
formats and offers to increase these response rates. Internet sales and catalog
sales contributed to the sales increase from 1998 to 1999. Internet sales,
excluding shipping revenue, accounted for 14.2% of Geerlings & Wade's 2000
revenues compared to only 5.3% in 1999. Membership revenue increased $96,000
from $574,000 in 1999 to $670,000 in 2000, or 16.7%.

   The number of cases (12 bottles) of wines sold by the Company decreased by
27,794 or 7.6%, from 364,624 cases in 1999 to 336,830 cases in 2000. From 1998
to 1999, the number of cases sold increased by 27,929 from 336,695 in 1998 to
364,624 in 1999, a 8.3% increase. The average number of cases purchased per
customer increased from 2.61 cases per year in 1998 to 2.70 cases per year in
1999. In 2000, the average number of cases purchased per customer decreased to
2.59. In large part, the increase in 1999 in the average annual number of cases
purchased was a result of fewer sales in 1999 to first time buyers, who
generally buy less than one case at the time of their first purchase. All
markets that were operating in 1999 and 2000 except Arizona, Colorado, Michigan
and Texas reflect sales declines between 1999 and 2000. Between 1998 and 1999
all markets except New York, Virginia and Washington reflected sales growth.
Sales from memberships were 1.6%, 1.8% and 1.8% of overall revenues in 1998,
1999 and 2000, respectively. Sales from wine related accessories were 1.5%,
2.4% and 1.8% of overall revenues in 1998, 1999 and 2000, respectively. Sales
from delivery income were 5.1%, 5.0% and 5.1% in 1998, 1999 and 2000,
respectively.

   The average case price for cases sold by the Company increased from $96.55
in 1999 to $100.02 in 2000, a 3.6% increase. Average case price decreased in
1999 to $96.55 or 3.1% below the 1998 average price of $99.64 per case. The
decrease in case price between 1998 and 1999 is due to lower average prices of
about 5% for wines sold to existing customers, attributable primarily to a
shift in product mix offered by the Company and to more price mark downs for
wines offered in the Odds & Ends mailings from 1999 to 1998. The Company does
not believe that it will need to lower prices to compete in the market place.
However, this does not preclude price adjustments that may be necessary to
track price trends in the marketplace precipitated by market factors such as a
drop in the price of wine from suppliers or major changes in foreign currency
exchange rates. In 2000, Geerlings & Wade continued discounting selected
products to reduce inventory and maintain a manageable number of stock keeping
units.

   Gross Profit. Gross profit declined in 2000 as compared to 1999 due to lower
sales. In 2000, gross profit decreased $76,000, or 0.37%, from $19,923,000 in
1999 to $19,849,000 in 2000. From 1998 to 1999, gross profit increased
$1,457,000 from $18,466,000 in 1998 to $19,923,000 in 1999, a change of 7.9%.
During these periods, gross profit as a percentage of sales increased from
50.4% in 1998 to 51.3% in 1999 to 53.4% in 2000. The increase in gross profit
as a percentage of sales resulted primarily from favorable exchange rates and
from improved purchasing by the Company in 1999 and 2000. Gross profits for all
sales per case of wine sold increased $4.29 per case during 2000 to $58.93 per
case from $54.64 per case in 1999. In 1998, the gross profit per case was
$54.84.

   There are several factors that cause the Company's gross margins to vary.
Fluctuations in foreign currency exchange rates influence the cost at which the
Company is able to buy wine. In addition, the Company sells its

                                       17
<PAGE>

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.
Nationally branded wines, sold on WineBins.com and geerwade.com, are sold at
gross margins which are significantly lower than the average gross margins for
the Company's privately sourced wine. Therefore, if the Company materially
increased the sale of nationally branded wine, its gross margin percentage
would be adversely affected. There are no plans to materially change the mix
between privately sourced and nationally branded wines.

   Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $736,000 from $20,578,000 in 1999 to
$21,314,000 in 2000, or 3.5%. From 1998 to 1999, selling, general and
administrative expenses increased 23.1%, from $16,712,000 to $20,578,000. As a
percentage of sales, selling, general and administrative expenses equaled 57.4%
in 2000, 53.0% in 1999 and 45.6% in 1998. Selling, general and administrative
costs increased in several areas in 2000 as compared to 1999. The largest
contributor to the increase was delivery expense, which rose $218,000. This
increase was the result of using couriers other than UPS for all of 2000 in
Nevada, Florida and Connecticut and to increasing sales in high cost delivery
states such as Texas and North Carolina. The Company continues to devote
considerable efforts in an attempt to lower delivery expenses. Costs are also
impacted by the Company's need to comply with laws and regulations related to
the retail sale of wine. In 2000, the Company operated from 17 licensed
facilities in 16 separate states. Operating these separate locations forced the
Company to incur unusually high overhead expenses as a percentage of sales.
Rent expense increased by $90,000 in 2000 due to the addition of the North
Carolina retail facility and to increased rents in various states. In 2000, the
Company also expensed $305,000 related to a severance agreement with Jay Essa,
who resigned as Chief Executive Officer in April 2000. Other minor increases
for overhead and variable costs contributed to the remaining selling, general
and administrative expense increase for 2000.

   Marketing expenses increased marginally between 2000 and 1999. Marketing
expenses, which are referred to as advertising costs in the financial statement
footnotes, increased $8,000 from $7,123,000 in 1999 to $7,131,000 in 2000. This
increase includes the $667,000 additional expense the Company recognized as a
result of a change in accounting estimate for the amortization of acquisition
mailing expenses. Expenses for acquisition mailings were higher by an
additional $537,000 as a result of mailing more acquisition mail in 2000 than
in 1999. However, response rates to these mailings were lower in 2000 and
generated fewer sales and new customers than in 1999. The increase in
acquisition mailing expenses was offset by mailing fewer catalogs, curtailing
space and radio advertising for its websites and terminating outbound
telemarketing. Marketing costs increased $1,891,000 or 36.1%, from $5,238,000
in 1998 to $7,129,000 in 1999. The majority of the increase in marketing
expenses resulted from spending approximately $1,000,000 for advertising to
promote Geerlings & Wade's Internet sites, particularly in connection with the
November 1999 launch of the WineBins.com site. In 1998, the first year the
Company had a website, the Company spent only $27,000 to promote its Internet
site. In 2000, the Company spent $140,000 on Internet marketing expenses.

   In 2000, the Company increased the circulation of house mailings and
acquisition mailings. The Company sent approximately 4,519,000 and 5,008,000
house mailings in 1999 and 2000, respectively, representing an increase of
approximately 10.8% from 1999 to 2000. In mid-1999, the Company increased the
frequency with which it mailed to its older buyers in an attempt to retain
these buyers. In 2000, the Company mailed to older buyers less frequently but
with special offers to encourage repeat purchases. This practice seeks to
maximize the response rates to these mailings while minimizing costs for
marketing to these lower performing segments. Additionally, in 2000, the
Company launched a promotional program for new customers to increase the
conversion rates of one-time buyers to frequent buyers. This program entails
special mailings and, in 2001, contacts by sales representatives. Response
rates to acquisition mailings weakened in 2000 due to increased competition
from Internet and direct mail wine retailers, deeper circulation in which
weaker buyers are mailed and rental list fatigue. The Company plans to focus on
increasing response rates to acquisition mailings in 2001. Following the
Company's decision in the second quarter of 1999 to standardize the wines it
sells in each state, the Company has been able to standardize its customer
mailings and save significant per unit printing

                                       18
<PAGE>

expenses in 2000. However, to manage inventory better by selling previously
promoted wines, the Company plans to remarket wines promoted on the back page
of about one-third of its house mailing brochures. The Company expects that
this will add to printing costs but facilitate inventory management.

   The Company anticipates that its marketing expenses in connection with its
e-commerce sites will be marginally higher in 2001 than in 2000. The Company
plans to use its traditional acquisition mailings to acquire new customers in
2001 but intends to distribute such mailings to a lower number of prospective
customers than it did in 2000. The Company plans to further develop its
catalogs devoted primarily to wine with mailings scheduled for spring and
several mailings for the holiday season of 2001. In 2001, Geerlings & Wade
plans to mail 18 brochures and four Odds & Ends mailings, 12 preferred customer
and member mailings, seven region studies and one futures mailing to its
customers. As described above, the Company plans throughout the year to mail
regular special offers to new customers and customers who have not purchased
for some time.

   Merger related expenses. Geerlings & Wade entered into a merger agreement
(the "Merger Agreement") with Liquid Holdings, Inc. and its wholly-owned
subsidiary, Liquid Acquisition Corp., in September 1999, pursuant to which
Liquid Holdings agreed to acquire all the outstanding shares of common stock of
the Company for $10 per share. The merger agreement terminated pursuant to its
terms in February 2000 because financing needed by Liquid Holdings was not
obtained. At the time of the Merger Agreement, Liquid Holdings paid the Company
a $1,250,000 fee which was refundable under certain limited circumstances.
Under the terms of the Merger Agreement, this fee could be used by the Company
for general corporate purposes. Upon the termination of the Merger Agreement in
February 2000, the Company recorded the $1,250,000 fee as other income in the
first quarter of 2000.

   Interest Income (expense). In 2000, the Company incurred interest expense of
$153,000 due to increased borrowings under the credit facility with Citizens
Bank of Massachusetts. In 1999, the Company incurred no interest expense since
it did not draw on its line of credit with BankBoston, N.A. (which terminated
in July 1999). In 1998, the Company's interest expense was $21,000. Interest
income decreased in 2000 by $29,000 from $45,000 in 1999 to $16,000 in 2000.
Interest income in 1999 increased by $14,000 to $45,000 from $31,000 in 1998.
The net effect is that Geerlings & Wade had net interest expense of $138,000 in
2000 and net interest income of $45,000 in 1999 and $10,000 in 1998.

   Provision for Income Taxes. Although the Company incurred a net loss in 1999
and 2000, the Company decided not to book a benefit in 1999 due to the
uncertainty regarding the ultimate realization of the related deferred tax
asset. The Company provided for income taxes of 42.5% in 1998.

   Net (Loss) Income. The Company recognized a net loss of $471,000 and
$1,494,000 in 2000 and 1999, respectively, after earning net income of
$1,013,000 in 1998. This reduction in net loss between 2000 and 1999 resulted
from recognition of a purchase price advance related to the termination of a
merger agreement with Liquid Holdings, Inc. in February 2000, lower merger
related costs in 2000 and improved gross margins as a percentage of sales.
These savings were offset by higher delivery expenses and severance expenses in
2000.

Liquidity and Capital Resources

   In 2000, the Company's primary capital needs were for funding the marketing
expenses in connection with advertising the Company's acquisition mailings,
purchases of software and hardware, Internet site development and purchases of
inventory to support sales growth and the Company's increasingly varied product
offerings. As of December 31, 2000, the Company had cash and cash equivalents
totaling $1,872,000, compared to $2,625,000 as of December 31, 1999.

   On April 13, 2000, the Company entered into a credit agreement with Citizens
Bank of Massachusetts. The amount borrowed under this facility bears interest
at the prime rate and is collateralized by substantially all of the assets of
the Company. The Company is required to comply with certain financial covenants
as part of

                                       19
<PAGE>

the terms and conditions of the line of credit. The Company was in default
under its credit agreement at the end of the second, third and fourth quarters
of fiscal 2000 as a result of the Company's failure to meet certain financial
covenants at the end of these quarters and to obtain certain landlords' consent
and subordination agreements. The Company has received waivers from the bank
for each period. In connection with the waiver for the most recent period, the
Company and the bank amended the credit agreement to provide for a reduction in
the principal amount available for borrowing under the facility to $1.9 million
and to provide that the Company repay amounts outstanding under the facility in
$50,000 increments on the 1st and 15th of each calendar month, beginning March
15, 2001, until such time as the Company can certify its compliance with the
financial covenants.

   In 2000, the Company used $1,537,000 in cash from operating activities
compared to $2,450,000 in 1999. The cash used in operating activities in 2000
resulted primarily from a net loss of $471,000; an increase in inventory of
$3,008,000; a decrease in accounts payable of $261,000 and accrued sales taxes
and expenses of $157,000. These cash needs were offset by a decrease in prepaid
mailing costs of $806,000, a decrease in accounts receivable of $307,000, and
an increase in deferred revenue of $285,000.

   The Company had working capital of $10,054,000 and $8,745,000 at December
31, 1999 and 2000, respectively. Under the Company's merchandising plan for
2000, the Company committed to purchasing large quantities of wine. The Company
was unable to sell all this wine at the same turn rate as it had in 1999, which
resulted in higher inventories. In addition, as a result of the alcoholic
beverage regulatory framework 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. In the second quarter of 2000, the Company opened a licensed
facility in Greensboro, North Carolina. The inventory for this facility added
to the overall inventory levels. To reduce inventory to historical levels, the
Company plans to purchase lower quantities in 2001 than it purchased for 2000
and will more frequently use wines from existing stock in its mail promotions.

   During 2000, net cash of $222,000 was used in investing activities. These
purchases included approximately $203,000 in connection with the Company's
computer system and software enhancements, $12,000 in property and equipment
and $10,000 for furniture and fixture purchases and leasehold improvements. Net
cash of $782,000 was used in investing activities in 1999. The Company used
these funds to acquire new order management software as well as software
enhancements to the website development.

   Total cash provided by financing activities in 2000 was $1,007,000, of which
$2,750,000 represented borrowings and $525,000 represented repayments under the
line of credit. An additional $11,000 was generated from issuance of stock
under the Employee Stock Purchase Plan and $21,000 represented exercise
proceeds from stock options issued under the Company's Stock Option Plan. The
cash provided from these activities was offset by the purchase price advance
from Liquid Holdings of $1,250,000, which was received in 1999.

   The Company's ability to make scheduled payments of principal of, or to pay
the interest on, or to refinance, its indebtedness, or to fund planned capital
expenditures will depend on its future performance, which, to a certain extent,
is subject to general economic, financial, competitive, legislative, regulatory
and other factors that are beyond its control. Based upon the current level of
operations, anticipated cost savings and revenue growth, the Company believes
that cash flow from operations and available cash will be adequate to meet the
Company's working capital needs for 2001. The Company's liquidity sources will
not be sufficient to permit the Company to grow in the manner it would like to
unless the Company pursues alternative sources of liquidity. However, there can
be no assurance that the Company will be able to obtain alternate sources of
liquidity on commercially reasonable terms or at all.

   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 a
foreign exchange line with Fleet National Bank that allows the Company to enter
into forward currency exchange contracts of up to $500,000 maturing on any one
day. As of December 31, 2000, the Company had no foreign exchange contracts
outstanding.

                                       20
<PAGE>

New Accounting Pronouncements

   In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44, Accounting for Certain Transactions Involving Stock
Compensation--an Interpretation of Accounting Principles Board (APB), Opinion
No. 25. The interpretation clarifies the application of APB Opinion No. 25 in
certain situations, as defined. The interpretation is effective July 1, 2000.
The adoption of this interpretation did not have any effect on the accompanying
financial statement.

   In September 2000, the Emerging Issues Task Force (EITF) issued EITF 00-10,
Accounting for Shipping and Handling Fees and Costs, which provides guidance on
classification of amounts billed to a customer and amounts incurred for
shipping and handling fees related to a sale of product. The EITF reached the
consensus that all amounts billed to a customer in a sale transaction related
to shipping and handling, if any, represent revenues earned for the goods
provided and should be classified as revenue. The EITF also concluded that the
classification of shipping and handling costs is an accounting policy decision.
Geerlings & Wade has elected to classify shipping costs in Selling, General and
Administrative Expenses.

Risk Factors That May Affect Future Results

   Regulation. The alcoholic beverage industry is subject to extensive
specialized regulation under state and federal laws and regulations, including
the following matters: 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
operations. In addition, the alcoholic beverage industry is subject to
potential legislation and regulation on a continuous basis including in such
areas as direct and Internet sales of alcohol. 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. In addition, 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 material adverse effect on the Company's
business and 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 in 1997 and 1998, the Company was not
profitable in 1995, 1996, 1999 and 2000 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.

   Liquidity. The Company's current liquidity sources are not sufficient to
permit the Company to grow in a manner that would be most advantageous for
stockholders. The Company intends to pursue alternative sources

                                       21
<PAGE>

of liquidity, but there can be no assurance that the Company will obtain
alternate sources of liquidity on commercially reasonable terms or at all.

   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 results of operations. Increases in the cost of paper or printing
could have a negative impact on the Company's business and 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 distribute its mailings 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 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 and
New Jersey, the Company is dependent upon delivery services provided by UPS or
other licensed delivery companies. A work stoppage, strike or other
interruption in service experienced by UPS or other delivery companies, such as
the UPS driver strike in 1997, may have a material adverse effect on the
Company's business and its results of operations. Additionally, increases in
shipping rates may have a material adverse effect on the Company's business and
its results of operations. Finally, if UPS terminates delivery services for
alcoholic beverages in certain states, as it did in 1999 in Florida, Nevada and
Connecticut, the Company will incur significantly higher shipping rates that
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 consistently develop a selection
of wines that will enable the Company to maintain or expand its customer base.
Many of the Company's wines are sourced by Mr. Peter Van Hoof, one of the
Company's primary negociants for Europe, and Mr. Guy Davis, one of the
Company's primary negociants for the U.S. 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 Company orders an excessive quantity of one or more wines, it 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 Geerlings & Wade 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, online wine retailers,
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 successfully compete 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 results of operations.


                                       22
<PAGE>

   Health Issues.  Since 1989, federal law has required health-warning labels
on all alcoholic beverages. Although an increasing 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 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. From time to time, 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 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 or increases in state excise tax levels may have a
material adverse effect on the Company's business and its results of
operations. In 2000, approximately 66% 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 results of operations.

   Agricultural Conditions; Grape Supply. Winemaking and grape growing are
subject to a variety of agricultural risks. Various diseases and pests,
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 and on the prices of wine established by the
Company's competition.

   Dependence on Computers. The Company relies on software, hardware, the
Internet and telecommunications equipment and services to transact, process,
record, keep, analyze and manage all aspects of its business. In the event any
of these major components or services fail for an extended period of time, this
could have a material adverse effect on the Company's operations, sales and
profitability.

Item 7A: Quantitative and Qualitative Disclosure about Market Risk

   The following discussion about the Company's market risk disclosures
contains forward-looking statements. Actual results could differ materially
from those contained in forward-looking statements.

   The Company is exposed to market risk related to foreign currency exchange
rates. The Company does not use derivative financial instruments for
speculative or trading purposes. The Company enters into foreign exchange
forward contracts to reduce its exposure to currency fluctuations on vendor
accounts payable denominated in foreign currencies. The objective of these
contracts is to neutralize the impact of foreign currency exchange rate
movements on the Company's operating results. The gains and losses on these
contracts are included in earnings when the underlying foreign currency
denominated transaction is recognized. The Company realized $321,000 in gain
related to these contracts in 2000. Losses related to these instruments for
fiscal 2000 were not material to the Company. Looking forward, the Company does
not anticipate any material adverse effect on its financial position, results
of operations or cash flows resulting from the use of these instruments.
However, there can be no assurance that these strategies will be effective or
that transaction losses can be minimized or forecasted accurately.

Item 8: Financial Statements and Supplementary Data

   The information called for by this item is indexed on page F-1 of this
Report and is contained on pages F-2 through F-20.

                                       23
<PAGE>

Item 9: Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

   None.

                                    PART III

Item 10: Directors and Executive Officers of the Registrant

   The information required by this Item is included under the captions "Re-
election of Director," "Executive Compensation; Certain Arrangements" and
"Section 16(a) Beneficial Ownership Reporting Compliance" in the proxy
statement for use in connection with the Company's 2001 Annual Meeting of
Stockholders (the "Proxy Statement"), and is incorporated herein by reference.

Item 11: Executive Compensation

   The information required by this Item is included under the captions
"Executive Compensation; Certain Arrangements," and "Compensation Committee
Report" 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
"Securities Ownership of Certain Beneficial Owners and Management" in the Proxy
Statement and is incorporated herein by reference.

Item 13: Certain Relationships and Related Transactions

   The information required by this Item is included in the caption "Re-
Election of Director--Directors' Compensation" in the Proxy Statement, and is
incorporated herein by reference.

                                    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 Act of 1933, as amended, and the Securities
Exchange Act of 1934, as amended.

<TABLE>
<CAPTION>
 Exhibit                                                            Sequential
   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)
</TABLE>

                                       24
<PAGE>

<TABLE>
<CAPTION>
 Exhibit                                                             Sequential
   No.                          Description                           Page No.
 -------                        -----------                          ----------
 <C>     <S>                                                         <C>
 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    Agreement dated as of April 7, 2000 between the Company
         and David Pearce. (18)*
 10.8.1  Credit Agreement dated as of April 13, 2000 between the
         Company and Citizens Bank of Massachusetts (18)
 10.8.2  First Amendment to the Credit Agreement dated as of
         December 4, 2000 between the Company and Citizens Bank of
         Massachusetts, including the Amended and Restated Post-
         Closing Agreement.
 10.8.3  Second Amendment to the Credit Agreement dated as of
         March 5, 2001 between the Company and Citizens Bank of
         Massachusetts.
 10.10   Stock Option Plan, as amended. (9)(13)(15)
 10.11   Non-Employee Director Stock Option Plan, as amended.
         (1)(12)
 10.12   Employee Stock Purchase Plan. (1)
 10.13   Lease Agreement between the Company and Pacific Realty
         Associates, L.P. dated July 18, 1994. (3)
 10.14   Lease Agreement between the Company and Flint Lee Limited
         Partnership dated August 31, 1994. (3)
 10.15   Lease Agreement between the Company and 47th Avenue
         Industrial Properties dated October 6, 1994. (3)
 10.16   Lease Agreement between the Company and Mehland
         Developers dated October 31, 1994. (3)
 10.17   Lease Agreement between the Company and Hohokam Realty
         Condominiums dated October 31, 1994. (4)
 10.18   Lease Agreement between the Company and Bruce K. and
         Gayle J. Hoyt dated November 23, 1994. (5)
 10.19   Master Agreement dated as of June 9, 1995 by and between
         the Company and Chemical Bank, a New York banking
         corporation. (5)
 10.20   Lease Agreement between the Company and The Naughton
         Company dated August 16, 1995. (6)
 10.21   Lease Agreement between the Company and Cole Taylor Bank
         dated August 23, 1995. (6)
 10.22   Lease Agreement between the Company and Debra Campbell
         dated July 15, 1996. (7)
 10.23   Lease Agreement between the Company and Simon Champagne
         dated July 24, 1996. (7)
 10.24   Lease Agreement between the Company and Enviro-zyme
         International, Incorporated dated January 6, 1997. (8)
 10.25   Lease Agreement between the Company and William Eddy
         dated January 24, 1997. (8)
 10.26   Lease Amendment between the Company and 47th Avenue South
         Properties, LLC dated February 1, 1998. (10)
 10.27   Lease Addendum between the Company and Mehland Developers
         dated January 13, 1998. (10)
 10.28   Lease Amendment between the Company and PBP-N, Inc. dated
         October 9, 1997. (10)
</TABLE>

                                       25
<PAGE>

<TABLE>
<CAPTION>
 Exhibit                                                             Sequential
   No.                          Description                           Page No.
 -------                        -----------                          ----------
 <C>     <S>                                                         <C>
  10.29  Lease Agreement between the Company and 216-218 Newbury
         Street Realty Trust dated January 20, 1998. (10)
  10.30  Lease Amendment between the Company and Bruce K. Hoyt
         dated March 18, 1998. (10)
  10.31  Sublease Agreement between the Company and Fishman Supply
         Co. dated June 12, 1998 and Lease Agreement between the
         Fishman Supply Co. and Charles R. Stephens dated
         September 1, 1989. (11)
  10.32  Lease Amendment between the Company and Jerry L. Ivy
         dated April 21, 1998. (13)
  10.33  Lease Agreement between the Company and Corporate
         Exchange Limited Partnership dated October 9, 1998. (13)
  10.34  Severance Agreement dated April 2, 1999 between the
         Company and Jay L. Essa. (14)
  10.35  Lease Amendment between the Company and Flint Lee Limited
         Partnership dated June 22, 1999. (16)
  10.36  Lease Amendment between the Company and William Eddy
         dated October 1, 1999. (16)
  10.37  Lease Agreement between the Company and Cader Lane
         Associates dated September 27, 1999. (16)
  10.38  Lease Amendment between the Company and Enviro-zyme
         International, Inc. dated December 18, 1999. (17)
  10.39  Lease Agreement between the Company and Wengreen, LLC
         dated November 1, 1999. (17)
  10.40  Lease Agreement between the Company and Naughton Company
         dated March 13, 2000. (17)
  10.41  Lease Agreement dated as of April 24, 2000 between the
         Company and Tampa Tri-County Flexxspace, Ltd. (18)
  10.42  Lease Amendment dated November 29, 2000 between the
         Company and M&T Partners, Inc.
  10.43  Indenture of lease dated February 16, 2000 between the
         Company and Foxford Business Center, LLC.
     21  Subsidiaries of the Company. (13)
     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-K for the year ended December
     31, 1994 (File No. 0-24048) and incorporated by reference herein.
(4)  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.
(5)  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.
(6)  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.
(7)  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.

                                       26
<PAGE>

(8)  Filed as an Exhibit to the Company's Form 10-K for the fiscal year ended
     December 31, 1996 filed on March 31, 1997 (File No. 0-24048) and
     incorporated by reference herein.
(9) Filed as an Exhibit to the Company's Registration Statement on Form S-8
    filed on September 30, 1997 (File No. 333-36741) and incorporated by
    reference herein.
(10) Filed as an Exhibit to the Company's Form 10-K for the fiscal year ended
     December 31, 1997 filed on March 30, 1998 (File No. 0-24048) and
     incorporated by reference herein.
(11) Filed as an Exhibit to the Company's Form 10-Q for the quarterly period
     ended June 30, 1998 filed on August 14, 1998 (File No. 0-24048) and
     incorporated by reference herein.
(12) Filed as an Exhibit to the Company's Registration Statement on Form S-8
     filed on October 20, 1998 (File No. 333-65907) and incorporated by
     reference herein.
(13) Filed as an Exhibit to the Company's Form 10-K for the fiscal year ended
     December 31, 1998 filed on March 30, 1999 (File No. 0-24048) and
     incorporated by reference herein.
(14) Filed as an Exhibit to the Company's Form 10-Q for the quarterly period
     ended March 31, 1999 filed on May 14, 1999 (File No. 0-24048) and
     incorporated by reference herein.
(15) Filed as an Exhibit to the Company's Registration Statement on Form S-8
     filed on August 19, 1999 (File No. 333-85557) and incorporated by
     reference herein.
(16) Filed as an Exhibit to the Company's Form 10-Q for the quarterly period
     ended September 30, 1999 filed on November 15, 1999 (File No. 0-24048) and
     incorporated by reference herein.
(17) Filed as an Exhibit to the Company's Form 10-K for the year ended December
     31, 1999 filed on March 30, 2000 (File No. 0-24048) and incorporated by
     reference herein.
(18) Filed as an Exhibit to the Company's Form 10-Q for the quarterly period
     ended June 30, 2000 filed on August 14, 2000 (File No. 0-24048) and
     incorporated by reference herein.
*  Management contract or compensatory plan

  (b)  No reports on Form 8-K were filed by the Company during the fourth
       quarter of 2000.

                                       27
<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/  David R. Pearce
                                          By: _________________________________
                                                     (David R. Pearce)
                                               President and Chief Executive
                                                          Officer

Date: March 30, 2001

   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.

<TABLE>
<CAPTION>
              Signature                          Title                   Date
              ---------                          -----                   ----

<S>                                    <C>                        <C>
      /s/ Huib E. Geerlings            Chairman of the Board and    March 30, 2001
______________________________________  Director
          Huib E. Geerlings

       /s/ David R. Pearce             President, Chief Executive   March 30, 2001
______________________________________  Officer, Chief Financial
           David R. Pearce              Officer and Treasurer
                                        (Principal Financial and
                                        Accounting Officer)

       /s/ James C. Curvey             Director                     March 30, 2001
______________________________________
           James C. Curvey

     /s/ John M. Connors, Jr.          Director                     March 30, 2001
______________________________________
         John M. Connors, Jr.

        /s/ John J. Remondi            Director                     March 30, 2001
______________________________________
           John J. Remondi

        /s/ Robert L. Webb             Director                     March 30, 2001
______________________________________
            Robert L. Webb
</TABLE>

                                       28
<PAGE>

<TABLE>
<S>                                                                                     <C>
Report of Independent Public Accountants                                                   F-2

Balance Sheets as of December 31, 1999 and 2000                                            F-3

Statements of Operations for the Years Ended December 31, 1998, 1999 and 2000              F-4

Statements of Stockholders' Equity for the Years Ended December 31, 1998, 1999 and 2000    F-5

Statements of Cash Flows for the Years Ended December 31, 1998, 1999 and 2000              F-6

Notes to Financial Statements                                                              F-7
</TABLE>

                                      F-1
<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, 1999 and 2000 and the related
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 2000.  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 auditing standards generally accepted
in the United States.  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, 1999 and 2000 and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 2000 in conformity
with accounting principles generally accepted in the United States.


/s/ Arthur Andersen LLP

Boston, Massachusetts
March 5, 2001

                                      F-2
<PAGE>

GEERLINGS & WADE, INC.

Balance Sheets
December 31, 1999 and 2000


<TABLE>
<CAPTION>

                                                                                                    DECEMBER 31,
ASSETS                                                                                           1999          2000
<S>                                                                                         <C>           <C>
Current Assets:
 Cash and cash equivalents                                                                   $ 2,624,990   $ 1,872,267
 Accounts receivable                                                                           1,395,305     1,088,660
 Inventory                                                                                     9,481,779    12,489,631
 Prepaid mailing costs                                                                           899,400        93,312
 Prepaid expenses and other current assets                                                     1,265,916       986,127
 Deferred income taxes, net                                                                      229,139       171,455
                                                                                             -----------   -----------
      Total current assets                                                                    15,896,529    16,701,452
                                                                                             -----------   -----------

Property and Equipment, at cost:
 Office and computer equipment                                                                 1,986,810     2,025,483
 Motor vehicles                                                                                   77,875        77,875
 Furniture and fixtures                                                                          377,600       326,487
                                                                                             -----------   -----------
                                                                                               2,442,285     2,429,845

 Less--Accumulated depreciation                                                                1,326,174     1,632,938
                                                                                             -----------   -----------
                                                                                               1,116,111       796,907
                                                                                             -----------   -----------
Deferred Income Taxes, net                                                                       352,408       299,162
                                                                                             -----------   -----------
Other Assets                                                                                     390,411       360,962
                                                                                             -----------   -----------
                                                                                             $17,755,459   $18,158,483
                                                                                             ===========   ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
 Line of credit                                                                            $           -   $ 2,225,000
 Accounts payable                                                                              3,354,972     3,093,647
 Current portion of deferred revenue                                                           1,171,406     1,478,648
 Accrued sales, income and payroll taxes                                                         319,318       311,245
 Accrued expenses                                                                                996,848       848,113
                                                                                             -----------   -----------
     Total current liabilities                                                                 5,842,544     7,956,653
                                                                                             -----------   -----------
Deferred Revenue, less current portion                                                           436,206       413,886
                                                                                             -----------   -----------
Purchase Price Advance from Liquid Holdings (Note 1)                                           1,250,000             -
                                                                                             -----------   -----------
Commitments and Contingencies (Note 6)

Stockholders' Equity:
 Preferred stock, $0.01 par value-
  Authorized--1,000,000 shares
  Outstanding--none                                                                                    -             -
 Common stock, $0.01 par value
  Authorized--10,000,000 shares
  Issued and outstanding--3,849,071 shares and 3,855,940 shares in 1999 and 2000,                 38,491        38,559
   respectively
 Additional paid-in capital                                                                   10,075,279    10,107,108
 Retained earnings (deficit)                                                                     112,939      (357,723)
                                                                                             -----------   -----------
      Total stockholders' equity                                                              10,226,709     9,787,944
                                                                                             -----------   -----------
                                                                                             $17,755,459   $18,158,483
                                                                                             ===========   ===========
</TABLE>


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

                                      F-3
<PAGE>

GEERLINGS & WADE, INC.

Statements of Operations
for the Years Ended December 31, 1998, 1999 and 2000

<TABLE>
<CAPTION>
                                                                                  Years Ended December 31,
                                                                             1998           1999           2000
<S>                                                                      <C>            <C>            <C>
Sales                                                                     $36,625,661    $38,863,425    $37,153,075

Cost of Sales                                                              18,159,912     18,940,024     17,304,275
                                                                          -----------    -----------    -----------

     Gross profit                                                          18,465,749     19,923,401     19,848,800

Selling, General and Administrative Expenses                               16,711,531     20,578,105     21,313,979

Merger Related Expenses                                                             -        824,838         48,981
                                                                          -----------    -----------    -----------

     Income (loss) from operations                                          1,754,218     (1,479,542)    (1,514,160)

Loss on Disposal of Fixed Asset                                                     -        (59,459)       (68,886)

Purchase Price Advance from Liquid Holdings                                         -              -      1,250,000

Interest Income                                                                31,038         44,530         15,735

Interest Expense                                                              (20,616)             -       (153,351)
                                                                          -----------    -----------    -----------

     Income (loss) before provision for income taxes                        1,764,640     (1,494,471)      (470,662)

Provision for Income Taxes                                                    751,310              -              -
                                                                          -----------    -----------    -----------

     Net income (loss)                                                    $ 1,013,330    $(1,494,471)   $  (470,662)
                                                                          ===========    ===========    ===========

Net Income (Loss) per Share:
 Basic                                                                    $      0.27    $     (0.39)   $     (0.12)
                                                                          ===========    ===========    ===========
 Diluted                                                                  $      0.27    $     (0.39)   $     (0.12)
                                                                          ===========    ===========    ===========

Weighted Average Common Shares Outstanding:
 Basic                                                                      3,786,400      3,842,742      3,855,071
                                                                          ===========    ===========    ===========
 Diluted                                                                    3,800,601      3,842,742      3,855,071
                                                                          ===========    ===========    ===========
</TABLE>

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

                                      F-4
<PAGE>

GEERLINGS & WADE, INC.
Statements of Stockholders' Equity
for the Years Ended December 31, 1998, 1999 and 2000

<TABLE>
<CAPTION>
                                                   Common Stock              Additional          Retained              Total
                                             Number of        $0.01 par       Paid-in            Earnings           Stockholders'
                                              Shares            Value         Capital           (Deficit)             Equity
<S>                                    <C>               <C>              <C>              <C>                 <C>
Balance, December 31, 1997                  3,781,343          $37,813      $ 9,729,780        $   594,080           $10,361,673

 Issuance of stock under employee
 stock purchase plan                            8,152               82           29,591                  -                29,673

 Net income                                         -                -                -          1,013,330             1,013,330
                                            ---------          -------      -----------        -----------           -----------

Balance, December 31, 1998                  3,789,495           37,895        9,759,371          1,607,410            11,404,676

 Issuance of stock under employee
 stock purchase plan                            5,991               60           26,885                  -                26,945

 Exercise of common stock options              53,585              536          249,816                  -               250,352

 Tax benefit from exercise of
 common stock options                               -                -           39,207                  -                39,207

 Net loss                                           -                -                -         (1,494,471)           (1,494,471)
                                            ---------          -------      -----------        -----------           -----------

Balance, December 31,1999                   3,849,071           38,491       10,075,279            112,939            10,226,709

 Issuance of stock under employee
 stock purchase plan                            1,869               18           11,004                  -                11,022

 Proceeds from exercise of stock
 options                                        5,000               50           20,825                  -                20,875

 Net loss                                           -                -                -           (470,662)             (470,662)
                                            ---------          -------      -----------        -----------           -----------

Balance, December 31, 2000                  3,855,940          $38,559      $10,107,108        $  (357,723)          $ 9,787,944
                                            =========          =======      ===========        ===========           ===========
</TABLE>


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

                                      F-5
<PAGE>

GEERLINGS & WADE, INC.

Statements of Cash Flows
for the Years Ended December 31, 1998, 1999 and 2000

<TABLE>
<CAPTION>
                                                                                           Years Ended December 31,
                                                                                      1998           1999          2000
<S>                                                                               <C>           <C>            <C>

Cash Flows from Operating Activities:
 Net income (loss)                                                                $ 1,013,330    $(1,494,471)  $  (470,662)
 Adjustments to reconcile net income (loss) to net cash provided by (used in)
 operating activities-
  Depreciation and amortization                                                       524,494        535,159       510,523
  Deferred income taxes                                                               134,355              -       110,930
  Loss on disposal of property and equipment                                                -         59,459        68,886
  Changes in current assets and liabilities, net of assets acquired of Passport
  Gift Co. in 1998-
   Accounts receivable                                                                (19,760)      (784,923)      306,645
   Inventory                                                                        2,930,301     (1,267,978)   (3,007,852)
   Prepaid mailing costs                                                             (372,191)       458,550       806,088
   Prepaid expenses and other current assets                                           85,030       (433,532)      271,408
   Accounts payable                                                                 1,500,630        (46,420)     (261,325)
   Deferred revenue                                                                   345,044        133,018       284,922
   Accrued sales, income and payroll taxes                                           (536,168)       (76,374)       (8,073)
   Accrued expenses                                                                  (208,948)       467,979      (148,735)
                                                                                  -----------    -----------   -----------

          Net cash provided by (used in) operating activities                       5,396,117     (2,449,533)   (1,537,245)
                                                                                  -----------    -----------   -----------

Cash Flows From Investing Activities:
 Purchases of property and equipment, net                                            (112,040)      (794,736)     (225,404)
 Proceeds from sale or return of property and equipment                                90,000              -             -
 Acquisition of Passport Gift Company, Inc., net of cash acquired                    (465,343)             -             -
 (Increase) decrease in other assets, exclusive of goodwill                           (24,409)        13,109         3,029
                                                                                  -----------    -----------   -----------

          Net cash used in investing activities                                      (511,792)      (781,627)     (222,375)
                                                                                  -----------    -----------   -----------

Cash Flows From Financing Activities:
 Borrowings under line of credit                                                    1,651,091              -     2,750,000
 Repayments under line of credit                                                   (2,633,486)             -      (525,000)
 Purchase price advance from Liquid Holdings                                                -      1,250,000    (1,250,000)
 Proceeds from issuance of stock under the Employee Stock Purchase Plan                29,673         26,945        11,022
 Tax benefit from exercise of stock options                                                 -         39,207             -
 Proceeds from exercise of stock options                                                    -        250,352        20,875
                                                                                  -----------    -----------   -----------

          Net cash (used in) provided by financing activities                        (952,722)     1,566,504     1,006,897
                                                                                  -----------    -----------   -----------

Net Increase (Decrease) in Cash and Cash Equivalents                                3,931,603     (1,664,656)     (752,723)

Cash and Cash Equivalents, beginning year                                             358,043      4,289,646     2,624,990
                                                                                  -----------    -----------   -----------

Cash and Cash Equivalents, end of year                                            $ 4,289,646    $ 2,624,990   $ 1,872,267
                                                                                  ===========    ===========   ===========

Supplemental Disclosure of Cash Flow Information:
 Cash paid during the year for-
  Interest                                                                        $    20,616   $  -           $   153,351
                                                                                  ===========   ============   ===========
  Income taxes                                                                    $ 1,095,131    $   594,300   $    11,460
                                                                                  ===========    ===========   ===========

Acquisition of Passport Gift Company, Inc.:
 Fair value of assets acquired                                                    $   206,160
 Liabilities assumed                                                                  (60,719)
 Cash paid                                                                            434,453
 Acquisition costs incurred                                                            30,890
                                                                                  -----------

          Goodwill                                                                $   319,902
                                                                                  ===========
</TABLE>


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

                                      F-6
<PAGE>

GEERLINGS & WADE, INC.

Notes to Financial Statements
December 31, 2000


(1)  OPERATIONS

     Geerlings & Wade, Inc. (the Company) is a direct marketer of premium wines
     and wine-related merchandise to retail consumers in the United States. The
     Company maintains 16 licensed facilities in 16 states. Federal, state and
     local laws strictly govern the sale of wine in each market served by the
     Company.

     On September 27, 1999, the Company entered into an Agreement and Plan of
     Merger (the Merger Agreement) with Liquid Holdings Inc. (Liquid Holdings).
     The Merger Agreement called for all stockholders to receive $10.00 in cash
     for each share of the Company's stock held by such stockholder. At the time
     of the Merger Agreement, Liquid Holdings paid the Company a fee, refundable
     under certain limited circumstances, of $1.25 million. This fee would be a
     component of the purchase price if the merger was consummated or offset the
     Company's merger related costs if the merger was not consummated. This
     amount has been recorded in the accompanying balance sheet as a liability
     as of December 31, 1999. On February 22, 2000, the Merger Agreement
     automatically terminated. The Company recorded the $1.25 million fee as
     other income in the first quarter of 2000.

     For the years ended December 31, 1999 and 2000, the Company reported losses
     from operations of approximately $1.5 million and used $2.4 and $1.5
     million, respectively, of cash in operations. The Company was in default
     under its line of credit agreement at the end of the third and fourth
     quarters of fiscal 2000 as a result of the Company's failure to meet the
     required interest service ratio at the end of these quarters. The Company
     has received waivers from the bank for both periods. In connection with the
     grant of each waiver, the Company and the bank amended the credit agreement
     to provide for the reduction in the principal amount available for
     borrowing under the facility to $1.9 million and to provide that the
     Company repay amounts outstanding under the facility on a fixed schedule.
     Management has initiated plans to reduce its operating expenses and
     increase its cash flow from operations to meet the financial covenants
     under the amended line of credit. Failure to achieve these plans or comply
     with the covenants under the amended line of credit could have a material
     adverse effect on the Company's results of operations and financial
     condition.

     The Company is subject to a number of risks and uncertainties similar to
     those of companies of the same size within its industry, including, without
     limitation, federal and state laws and regulations, dependence on wine
     selection and sourcing, customer demographics and competition.

(2)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

     (A)  USE OF 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

                                      F-7
<PAGE>

GEERLINGS & WADE, INC.

Notes to Financial Statements
December 31, 2000

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

          In December 1999, the Securities and Exchange Commission (SEC) issued
          Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in
          Financial Statements. SAB No. 101, as amended by SAB No. 101(a), is
          effective for all periods beginning after March 15, 2000. Adoption of
          SAB No. 101 did not have a material impact on the Company's financial
          position or results of operations.

     (C)  SHIPPING AND HANDLING FEES AND COSTS

          In September 2000, the Emerging Issues Task Force (EITF) issued EITF
          00-10, Accounting for Shipping and Handling Fees and Costs, which
          provides guidance on classification of amounts billed to a customer
          and amounts incurred for shipping and handling fees related to a sale
          of product. The EITF reached the consensus that all amounts billed to
          a customer in a sale transaction related to shipping and handling, if
          any, represent revenues earned for the goods provided and should be
          classified as revenue. The Company has included shipping and handling
          revenue of approximately $1,851,000, $1,997,022 and $1,851,000 in
          sales in the accompanying statements of operations for the years
          ending December 31, 1998, 1999 and 2000, respectively. The Company has
          included shipping and handling fees of approximately $3,525,000,
          $4,288,000 and $4,500,000 in selling, general and administrative
          expenses in the accompanying statements of operations for the years
          ending December 31, 1998, 1999 and 2000, respectively.

     (D)  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. As of December 31, 1999 and 2000, cash equivalents
          consist primarily of investments in money market accounts.

     (E)  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 being shipped.
          Credit card processing fees amounted to approximately $808,000,
          $916,000 and $949,000 for the years ended December 31, 1998, 1999 and
          2000, respectively, and are included in

                                      F-8
<PAGE>

GEERLINGS & WADE, INC.

Notes to Financial Statements
December 31, 2000



          selling, general and administrative expenses in the accompanying
          statements of operations.

     (F)  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).

          Included in the Company's inventory are approximately $719,000 and
          $715,000 of reservations of certain vintage wines as of December 31,
          1999 and 2000, respectively. The Company shipped approximately
          $397,000 and $195,000 of such reserves to its customers during 1999
          and 2000, respectively. The Company bears the ultimate liability for
          the wine reservations until delivered and accepted by the customers,
          at which time revenue is recognized.

     (G)  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:

          ASSET CLASSIFICATION        ESTIMATED
                                     USEFUL LIFE

           Office and computer
           equipment                     3-5 years
           Motor vehicles                3 years
           Furniture and fixtures        5 years

     (H)  OTHER ASSETS

          Other assets primarily consist of the long-term portion of deposits
          and goodwill of approximately $320,000 resulting from the acquisition
          of Passport Gift Company in 1998 (see Note 3). Goodwill is amortized
          on the straight-line basis over 15 years, the estimated useful life,
          and is shown net of approximately $53,000 of accumulated amortization
          as of December 31, 2000.

     (I)  LONG-LIVED ASSETS

          The Company applies the provisions of Statement of Financial
          Accounting Standards (SFAS) No. 121, Accounting for the Impairment of
          Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. SFAS
          No. 121 requires that long-lived assets, including intangible assets,
          be reviewed for impairment by comparing the fair value of assets with
          their carrying amounts at each reporting period. Accordingly, the
          Company evaluates the possible impairment of long-lived assets based
          on projected cash flows of the related asset. At both December 31,
          1999 and 2000, the Company determined that there was no impairment of
          long-lived assets.

                                      F-9
<PAGE>

GEERLINGS & WADE, INC.

Notes to Financial Statements
December 31, 2000



     (J)  ADVERTISING COSTS

          Advertising expense was $5,237,893, $7,123,499 and $7,130,837 for the
          years ended December 31, 1998, 1999 and 2000, respectively.

          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. Revenue
          estimates are used to determine the cost recovery period of prepaid
          mailing costs. During 2000, the Company reduced the amortization
          period for these advertising costs from up to five months to up to
          three months. Total amounts of direct advertising to prospective
          customers capitalized as of December 31, 1999 and 2000 are $899,000
          and $93,000, respectively.

     (K)  DEFERRED REVENUE

          Deferred revenue represents customer prepayments, payments for wine
          reservations and deferred membership revenue. The components of
          deferred revenue as of December 31, 1999 and 2000 are as follows:

                                                   1999            2000

           Customer prepayments              $  659,751      $  954,139
           Deferred membership revenue          947,861         938,395
                                             ----------      ----------

                 Deferred revenue            $1,607,612      $1,892,534
                                             ==========      ==========

     (L)  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 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, 2000, the Company had
          no foreign exchange contracts outstanding.

          The Financial Accounting Standards Board (FASB) issued SFAS No. 133,
          Accounting for Derivative Instruments and Hedging Activities, which
          establishes accounting and reporting standards for derivative
          instruments, including certain derivative instruments embedded in
          other contracts, and for hedging activities. It requires that an
          entity recognize all derivatives as either assets or liabilities in
          the statement of financial position and measure those instruments at
          fair value. SFAS No. 133, as amended by SFAS Nos. 137 and 138,
          Accounting for Derivative Instruments and Hedging Activities--Deferral
          of the Effective Date of FASB No. 133, is effective for all fiscal
          quarters of fiscal years beginning after June 15, 2000. The Company
          adopted this statement effective January 1, 2000 and the adoption did
          not have an impact on its financial position or results of operations.

                                      F-10
<PAGE>

GEERLINGS & WADE, INC.

Notes to Financial Statements
December 31, 2000


     (M)  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, accounts payable and bank debt. The estimated fair value
          of these financial instruments approximates their carrying value at
          December 31, 1999 and 2000, due to their short-term nature.

     (N)  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 and cash equivalents in highly rated financial institutions. No
          single supplier constituted a significant percentage of the Company's
          purchases during 1999 or 2000.

     (O)  COMPREHENSIVE INCOME (LOSS)

          SFAS No. 130, Reporting Comprehensive Income, establishes standards
          for reporting and display of all components of comprehensive income
          (loss) on an annual and interim basis. Comprehensive income (loss) is
          defined as the change in equity of a business enterprise during a
          period from transactions and other events and circumstances from
          nonowner sources. The Company's comprehensive income (loss) is equal
          to net income (loss) for all periods presented.

     (P)  SEGMENT REPORTING

          SFAS No. 131, Disclosures about Segments of an Enterprise and Related
          Information, establishes standards for the way that public business
          enterprises report information about operating segments in annual
          financial statements and requires that enterprises report selected
          information about operating segments in interim financial reports
          issued to stockholders.

          SFAS No. 131 also establishes standards for related disclosures about
          products and services, geographic areas and major customers. The
          Company operates in one industry segment and provides one service
          function. The Company's revenues are wholly derived from customers
          within the United States.

     (Q) RECENTLY ISSUED ACCOUNTING STANDARDS

          In March 2000, the FASB issued Interpretation No. 44, Accounting for
          Certain Transactions Involving Stock Compensation--An Interpretation
          of APB Opinion No. 25. This interpretation provides guidance on the
          application of Accounting Principles Board (APB) Opinion No. 25,
          including (i) the definition of an employee, (ii) the criteria for
          determining whether a plan qualifies as a

                                      F-11
<PAGE>

GEERLINGS & WADE, INC.

Notes to Financial Statements
December 31, 2000


          noncompensatory plan, (iii) the accounting consequence of various
          modifications to the terms of a previously fixed stock option or award
          and (iv) the accounting for an exchange of stock compensation awards
          in a business combination. This interpretation was effective July 1,
          2000 and the effects of applying the interpretation were recognized on
          a prospective basis. The adoption of this interpretation did not have
          a material impact on the Company's results of operations or financial
          condition.

     (R)  RECLASSIFICATIONS

          Certain reclassifications have been made to the 1998 and 1999
          financial statements to conform to the 2000 presentation.

(3)  ACQUISITION

     On July 7, 1998, pursuant to an asset purchase agreement with Passport Gift
     Company, Inc. (Passport), the Company acquired certain assets and assumed
     certain liabilities for consideration of $465,343 in cash, including
     acquisition costs. This transaction was accounted for as a purchase in
     accordance with APB No. 16, Accounting for Business Combinations, and,
     accordingly, the results of Passport since July 7, 1998 have been included
     in the accompanying statement of operations. The results of Passport's
     operations are not material to the financial statements as a whole. The
     purchase price was allocated to the acquired assets as follows:

            Accounts receivable                         $  1,576
            Inventory                                    159,513
            Prepaid mailing expenses                      28,276
            Property and equipment                        13,076
            Other assets                                   3,719
            Goodwill                                     319,902
            Liabilities assumed                          (60,719)
                                                        --------

                                                        $465,343
                                                        ========

(4)  NET INCOME (LOSS) PER SHARE

     The Company applies the provisions of SFAS No. 128, Earnings per Share.
     Accordingly, basic net income (loss) per common share is computed by
     dividing net income (loss) available to common stockholders by the weighted
     average number of common shares outstanding during the period. Diluted net
     loss per share in 1999 and 2000 is computed in the same way as basic, as
     all common equivalent shares are considered antidilutive. Diluted net
     income per share is computed by adding the number of additional common
     shares that would have been outstanding if the dilutive potential common
     shares had been issued to the weighted average number of common shares
     outstanding. For the years ended December 31, 1998, 1999 and 2000, 245,468,
     414,067 and 371,849 of antidilutive shares, respectively, have been
     excluded from the weighted average number of common and common equivalent
     shares outstanding.

                                      F-12
<PAGE>

GEERLINGS & WADE, INC.

Notes to Financial Statements
December 31, 2000


     A reconciliation of basic and diluted shares outstanding is as follows:
<TABLE>
<CAPTION>
                                                                Years Ended December 31,
                                                      1998                 1999                 2000
<S>                                           <C>                  <C>                  <C>
     Basic weighted average shares                  3,786,400            3,842,742            3,855,071
     outstanding
     Weighted average common equivalent
     shares from options                              14,201                    -                    -
                                                   ---------            ---------            ---------
          Diluted weighted average
          shares outstanding                       3,800,601            3,842,742            3,855,071
                                                   =========            =========            =========
</TABLE>
(5)  LINE OF CREDIT

     On April 13, 2000, the Company entered into a two-year line-of-credit
     agreement with a bank that allows the Company to borrow the lesser of
     $5,000,000 or 50% of certain inventories, as defined. The borrowings under
     the line of credit bear interest at the bank's prime rate (9.5% at December
     31, 2000). The Company is required to maintain certain financial covenants,
     including a minimum consolidated debt service ratio and a minimum
     consolidated leverage ratio. The Company was not in compliance with these
     covenants as of December 31, 2000. At December 31, 2000, the Company had
     $2,225,000 outstanding under the line and there was no amount available for
     future borrowings.

     On March 5, 2001, the line of credit was amended to waive the default of
     the financial covenants for the fiscal quarter ended December 31, 2000. The
     amendment also reduced the maximum borrowing amount to $1,900,000, as of
     March 5, 2001, and automatically reduces the maximum borrowing amount by
     $50,000 on the first and fifteenth of each calendar month, until the events
     of default have been cured. The Company expects to be in compliance with
     the covenants as of the end of the fiscal quarter ended March 31, 2001.

     The Company maintains separate foreign exchange facilities with a bank,
     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, 1999, there were three outstanding forward
     exchange contracts in French francs for a total of approximately FF 5.0
     million (approximately $783,000 at December 31, 1999). These contracts
     expired at different periods from March through April 2000. There were no
     forward foreign exchange contracts outstanding at December 31, 2000.

                                      F-13
<PAGE>

GEERLINGS & WADE, INC.

Notes to Financial Statements
December 31, 2000



(6)  COMMITMENTS AND CONTINGENCIES

     (A)  LEASE COMMITMENTS

          The Company leases facilities under operating lease agreements
          expiring through September 2005. Future minimum rental payments due
          under these agreements as of December 31, 2000 are approximately as
          follows:

                               FISCAL YEAR       AMOUNT
                                  2001         $  898,000
                                  2002            803,000
                                  2003            666,000
                                  2004            527,000
                                  2005            251,000
                                               ----------

                                               $3,145,000
                                               ==========


          Total rental expense under these agreements included in the
          accompanying statements of operations is approximately $1,003,000,
          $1,081,000 and $1,172,000 for the years ended December 31, 1998, 1999
          and 2000, respectively.

     (B)  LITIGATION

          In the ordinary course of business, the Company is party to various
          types of litigation. The Company believes it has meritorious defenses
          to all claims and, in its opinion, all litigation currently pending or
          threatened will not have a material effect on the Company's financial
          position or results of operations.

(7)  INCOME TAXES

     Income taxes 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.

                                      F-14
<PAGE>

GEERLINGS & WADE, INC.

Notes to Financial Statements
December 31, 2000



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

<TABLE>
                                             1998                 1999                   2000
<S>                                 <C>                  <C>                    <C>
     Current-
      Federal                              $486,955             $       -             $ (84,000)
      State                                 130,000                     -               (26,000)
                                           --------             ---------             ---------

                                            616,955                     -              (110,000)
                                           --------             ---------             ---------

     Deferred (benefit) expense-
      Federal                               105,355              (245,000)             (313,000)
      State                                  29,000               (69,000)             (113,000)
                                           --------             ---------             ---------

                                            134,355              (314,000)             (426,000)
                                           --------             ---------             ---------

     Valuation allowance                          -               314,000               536,000
                                           --------             ---------             ---------

                                           $751,310             $       -             $       -
                                           ========             =========             =========
</TABLE>

     The valuation allowance against a portion of the Company's deferred tax
     asset is due to uncertainty as to when the benefits of the favorable tax
     attributes in future income tax returns will be realized. Realization of
     the remaining deferred tax asset is dependent on generating sufficient
     taxable income during the carryforward period. Although realization is not
     assured, management believes it is more likely than not that all of the
     deferred tax asset, net of the valuation allowance, will be realized. The
     amount of the deferred tax asset considered realizable, however, could be
     reduced in the near term if estimates of future taxable income during the
     carryforward period are reduced. In reaching this determination, management
     reviewed the Company's historical performance and projections of future
     results. These projections provide positive evidence of future probable
     realization of the future remaining tax asset within the prescribed
     carryforward timeframe.

     The reconciliation of the federal statutory rate to the effective tax rate
     for the years ended December 31, 1998, 1999 and 2000 for income taxes are
     as follows:

<TABLE>
<S>                                                            <C>               <C>               <C>
                                                                 1998              1999              2000

     Income tax provision (benefit) at federal                   34.0%           (34.0)%           (34.0)%
      statutory rate
     State taxes, net of federal benefit                          6.0              (6.0)             (6.0)
     Non deductible merger costs                                  0.0              22.0             (75.0)
     Increase in valuation allowance                              0.0              16.5             113.9
     Other, net                                                   2.5               1.5               1.1
                                                                 ----            ------            ------
                                                                 42.5%              0.0%              0.0%
                                                                 ====            ======            ======
</TABLE>

                                      F-15
<PAGE>

GEERLINGS & WADE, INC.

Notes to Financial Statements
December 31, 2000



     Deferred income taxes relate to the following temporary differences as of
     December 31, 1999 and 2000:

<TABLE>
                                                                1999                  2000
<S>                                                         <C>                   <C>

     Deferred revenue                                           $ 466,000             $ 384,000
     Capitalized inventory                                        186,000               244,000
     Nondeductible reserves                                       242,000               398,000
     Depreciation and amortization                                 91,000               255,000
     Net operating loss carryforward                               68,000                16,000
     Tax benefit from disqualifying dispositions                   39,000                     -
     Deferred costs                                              (197,000)               24,000
     Valuation allowance                                         (314,000)             (850,000)
                                                                ---------             ---------

          Total deferred taxes                                  $ 581,000             $ 471,000
                                                                =========             =========
</TABLE>
(8)  STOCKHOLDERS' EQUITY

     (A)  PREFERRED STOCK

          The Company has authorized 1,000,000 shares of $0.01 par value
          preferred stock. 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.

     (B)  STOCK OPTION PLANS

          The Employee Stock Option Plan (the Option Plan), 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
          600,000 shares of common stock has been reserved for options to be
          granted under the Option Plan.

          The Nonemployee Directors' Stock Option Plan (the 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 125,000
          shares of common stock have been reserved for options to be granted
          under the Director Plan.

                                      F-16
<PAGE>

GEERLINGS & WADE, INC.

Notes to Financial Statements
December 31, 2000



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

<TABLE>
<CAPTION>
                                                           Option Plan
                                           Number of        Weighted       Exercise
                                            Shares       Average Price     Price per
                                                            per share       share

<S>                                       <C>              <C>        <C>
      Outstanding, December 31, 1997        213,890            $4.84    $  3.78-8.00
        Granted                             196,500             4.31       3.00-4.50
        Terminated                          (75,363)            5.55       4.00-8.00
                                           --------            -----    ------------

      Outstanding, December 31, 1998        335,027             4.37       3.00-8.00
        Granted                             207,000             6.68       5.56-7.63
        Terminated                         (134,375)            5.85       3.00-8.00
        Exercised                           (53,585)            4.67       4.00-8.00
                                           --------            -----    ------------

      Outstanding, December 31, 1999        354,067             5.11       3.00-8.00
        Granted                             151,500             3.59       2.06-4.44
        Terminated                         (183,718)            4.49       2.06-8.00
        Exercised                            (5,000)            4.18       4.00-4.38
                                           --------            -----    ------------
      Outstanding, December 31, 2000        316,849            $4.76    $ 2.06-$8.00
                                           ========            =====    ============
      Exercisable, December 31, 2000        132,180            $5.58    $ 3.00-$8.00
                                           ========            =====    ============
      Exercisable, December 31, 1999        149,011            $4.36    $ 3.00-$8.00
                                           ========            =====    ============
      Exercisable, December 31, 1998        156,250            $4.57    $ 3.78-$8.00
                                           ========            =====    ============

</TABLE>
<TABLE>
<CAPTION>
                                                          Director Plan
                                                             Weighted      Exercise
                                          Number of        Average Price   Price Per
                                            Shares           per share      share
<S>                                     <C>               <C>          <C>
      Outstanding, December 31, 1997         30,000            $6.85    $4.38-$15.25
        Granted                              15,000             4.41       4.31-4.59
                                           --------            -----    ------------

      Outstanding, December 31, 1998         45,000             6.04      4.31-15.25
        Granted                              15,000             7.02       6.81-7.13
                                           --------            -----    ------------

      Outstanding, December 31, 1999         60,000             6.28      4.31-15.25
        Granted                              12,500             3.48       3.38-3.50
        Terminated                          (17,500)            5.05       3.50-7.13
                                           --------            -----    ------------

      Outstanding, December 31, 2000         55,000            $6.04    $3.38-$15.25
                                           ========            =====    ============
      Exercisable, December 31, 2000         34,996            $6.74    $4.31-$15.25
                                           ========            =====    ============
      Exercisable, December 31,1999          29,944            $6.85    $4.31-$15.25
                                           ========            =====    ============
      Exercisable, December 31,1998          18,330            $8.38    $4.38-$15.25
                                           ========            =====    ============
</TABLE>

                                      F-17
<PAGE>

GEERLINGS & WADE, INC.

Notes to Financial Statements
December 31, 2000




      The following table summarizes information about stock options outstanding
      and exercisable at December 31, 2000 under the Option Plan:

<TABLE>
<CAPTION>
                             Options Outstanding
                          Number              Weighted                                       Options Exercisable
     Exercise        Outstanding as      Average Remaining    Weighted Average   Number Exercisable     Weighted Average
 Price/Range of      of December 31,      Contractual Life        Exercise         at December 31,          Exercise
 Exercise Prices          2000               (In Years)            Price                 2000                 Price
<S>                 <C>                  <C>                  <C>                  <C>                  <C>
$  2.06-3.00             59,000                  9.2                $2.47                5,000                $3.00
   4.00-5.25            164,000                  8.0                 4.45               60,666                 4.83
   6.06-8.00             93,849                  7.4                 6.74               66,514                 6.45
                        -------                                     -----              -------                -----

                        316,849                                     $4.76              132,180                $5.58
                        =======                                     =====              =======                =====
</TABLE>
      The following table summarizes information about stock options outstanding
      and exercisable at December 31, 2000 under the Director Plan:

<TABLE>
<CAPTION>
                             Options Outstanding
                          Number              Weighted                                       Options Exercisable
     Exercise        Outstanding as      Average Remaining    Weighted Average   Number Exercisable     Weighted Average
 Price/Range of      of December 31,      Contractual Life        Exercise         at December 31,          Exercise
 Exercise Prices          2000               (In Years)            Price                 2000                 Price
<S>                 <C>                  <C>                  <C>                  <C>                  <C>
$  3.38-4.63             35,000                  7.4               $ 4.15               21,664               $ 4.44
   6.81-8.00             15,000                  6.8                 7.36                8,332                 7.62
       15.25              5,000                  4.4                15.25                5,000                15.25
                         ------                                    ------               ------               ------

                         55,000                                    $ 6.04               34,996               $ 6.74
                         ======                                    ======               ======               ======
</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 APB Opinion No. 25, Accounting for Stock Issued to
      Employees, and elect the disclosure-only alternative under SFAS No. 123.
      Options granted in 1998, 1999 and 2000 have been valued using the Black-
      Scholes option pricing model prescribed by SFAS No. 123.

                                      F-18
<PAGE>

GEERLINGS & WADE, INC.

Notes to Financial Statements
December 31, 2000



     The weighted average assumptions used for the years ended December 31,
     1998, 1999 and 2000 are as follows:

<TABLE>
<CAPTION>
                                                 December 31,
                                     1998             1999             2000
<S>                           <C>             <C>               <C>

     Risk-free interest rate    4.76 to 5.7%     4.77 to 6.0%     6.05 to 6.69%
     Expected dividend yield    -                -                -
     Expected lives             9 years          8 years          8 years
     Expected volatility        96%              93%              78%
</TABLE>

     The weighted average fair value of options granted during the years ended
     December 31, 1998, 1999 and 2000 under these plans is $3.83, $5.71 and
     $2.85, respectively. As of December 31, 1998, 1999 and 2000, the weighted
     average remaining contractual life of outstanding options under these plans
     is 8.4, 7.9 and 8.0 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 income (loss) and net income (loss) per share would have been
     the following pro forma amounts:

<TABLE>
<CAPTION>
                                                         December 31,
                                             1998            1999              2000
<S>                                     <C>             <C>              <C>
     Net income (loss)-
       As reported                        $1,013,330     $(1,494,471)      $  (470,662)
       Pro forma                             690,050      (2,042,038)       (1,229,109)

     Basic net income (loss) per share-
       As reported                        $     0.27     $     (0.39)      $     (0.12)
       Pro forma                                0.18           (0.53)            (0.32)
</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.

(C)  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

                                      F-19
<PAGE>

GEERLINGS & WADE, INC.

Notes to Financial Statements
December 31, 2000


          Purchase Plan. As of December 31, 1999 and 2000, a cumulative total of
          20,243 shares and 22,112 shares, respectively, of common stock have
          been purchased by employees under the Purchase Plan.

     (D)  NASDAQ DELISTING

          The Company has been notified by NASDAQ that the Company fails to
          comply with the minimum market value of public float requirement for
          continued listing, and that its securities are, therefore, subject to
          delisting from The NASDAQ National Market. The Company requested an
          oral hearing before a NASDAQ Listing Qualifications Panel to review
          the Staff Determination and seek continued listing. The Company
          appeared at this hearing on March 8, 2001 and provided information
          supporting its position that its common stock should continue to be
          listed on The NASDAQ National Market. The Panel's determination is
          expected to be released by the end of March or early April. There can
          be no assurance the Panel will grant the Company's request for
          continued listing. Pending a determination of the Panel, the Company's
          common stock will continue to trade on The NASDAQ National Market. In
          the event the Panel determines to discontinue the listing of the
          Company's securities on The NASDAQ National Market, the Company
          intends to seek listing on The NASDAQ SmallCap Market. However, there
          is no assurance that any such actions will be effective or that
          listing will not cease after the Panel's determination.

(9)  EMPLOYEE SAVINGS PLAN

     The Geerlings & Wade, Inc. 401(k) Employee Savings Plan (the Plan) allows
     for tax-deferred employee benefits under Section 401(k) of the Internal
     Revenue Code. Employees of the Company are immediately eligible to
     participate in the Plan subject to entry dates of January 1 and July 1..
     The Company matches 50% of individual contributions, up to 6% of
     compensation, as defined. Employee contributions vest immediately, while
     Company matching contributions fully vest after five years of service, as
     defined. During fiscal 2000, the Plan was amended to allow employees to
     participate immediately and to change the vesting of company matching
     contributions to four years. For the fiscal years ended December 31, 1998,
     1999 and 2000, the Company's contribution expense was $31,500, $36,600 and
     $27,454, respectively, under the Plan.

(10) RELATED PARTY

     During 2000, the Company expensed approximately $266,000 for services
     provided by Hill, Holiday in connection with the development and
     enhancement of its websites and for certain advertising services. The Chief
     Executive Officer of Hill, Holiday is a member of the Company's Board of
     Directors. The Company believes these transactions are at an arm's-length
     basis.

(11) SUMMARY OF QUARTERLY DATA (UNAUDITED)

A summary of quarterly data follows (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                              1999 Quarter Ended
                                  March 31             June 30           September 30          December 31
                             -------------------  ------------------  -------------------  -------------------
<S>                          <C>                  <C>                 <C>                  <C>
Net Sales                                 9,055                9,040               7,740               13,029
Gross Profit                              4,627                4,637               4,088                6,572
Operating (loss) profit                    (502)                 362                (408)                (932)
Net (loss) Income                          (282)                 217                (262)              (1,167)
(Loss) Earnings per share:
    Basic                                 (0.07)                0.06               (0.07)               (0.30)
    Diluted                               (0.07)                0.06               (0.07)               (0.30)
</TABLE>

<TABLE>
<CAPTION>
                                                              2000 Quarter Ended
                                  March 31              June 30           September 30         December 31
                             -------------------  -------------------  -------------------  ------------------
<S>                          <C>                  <C>                  <C>                  <C>
Net Sales                                 8,529                9,363               7,252               12,009
Gross Profit                              4,407                4,774               3,583                7,085
Operating (Loss) Profit                  (1,601)                (317)               (162)                 565
Net (Loss) Income                          (412)                (357)               (210)                 509
Earnings per share:
    Basic                                 (0.11)               (0.09)              (0.05)                0.13
    Diluted                               (0.11)               (0.09)              (0.05)                0.13
</TABLE>


                                      F-20