<PAGE>
 
                                  FORM 10-K/A
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549
(Mark One)
[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934 (FEE REQUIRED)

                  For the fiscal year ended December 31, 1997

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

            For the transition period from __________ to __________

                        COMMISSION FILE NUMBER 0-24048

                            GEERLINGS & WADE, INC.
            (Exact name of registrant as specified in its charter)

        Massachusetts                                     04-2935863
(State or other jurisdiction of                     (IRS Employer
incorporation or organization)                      Identification Number)
 
960 Turnpike Street, Canton, Massachusetts             02021
(Address of Principal Executive Offices)            (Zip Code)

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

          Securities registered pursuant to Section 12(b) of the Act:
                                     NONE


          Securities registered pursuant to Section 12(g) of the Act:
   Common Stock, par value $0.01 per share listed on the NASDAQ Stock Market

     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. [X]

     The aggregate market value of Common Stock of the registrant held by non-
affiliates of the registrant was approximately $9,535,986 on March 20, 1998.
For purposes of the foregoing sentence, the term "affiliate" includes each
director and executive officer of the registrant.
 
  3,785,316 shares of Common Stock were outstanding at March 20, 1998
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
  Portions of the registrant's definitive Proxy Statement relating to the
registrant's 1998 Annual Meeting of Stockholders ("Proxy Statement") to be
filed pursuant to Regulation 14A are incorporated by reference in Part III of
this Report.

    
The undersigned registrant hereby amends its Annual Report on Form 10K for the 
year ended December 31, 1997 by amending and restating the following pages: 2, 
13, 23, 28, 29, 30, F-2, F-8, F-12, F-15 and Exhibit 23.       
                
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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--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 of premium imported and
domestic wines, and wine-related merchandise to individual consumers. Through
frequent mailings to existing and potential customers, the Company offers
wines selected on the basis of their quality and price characteristics. The
Company seeks to eliminate the "intimidation factor" in the consumer's wine
purchasing decision by focusing on a relatively small number of wines and by
providing information on their selection and enjoyment. The Company believes
that it is developing a "Geerlings & Wade" image based on informative
mailings, reliable wine recommendations, value pricing and ease of ordering
and convenient delivery. Since the Company is in a retail industry, the sales
generated in the fourth quarter are generally expected to be higher than in
the other quarters.
 
     The Company seeks to comply with 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 to individual consumers in each state in which it operates. Geerlings
& Wade opened its first licensed facility in Massachusetts in 1988. Since then,
the Company has opened additional licensed facilities in Connecticut (June
1991), New York (September 1991), Illinois (November 1991), Florida (April
1993), California (May 1993), New Jersey (July 1993), Washington (December
1994), Virginia (January 1995), Ohio (April 1995), Minnesota (July 1995),
Colorado (August 1995), Arizona (September 1995) and Michigan (July 1997). The
Company ships wine to consumers in a limited number of additional states, but to
date sales in such states have been relatively insignificant. In 1997, Nevada
changed its liquor laws to permit shipment of wine from out-of-state retailers,
and the Company commenced selling to Nevada customers in September 1997. The
Company's active customers (customers who have made a purchase within the twelve
preceding months) have increased from approximately 98,700 at December 31, 1996
to approximately 110,800 at December 31, 1997.
 
Company Strategy
 
     The Company, as one of the leading direct marketers of premium wines, hopes
to simplify the wine-buying process, educate the wine consumer and develop a
loyal and broad customer base. The key elements of the Company's strategy to
achieve these objectives include:
 
  Source Quality Wines and Offer Value Pricing. Geerlings & Wade primarily
sources its imported wines directly from producers and negotiants (those
persons who serve as intermediaries or agents to producers in the purchasing
process) in the countries of origin. The Company primary sources domestic
wines through wholesale channels with domestic negotiants, certain wineries
and wine producers. In the case of both foreign and domestic wines, the
Company at times purchases wine from traditional wholesalers. 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, which
the Company believes, demonstrate a combination of superior quality and price
 
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characteristics. These sourcing and selection techniques, combined with its
ability to purchase in large quantities and manage the consolidation and
transportation of its directly-sourced products, enable Geerlings & Wade to
offer premium wines at attractive prices.
 
     Facilitate Purchasing Decisions and Educate Consumers. Geerlings & Wade
believes that many consumers who buy wine through traditional retail channels
experience difficulty in their purchasing decisions, due to their limited
personal knowledge of wine and the general lack of dependable advice at the 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 performed well in blind comparative tastings and
offering the convenience of telephone ordering and home delivery. The Company
continually provides its customers with information on various wine varietals
(grape type), 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.
 
     Enhance Productivity of Mailings. Geerlings & Wade seeks to improve the
productivity of mailings to its existing customers by analyzing buying histories
and tailoring the frequency and content of the Company's house mailings. The
Company mails promotional offers to potential customers about five times per
year to acquire new customers and build the "house file" of customers. The
Company employs techniques designed to enhance response rates, lower costs and
ultimately find new customers that will continue to place frequent and high
dollar value orders for long periods.
 
     Apply Computer Systems to Enhance Operations. Geerlings & Wade has
developed and seeks to maintain customized computer systems to integrate all
major aspects of the Company's business to promote operational efficiencies and
provide better customer service. The Company's systems integrate order
processing; inventory planning, control and management; customer list and
circulation management and analysis; and accounting and management reporting.
 
     Expand in Existing Markets. Geerlings & Wade believes that it has
penetrated its current markets to a limited extent and that significant
opportunities exist to increase sales in these markets among both current and
new customers. The Company seeks to increase sales among its current customers
by a variety of means, including enhancing its customers' appreciation of wine
through education, broadening the selection of wine and purchasing options
offered and attempting to make buying wine more convenient and less
intimidating. The Company seeks to acquire new customers within existing markets
through improvements in the content, quality and circulation management of its
prospect mailings, and through direct-response print advertising and active
encouragement of referrals from existing customers. The Company also plans to
cater its product offers to match regional preferences of its customers. For
example, the Company intends to present more domestically-produced wines to
customers residing in the western U.S., who tend to buy a higher proportion of
domestic wines than imported wines.
 
     Enter New Markets. Geerlings & Wade is licensed or otherwise authorized to
sell wine to individual customers in twenty-three states comprising
approximately 74% of the overall U.S. market for table wine. Certain states
are designated as "control" states in which the state government owns and
operates the liquor stores within its borders. These control states generally
prohibit the sale of wine by private entities. However, there are additional
states in which the Company can sell wine by obtaining applicable licenses.
The Company is currently evaluating opportunities to obtain licenses in
additional states in order to serve a larger customer base, although no
assurance can be given that it will be successful in obtaining any additional
licenses. Those states representing markets with both high consumption of
table wine and a large number of mail-order prospects will be considered based
on the Company's ability to overcome licensing and other regulatory obstacles
to serve customers in such states.
 
Company Literature and Mailings
 
     The Company sells wine to individual consumers who are 21 years of age or
older primarily through targeted mailings. In addition to describing the
distinguishing characteristics of the featured wines, each mailing contains
general information intended to broaden the customer's knowledge of wines,
wine producers and wine-
 
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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 most salient
qualities, including color, bouquet and taste characteristics. Geerlings &
Wade distributes primarily two types of promotional wine mailings: "house
mailings" to its file of active customers and qualified leads and "prospect
mailings" to potential customers obtained from rented mailing lists.
 
     House Mailings. Geerlings & Wade distributes house mailings to customers
(those persons who have made a purchase) and qualified leads (those persons
who have indicated an interest in being placed on the Company's mailing list
but who have not yet purchased Geerlings and Wade products by mail). The
marketing department determines the number and timing of house mailings to any
individual based on various factors, including the wines offered, the wine
prices, wine ratings, the season and frequency and amount of customer
purchases. The Company uses the computer system to select and analyze which
customers to target and strives to optimize sales, average order value and
response rates in relation to marketing expenses. The Company further tailors
the frequency and content of each house mailing and the wines featured to the
particular market served. In addition to information on the featured wines,
each mailing includes a personalized letter, an order form and a business
reply envelope. In 1997, the Company sent approximately 2,885,000 house
mailings, an increase of about 6.3% over the pieces mailed in 1996.
 
     The Company generally uses three types of house mailings:
 
     "Brochure Mailings" include a four-page brochure, which highlights one or
  two selected wines from a specific region. These brochures contain detailed
  descriptions of the wines being offered 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 six to eight additional wine selections, along
  with tasting notes and ratings for these wines. In 1996 and 1997, the
  Company mailed nineteen separate brochure mailings to its customers. Not
  all customers receive each brochure mailing.
 
     "Odds and Ends Mailings" offer a large selection of previously featured
  wines and some new wines available in limited quantities. These mailings
  expressly encourage customers to take advantage of what may be their last
  opportunity to purchase wines that they may have previously purchased and
  enjoyed. The Company normally mails one "Odds and Ends" mailing per
  quarter.
 
     Preferred Customer and Membership Mailings. Geerlings & Wade also creates
  and mails special offers to customers based on their purchasing behavior.
  For example, last holiday season, the Company mailed a special champagne
  offer to customers who purchased champagne from Geerlings & Wade in the
  past or whom it had reason to believe would likely purchase champagne.
  These preferred offers generate high responses from customers and enhance
  the personal touch of the Company's wine-selling service. The Company
  normally mails three to four preferred customer mailings each year. At
  least once a year, the Company mails a special mailing to its members in
  which it offers special wines.
 
     Prospect Mailings. The Company's primary method of acquiring new customers
is its prospect mailing program. A typical prospect mailing explains the
Company's selling concept, describes the particular wine being offered and
contains an order form to purchase the wine. Names are obtained through rented
lists, which are screened with a demographic profile consistent with the
Company's existing customers. The Company generally offers prospective
customers the option to purchase 6 or 12 bottles.
 
     Production. Most of Geerlings & Wade promotional mailings are created and
designed in-house on a desktop publishing system. The in-house creation and
design of house and prospect mailings allows flexibility for editorial changes
and results in significant cost and time savings. 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, the
offering brochure, an order form and a return envelope.
 
                                       4
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     Catalog. During 1997, Geerlings & Wade mailed a 24-page Spring Catalog and
a 32-page Holiday Catalog featuring wine, wine-related merchandise and other
products intended to complement the Company's wine offerings. The Company mailed
the catalogs to both prospective and existing customers. The Company plans to
further research the development of its catalog market and test different
product offerings in 1998. In 1998, the Company will not mail a Spring Catalog
and is expected to produce a more limited Holiday Catalog. 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.
 
MERCHANDISING
 
     Geerlings & Wade offers its customers premium imported and domestic wines.
Imported wines are sourced primarily from France, Italy, Australia and Chile.
The Company's domestic wines are sourced primarily from California, many of
which are sold under private labels, including the Company's own brands: Glass
Ridge, J. Krant Cellars, Hamilton Estates, Alazar Winery, Amsbury Winery, Bryan
Woods Winery, Devina Estates, Foxtail Vineyards & Winery, Domaine Paul, Jack
Canyon Cellars, Lapis Lazuli Winery & Vineyards, Marc Cellars, Mariel Winery,
Mira Luna, Mischler Estates, Penstemon, Red Brick Cellars, Rock Rabbit, Avalon,
Rose Valley, San Valencia Winery and St. Carolyne Winery. The Company intends to
promote its best-selling brands and build a long-term merchandising program that
builds brand equity for these brands. By reinforcing brand recognition vintage
after vintage by selling quality wines, the Company intends to encourage a
strong demand for these brands among its customers and generate strong sales
growth for these brands.
 
     The wines offered by the Company are selected based on consumption patterns
and the Company's prior experience with a particular type of wine. In 1997,
approximately 70% of the cases sold by the Company were imported wines and 30%
were domestic. The Company's wines are generally sold within the price range
of $69 to $1,000 per case, with average case prices of approximately $100 in
1997.
 
Wine Sourcing and Purchasing
 
     The Company sources imported and domestic wines through a network of
producers, negotiants, importers and wholesalers. In 1997, the Company sourced
directly from producers or negotiants a substantial majority of the cases it
sold.
 
     The Company's sourcing methods 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 negotiants. 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 several months in advance of offering
them for sale to coordinate availability, shipping and promotional mailing
schedules. The Company selects most of these wines based on blind comparative
tastings of samples judged on overall quality and price characteristics. The
Company often tastes over fifty wines prior to making a featured selection and
currently rates each wine on a 100-point scale. In order to foster movement of
inventory, the majority of wine is specifically purchased to meet the
Company's promotional mailing schedule.
 
     Sourcing Imported Wines. In 1997, the vast majority of imported wines sold
by the Company were sourced directly from the countries of origin. The Company
uses consultants for sourcing certain imported wines. Many European wines are
purchased using the services of Mr. Peter van Hoof, a consultant to the
Company, who visits European growers and negotiants and administers blind
comparative tastings from his office in Rotterdam, The Netherlands. At the
Company's headquarters, samples, including wine submitted by Mr. Van Hoof, are
tasted 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.
 
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     Sourcing Domestic Wines. In 1997, a substantial majority of the Company's
domestic wines were sourced through wholesale channels with domestic
negotiants and certain wineries and wine producers, and the remaining wines,
national brands, were purchased from wholesalers. The Company sources many
wines through its primary domestic negotiant, Codera Wine Group, Inc.
("Codera") of Grayton, California. Codera sources wines in the United States
from many high-quality producers and makes and sells its own national wine
brands. Codera continuously reviews wines at various stages of production and
forwards selected samples to the Company. After the Company has selected a
particular wine from among the samples forwarded by Codera, Codera coordinates
finish vinification and bottling of the wine under a number of private labels,
including the Company's own brands. In addition, Codera has occasionally
identified branded products for purchase by the Company.
 
     The Company also 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 purchase wine lots of various sizes. These wines
are reviewed based on their quality and price characteristics.
 
     Wines Sourced by Others. Geerlings & Wade also purchases non-proprietary
wines which have been sourced independently of the Company. Due to the
Company's ability to purchase in large quantities, 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. Geerlings and Wade believes by maintaining these relationships
with quality wine suppliers, it can enhance its opportunity of uncovering
wines of acceptable quality at attractive prices.
 
Information Systems and Technology
 
     The Company seeks to maintain computer-based systems to integrate all major
aspects of the Company's business, including order processing, inventory
planning and management, customer list and circulation management and
analysis, and financial and management reporting. The Company's system was
developed in- house and is based on client-server software purchased by the
Company. In 1997, the Company upgraded much of its computer hardware to
improve processing time and reliability. The Company had previously announced
plans to convert to an integrated, direct marketing software package from an
outside vendor. The Company has recently decided not to use that software
package and is reviewing alternatives to upgrade or replace its existing
software.
 
     The Company's customized order processing system integrates order entry
with each of the Company's licensed facilities and provides the on-line, real-
time information processing capabilities necessary for prompt delivery to
customers and resolution of customer service issues. The system allows telephone
orders to be captured on-line and mail orders to be efficiently processed. The
names and addresses of individuals who have responded to mailings by ordering or
by requesting 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. The system 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 Company's system provides real-time inventory management. The Company
maintains access to running totals of case sales by market, warehouse
inventory, products in transit to each warehouse and customer delivery logs,
all designed to arrange for prompt and convenient delivery to customers.
Regulatory requirements have been incorporated into the software to allow the
Company to manage inventory centrally for each of its licensed facilities.
 
     The Company continually updates its database of customer names and
purchasing histories to maximize the productivity of house and prospect
mailings. The system's database provides the Company with a flexible system
that offers highly sophisticated data manipulation which enables the Company
to target its marketing programs to specific segments of its customer base.
The system also provides extensive reporting capabilities that allow the
Company to evaluate the effectiveness of its mailings and assist the Company
in its business planning.
 
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     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.
 
MARKETING
 
     The goal of the Company's marketing program is to expand and improve the
Company's customer base and establish and maintain customer loyalty through
informative marketing literature that offers quality wines at competitive
prices. The Company monitors its progress in attaining this goal by tracking
new customer accounts and customer retention statistics. In 1997, the Company
made some progress in lowering customer attrition rates over 1996. The Company
plans to promote customer retention through increased telemarketing and
mailing special offers to first- and second-time buyers and to customers who
purchased many times historically, but not in the last 12 months.
 
     The Company's ongoing marketing programs are designed to generate
information concerning existing and new customers and customer groups. This
information is incorporated into the Company's database and is used to target
and acquire new customers, increase the average order value of customer
purchases and enhance the Company's customer service capabilities.
 
     New Marketing Programs. In addition to its present direct-mail formats, in
1997 the Company tested alternative channels of direct marketing to enhance
sales and increase its customer base. These alternatives included launching a
"wine-of-the-month" continuity program in which customers or their gift
recipients receive two bottles of wines each month. The first mailing in
September yielded unsatisfactory results and the Company plans to test
different offers in 1998 in an effort to improve the results from this type of
marketing program. Additionally, the Company initiated several "affinity"
marketing programs with corporate partners such as America West, Brookstone,
American Express and Skymall. Each of these programs are unique but generally
designed to market Geerlings & Wade wines to the customer base of each
corporate partner. Some programs are presented as wine clubs sponsored by the
corporate partner and others are presented as Geerlings & Wade offers endorsed
by the corporate partner. The Company experienced various degrees of success
with these programs and intends to further develop this marketing channel in
1998 and beyond. The estimated dollar amount spent during 1996 and 1997 on
development of new marketing programs was approximately $45,000 and $220,000
respectively. As mentioned earlier, the Company telemarketed its products to
prospective customers, recent customers and customers who have not purchased
for some time in 1997. There can be no assurance that these marketing channels
will have a favorable impact on operations.
 
     Internet Commerce. In 1998, Geerlings & Wade expects to launch a new web
site in which customers can learn about the Company, its products and, most
importantly, order wine electronically. Internet commerce is at its infancy,
but the Company believes customers will, over time, migrate to purchasing
products on-line. Sales associated with advertisements placed over the
Internet will be made, or limited, in compliance with the applicable law. The
Company will periodically refresh the product offering and enhance the web
site by adding services and products as it learns more about this new sales
channel.
 
     Membership. To increase customer loyalty, Geerlings & Wade offers customers
the opportunity to purchase one- and three-year memberships. The Company
offers memberships in each state in which it operates, with the exceptions of
Connecticut and Ohio. Members are given a personalized membership card,
assured of being maintained on the mailing list, and, except in Massachusetts,
realize savings on each case of wine purchased during the term of the
membership. In order to comply with regulatory restrictions in Massachusetts,
the Company charges its non-members for delivery and offers its members free
delivery 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, 1997, the Company had
approximately 44,100 members, and of the 12-month customers, approximately 25%
were members as of December 31, 1997.
 
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Customer Service
 
     Customers send the Company orders by e-mail, mail, telephone (1-800-782-
WINE) and fax (1-800-FAX-8466). 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 and availability. The
customer service group responds to approximately 1,000 telephone calls each
day on average. Through the Company's on-line systems, customer service
representatives can quickly access a customer's complete 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. Returns and credits were
approximately two percent of net sales for each of the last three years.
 
Competition
 
     The retail wine business is highly competitive. The Company competes with
supermarkets, wine specialty stores, retail liquor stores, wine merchants
which advertise delivery of products in specialty publications and an
increasingly larger number of companies specializing in direct marketing of
wine at retail, including companies which are presently marketing on the
Internet. Many of these competitors have significantly greater resources than
the Company and sell branded products not offered by the Company.
 
     The Company believes that by providing quality wines at competitive prices
coupled with 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, by being an early entrant in many of its
markets, by exploiting computer technology in the management of its operations
and its direct marketing programs and by creating a loyal customer base of
repeat customers. In addition, the Company believes that it distinguishes
itself from its direct mail or Internet competitors by seeking to operate its
highly regulated business in adherence to applicable law and regulation.
However, there can be no assurance that the Company will be able to continue
to compete effectively against existing competitors or new competitors that
may enter the market in the future.
 
Company Operations Within Regulatory Framework
 
     Regulatory Framework. The alcoholic beverage industry is highly regulated
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 manufacturers and importers who are licensed to
sell to the second tier, wholesalers. Wholesalers in turn supply the third
tier, retailers, who ultimately sell to the public. Each tier is subject to
various restrictions on its activities. Geerlings and Wade is 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 allow interstate sales to those states having reciprocal licensing
arrangements (for example, a retailer may ship from California to Oregon,
Idaho and New Mexico). In addition, regulatory restrictions prohibit a
retailer with licensed facilities in multiple states from transferring
inventories between its own facilities. In order to acquire and maintain a
retail license to sell within a particular state, a retailer must have a
physical presence (for example, own or lease a warehouse or other licensed
facility) in that state. A 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 Massachusetts, New Jersey or
Colorado. In addition, many Southern states, including Alabama, South
Carolina, Tennessee and Georgia prohibit the retail delivery of alcoholic
beverages altogether. For this reason, the Company delivers its own products
in New Jersey and Massachusetts and contracts with local couriers in Arizona,
Colorado and Minnesota to deliver orders to the Company's customers.
 
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<PAGE>
 
     Company Licensing and Regulatory Matters. The Company holds retail licenses
in the fourteen states where it maintains licensed facilities, which are
typically renewed on a yearly basis. The Company is also permitted, from its
California or Illinois facilities, to sell and ship to consumers in Oregon,
Idaho, New Mexico, Missouri, and West Virginia under these states' "reciprocal
shipment" laws. In addition, without obtaining additional licenses, the
Company is permitted to sell and/or ship to consumers in Iowa, Louisiana,
Nebraska and Nevada. Sales to consumers in Missouri and West Virginia to date
have been relatively insignificant because of regulatory restrictions asserted
against direct marketing and consumer advertising in those states.
 
     Most of the states where the Company is licensed have legal barriers
against the Company also engaging in licensed wholesaler activities in such
state. As such, the Company holds only retail licenses. All domestic and
imported inventories are delivered by independent licensed wholesalers directly
to each of the Company's licensed facilities. Because of the relatively unique
nature of the Company's mail order operations within this regulatory framework,
the Company occasionally receives inquiries from state regulators regarding its
business practices. To date, such inquiries made during 1997 have not resulted
in any actions by any such regulators that would have a material effect on the
Company's business. The Company believes that it is in compliance in all
material respects with all applicable licensing and other governmental
regulations and that any failure in the past to comply with such regulations has
not had, and is not expected to have, a material adverse impact on the Company's
business.
 
     Customer Order Processing and Delivery. All customer orders are processed
centrally and forwarded to an appropriate licensed facility for acceptance and
fulfillment. The Company has developed extensive proprietary software to
manage the process of ordering, consolidating, transporting and accounting for
its inventory. Through computer software and systems, the Company has real-
time access to running totals of case sales by state, warehouse inventory, 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 walk-
in customers. However, most of the Company's sales are made through home or
office delivery. The Company ships wine directly to a customer from its
licensed facility located in the state in which the customer resides (except
with respect to those states to which the Company is authorized to ship from
its California or Illinois facilities). An adult's signature is required for
deliveries in all states 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 on the frequency and
concentration of orders, completes each route at least once a week. In certain
circumstances, if a customer requires more prompt delivery, the order will be
placed in an alternate route for delivery on an earlier day. Pickup of returns
is performed by the drivers in the course of their normal routes.
 
     In California, Connecticut, Florida, Idaho, Illinois, Iowa, Missouri,
Nebraska, New Mexico, New York, Nevada, Ohio, Oregon, Virginia, Washington and
West Virginia, the Company uses UPS to make deliveries. In Arizona, Colorado
and Minnesota, the Company uses licensed delivery companies to make
deliveries. The Company has yet to commence selling in Louisiana although it
has a license to do so. Orders from customers in the states in which UPS or
other delivery companies are permitted to ship wine are transmitted on the day
they are received to the appropriate licensed facility. Orders are packed into
specially designed shipping containers and picked up by the delivery company
daily. Most of these orders are shipped within 48 hours of receipt. Returns
are picked up by the delivery company pursuant to issuance of a delivery
company call tag request by a Company customer service representative and
returned to the appropriate licensed facility.
 
                                       9
<PAGE>
 
SALES OR USE TAX
 
     The Company presently collects sales tax in each of the states in which it
holds a license 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, New York, New Jersey, Ohio, Virginia
and Washington. Massachusetts does not impose sales tax on wine but does so on
wine accessories. Since 1993, the Company has shipped wine to Oregon, Idaho,
New Mexico, Missouri and West Virginia without collecting a sales or use tax
or notifying consumers that a use tax payment may be required. Various states
have attempted to impose on direct marketers the burden of collecting use
taxes on the sale of products shipped to state residents. In 1992, the United
States Supreme Court affirmed that it is unconstitutional for a state to
impose use tax collection obligations on an out-of-state mail order company
whose only contacts with the state are the distribution of advertising
materials through the mail and subsequent delivery of purchased goods by
parcel post and interstate common carriers. However, this decision
acknowledged that Congress has the authority to enact legislation authorizing
states to impose such obligations. On March 3, 1995, legislation was
introduced in the United States Senate, which would authorize collection of
certain state and local taxes with respect to mail order sales, delivery and
use of tangible personal property. The Company cannot predict whether or when
this legislation will be enacted. Given the Company's ability to collect sales
tax in the jurisdictions indicated above, the Company does not believe the
collection of use taxes would present an undue burden upon the Company in the
event that it were determined that the Company was obligated to collect such
taxes, and would have no significant impact on the administrative expenses of
the Company or the prices charged to customers.
 
     Nevada and Louisiana passed state laws in 1997 that allow for out-of-state
retailers to ship limited quantities of wine to residents in their states as
long as use tax is collected from the consumers and remitted to the state.
Louisiana also requires as a condition of cross-border sales that the retailer
remit wine excise tax to the state for all wine shipped to its residents.
Geerlings & Wade began shipping into Nevada in 1997 and collects and pays the
use tax. In 1998, the Company intends to begin selling to Louisiana residents
and likewise begin collecting use tax and remitting use and excise tax to the
State of Louisiana.
 
TRADEMARKS
 
     The following are registered trademarks or service marks of the Company:
Geerlings & Wade Personal Wine Service, Geerlings & Wade Personal Wine
Importers, J. Krant Cellars, Glass Ridge, Alazar Winery, Amsbury Winery, Lapis
Lazuli Winery & Vineyards, St. Carolyne Winery, San Valencia Winery, Mariel
Winery, Jack Canyon Cellars, Bryan Woods Winery, Mischler Estates, Hamilton
Estates, Mira Luna, International Beer and Ale Society, Devina Estates and
Domaine Paul. The Company has filed trademark or service mark applications
with the United States Patent and Trademark Office for the following names:
For the Love of Wine, Red Brick Cellars, Expeditions, They'll Remember You Not
Once But Every Month, and Vintage Impressions Plus. 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 house brands.
 
EMPLOYEES
 
     As of December 31, 1997, the Company employed a total of 66 individuals on
a full-time basis. The Company also uses part time employees on a regular basis
at each of its licensed facilities and at its corporate headquarters. For
example, in December 1997, one of the Company's peak sales periods, the ratio of
full-time to part-time employees was 3 to 1.
 
                                      10
<PAGE>
 
ITEM 2: Properties
 
     As of December 31, 1997, Geerlings & Wade operated fourteen licensed
facilities. All of these facilities are leased, with the exception of the
Company's California facility which is situated in a public warehouse, and are
used to warehouse inventory. Each facility is centrally located with easy
access to major routes for delivery efficiencies. Since December 31, 1997, the
Company has renewed its leases in Arizona, Colorado, Washington and Minnesota
and has entered into a lease in Boston and plans to open a wine store at this
location to serve walk-in retail customers.
 
<TABLE>
<CAPTION>
            Facility                        Location     Approximate Square Footage Expiration
            --------                     --------------- -------------------------- ----------
<S>                                      <C>             <C>                        <C>
Executive offices, customer service and
 licensed facility ....................  Canton, MA                32,000              2000
Licensed facility......................  Carmel, NY                10,000              2000
Licensed facility......................  Somers, CT                 4,500              2001
Licensed facility......................  Waukegan, IL               9,600              2001
Licensed facility......................  Tampa, FL                 10,000              2000
Licensed facility......................  South River, NJ            4,000                 *
Licensed facility (public warehouse)...  San Jose, CA                  **                **
Licensed facility......................  Kent, WA                   5,000              2001
Licensed facility......................  Chantilly, VA              4,800              1999
Licensed facility......................  Miamisburg, OH             5,900              2000
Licensed facility......................  Denver, CO                 6,800              2001
Licensed facility......................  Tempe, AZ                  6,600              2001
Licensed facility......................  Bloomington, MN            4,700              2001
Licensed facility......................  Ann Arbor, MI              5,300              1999
License pending........................  Boston, MA                 1,400              2001
</TABLE>
--------
 *   The Company presently rents the facility on a month-to-month basis and
     intends to negotiate a long-term lease.
**   The public warehouse facility provides the Company with storage space on an
     as-needed basis. The Company's agreement with the public warehouse may be
     terminated by the public warehouse on 120-day notice.
 
     The Company believes that its facilities are adequate for its current needs
and that suitable additional space will be available as needed.
 
ITEM 3: Legal Proceedings
 
     In the ordinary course of business, the Company normally both asserts
claims and defends claims asserted by others against it. The Company believes
that its obligations, if any, with respect to all of such claims would have no
material adverse effect on the financial position of the Company.
 
ITEM 4: Submission of Matters to a Vote of Security Holders
 
  None.
 
                                      11
<PAGE>
 
                                    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 under the
symbol "GEER". The following table sets forth, for the periods indicated, the
high and low per share sales prices for the common stock as reported on the
The Nasdaq Stock Market.
 
<TABLE>
<CAPTION>
                                                           1996         1997
                                                        ----------- ------------
                                                        High   Low  High   Low
                                                        ----- ----- ----- ------
   <S>                                                  <C>   <C>   <C>   <C>
   First Quarter....................................... 7 1/8 3 3/4 5 3/8 4 1/8
   Second Quarter......................................    6  3 3/4 5 7/8 3 1/4
   Third Quarter.......................................    7  3 1/2 5 7/8    4
   Fourth Quarter...................................... 7 1/4    4  5 1/2 3 9/16
</TABLE>
 
     Over-the-counter market quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commissions and may not necessarily represent
actual transactions.
 
     As of March 20, 1998, there were approximately 141 holders of record of the
Company's common stock.
 
     The Company's capital stock consists of 10,000,000 authorized shares of
common stock, par value $.01 per share, of which, as of March 20, 1998,
3,785,316 shares were issued and outstanding; and 1,000,000 authorized shares
of preferred stock, par value $.01 per share, of which, as of March 20, 1998,
no such shares were issued and outstanding.
 
     The Company has never declared a cash dividend on its common stock. The
Board of Directors of the Company has no present intention to pay dividends on
common stock and does not anticipate doing so within the next several years.
It is the present policy of the Company to retain earnings, if any, to provide
for growth and working capital needs.
 
                                      12
<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,
                                   ------------------------------------------
                                    1993     1994    1995     1996     1997
                                   -------  ------- -------  -------  -------
                                    (in thousands, except per share data)
<S>                                <C>      <C>     <C>      <C>      <C>
Statements of Income Data:
Sales............................. $12,428  $20,292 $29,718  $31,501  $33,701
Cost of sales.....................   6,898   10,780  16,138   17,188   18,185
                                   -------  ------- -------  -------  -------
Gross profit......................   5,530    9,512  13,580   14,313   15,517
Selling, general and
 administrative expenses..........   4,954    7,849  14,690   14,427   14,066
                                   -------  ------- -------  -------  -------
Income (loss) from operations.....     576    1,663  (1,110)    (113)   1,450
Interest income (expense), net....     (35)      36     (37)    (257)     (23)
                                   -------  ------- -------  -------  -------
Income (loss) before income
 taxes............................     541    1,699  (1,147)    (370)   1,427
Provision (benefit) for income
 taxes............................      50      403    (470)    (152)     604
                                   -------  ------- -------  -------  -------
Net income (loss)................. $   491  $ 1,296 $  (677) $  (218) $   823
                                   =======  ======= =======  =======  =======
Pro Forma Statements of Income
 Data(1):
Income (loss) before taxes, as
 reported......................... $   541  $ 1,699 $(1,147) $  (370) $ 1,427
Provision (benefit) for income
 taxes............................     216      636    (470)    (152)     604
                                   -------  ------- -------  -------  -------
Net income (loss)................. $   325  $ 1,063 $  (677) $  (218) $   823
                                   =======  ======= =======  =======  =======
Net income (loss) per share
  Basic........................... $  0.15  $  0.34 $ (0.18) $ (0.06) $  0.22
                                   =======  ======= =======  =======  =======
  Diluted.........................    0.13     0.34   (0.18)   (0.06) $  0.22
                                   =======  ======= =======  =======  =======
Common shares and equivalents
  Basic...........................   2,112    3,123   3,755    3,776    3,780
  Diluted.........................   2,475    3,135   3,755    3,776    3,796
<CAPTION>
                                                December 31,
                                   ------------------------------------------
                                    1993     1994    1995     1996     1997
                                   -------  ------- -------  -------  -------
                                               (in thousands)
<S>                                <C>      <C>     <C>      <C>      <C>
Balance Sheet Data:
Working capital................... $ 1,207  $ 9,666 $ 8,694  $ 8,045  $ 9,303
Total assets......................   4,766   13,529  16,717   12,952   16,124
Long-term debt, less current
 portion..........................     940      --      --       --       --
Total stockholders' equity........     546   10,060   9,733    9,526   10,362
</TABLE>
--------
No cash dividends have been declared per common share for each year shown.
 
(1) Net income and net income per share is reported on a pro forma basis for
    1993 and 1994 to reflect what comparative results would have been had the
    Company been taxed as a C corporation for the entirety of 1993 and 1994.
    Results for 1995, 1996 and 1997 are reported on an actual basis.
 
                                      13
<PAGE>
 
ITEM 7:   Management's Discussion and Analysis of Financial Condition and
          Results of Operations
 
General
 
     Geerlings & Wade is a direct marketer of premium, imported and domestic
wines and wine-related merchandise to individual consumers. In 1997, sales
increased $2,201,000, or 7%, over sales of $31,501,000 in 1996. The increase
in revenues did not meet the Company's expectation due to weaker-than-expected
response rates to house mailings during the first four months of 1997.
However, the Company achieved its primary goal for 1997, which was to earn a
profit. The Company earned $1,450,000 in operating income in 1997 as compared
to reporting a net operating loss of $113,000 for 1996. This marked
improvement of $1,563,000 resulted from higher sales, increasing gross profit
by sixty basis points, and reducing selling, general and administrative
expenses by $360,000. Selling, general and administrative expenses were
lowered by cutting delivery expenses, marketing expenses as a percentage of
sales and overhead and by increasing shipping and handling fees. The Company
has focused on hiring experienced people who can contribute to the Company's
growth. In 1997, the Company persevered to reduce existing inventory and then
purchased high quality wines to provide the best values for the customer. The
Company operates from 14 licensed facilities in separate states to comply with
laws and regulations related to the sale of wine. Having these separate
locations creates special challenge to keep operating costs at acceptable
levels. The Company continuously looks to lower these fixed costs and manage
variable costs to improve operating margins.
 
     The Company opened its first licensed facility in 1988, three additional
licensed facilities in each of 1991 and 1993, one facility in 1994, five
facilities in 1995 and one in 1997. From these 14 facilities, the Company is
able to serve customers in 23 states. Louisiana and Nevada changed their state
laws in 1997 to allow for shipments into their states from out-of-state
retailers. The Company commenced shipping to Nevada residents in late 1997 and
plans to start selling to Louisiana residents in the second quarter of 1998.
The Company considers each area served by a licensed facility to be a separate
market. After assessing international opportunities to sell wine directly, the
Company has decided to pursue this type of expansion in several years if
market conditions warrant so. To find ways to increase revenues in 1997, the
Company tested various new marketing programs, including continuity ("wine of
the month") programs, corporate affinity marketing programs and outbound
telemarketing programs. These efforts are encouraging, and Geerlings & Wade
plans to continue refining and developing these programs to increase revenues
in the years to come. Spring and Holiday catalogs offering wine and wine-
related accessories were mailed in 1997. Sales results from these marketing
pieces encourage further development of the catalog in effort to make it a
significant contributor to revenues in the future. The Company plans to mail a
Holiday catalog in 1998.
 
     The Company's revenues are derived from the sale of wine, wine-related
accessories and memberships. Sales from memberships and wine-related
accessories were approximately 4% of overall revenues in 1996 and in 1997. The
Company's sales growth between 1996 and 1997 reflects increased comparative
state sales for all states ("markets") except Connecticut and New York.
Comparative sales were down 7% for Connecticut and down 3% for New York.
Comparative sales increased by 11% in Massachusetts, 5% in Illinois, 9% in
Florida, 2% in California, 1% in New Jersey, 8% in Washington, 15% in
Virginia, 19% in Ohio, 22% in Minnesota, 26% in Colorado and 26% in Arizona.
Michigan was not open in 1996. The Company intends to increase sales in all
markets in 1998 and will focus on adding sales in New York and Connecticut.
 
 
                                      14
<PAGE>
 
     The following table sets forth total sales by market for the periods
indicated:
 
<TABLE>
<CAPTION>
                                               Years Ended December 31,
                                        ---------------------------------------
 Market                                  1993    1994    1995    1996    1997
 ------                                 ------- ------- ------- ------- -------
                                                    (in thousands)
<S>                                     <C>     <C>     <C>     <C>     <C>
Massachusetts.......................... $ 3,916 $ 4,746 $ 5,970 $ 5,685 $ 6,310
Connecticut............................   1,628   2,010   2,246   2,186   2,025
New York...............................   3,176   4,469   5,297   5,078   4,929
Illinois(1)............................     891   1,603   2,418   2,563   2,702
Florida................................     888   1,941   2,679   2,810   3,066
California(1)..........................   1,050   2,707   3,541   3,466   3,530
New Jersey.............................     879   2,742   3,795   3,637   3,658
Washington (December 1994).............              74     884   1,017   1,093
Virginia (January 1995)................                   1,398   1,707   1,963
Ohio (April 1995)......................                   1,123   2,017   2,402
Minnesota (July 1995)..................                     134     338     413
Colorado (July 1995)...................                     151     566     713
Arizona (September 1995)...............                      82     431     542
Michigan (June 1997)...................                                     356
                                        ------- ------- ------- ------- -------
  Totals............................... $12,428 $20,292 $29,718 $31,501 $33,702
                                        ======= ======= ======= ======= =======
</TABLE>
--------
(1)  Includes authorized sales into additional states.
 
     The Company believes that if customers develop trust in the Company's
ability to select and deliver quality wines at attractive prices, they tend to
make more wine purchases from the Company, including more expensive
selections. In general, the Company sells its more expensive wines at a lower
gross margin percentage than its less expensive wines. Consequently, the
Company's gross profit as a percentage of sales diminishes if the average
price point of the Company's product mix increases. The Company seeks to
manage its gross profit through management of the average price point of its
wines and overall product mix. The Company expects that its gross profit as a
percentage of sales will continue to fluctuate depending upon the average
price point of its product mix in each period, which in turn will be affected
by the number of new customers generated by prospect mailings and other
marketing programs under development. In 1997, the Company offered wines at
lower prices more frequently than in the prior year. These lower prices
generated lower average orders but the increase in number of orders more than
offset the drop in revenues from lowering prices.
 
     The Company sent 22 house mailings in each of 1996 and 1997 and plans to
mail the same number in 1998 to each of its active customers. By keeping the
number of mailings constant, the marketing cost per customer remains
relatively fixed. The Company is focusing its efforts to increase the average
order size and order frequency to leverage its marketing costs and improve
profitability. Although, the average case price was lower in 1997, the Company
does not intend to adjust prices in the immediate future to encourage sales.
 
     In 1996, the Company sold its wine in quantities of 3, 6 and 12 bottles,
and allowed customers to select a mix of any wines available in stock. In the
fall of 1996, the Company decided to discontinue 3-bottle purchases due to the
high cost of fulfilling each order measured as a percentage of sales. However,
the Company intends to continue to offer 2- or 3-bottle shipments as part of
gift packages offered in its catalogs or as part of the subscription or
continuity programs in which the ability to pre-package shipments affords
operating efficiencies that warrant promoting these types of offers. The Company
uses the term "case" as an operating characteristic to describe any twelve-
bottle equivalent unit.
 
Results of Operations
 
     For the periods indicated, the following table sets forth as a percentage
of total sales certain items reflected in the Company's statements of income for
the years ended December 31, 1995, 1996 and 1997 and pro forma statements of
income for the years ended December 31, 1993 and 1994:
 
                                      15
<PAGE>
 
<TABLE>
<CAPTION>
                                          Years Ended December 31,
                                        -------------------------------------
                                        1993    1994    1995    1996    1997
                                        -----   -----   -----   -----   -----
<S>                                     <C>     <C>     <C>     <C>     <C>
Sales.................................  100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales.........................   55.5    53.1    54.3    54.6    54.0
Gross profit..........................   44.5    46.9    45.7    45.4    46.0
Selling, general and administrative
 expenses.............................   39.9    38.7    49.4    45.8    41.7
Income (loss) from operations.........    4.6     8.2    (3.7)   (0.4)    4.3
Interest (expense) income, net........   (0.3)    0.2    (0.2)   (0.8)   (0.1)
Income (loss) before income taxes.....    4.3     8.4    (3.9)   (1.2)    4.2
Provision (benefit) for income taxes..    0.4     2.0    (1.6)   (0.5)    1.8
Net income (loss).....................    3.9     6.4    (2.3)   (0.7)    2.4
Pro forma income before taxes.........    4.3     8.4     --      --      --
Pro forma income taxes................    1.7     3.1     --      --      --
Pro forma net income..................    2.6     5.3     --      --      --
</TABLE>
 
Years Ended December 31, 1997, 1996 and 1995
 
 Sales
 
     Sales increased $2,201,000 or 7%, from $31,502,000 in 1996 to $33,701,000
in 1997. This increase was attributable to a 3.3% sales increase for all markets
opened prior to January 1, 1995 and a 18.6% sales increase for all markets
opened after December 31, 1994, excluding Michigan which opened in 1997.
Included in the 7% sales increase in 1997 were sales of $1,498,000 generated
from the Company's 1997 catalogs, an increase of 55% over 1996 sales of
$965,000. Sales increased $1,783,000, or 6%, from $29,718,000 in 1995 to
$31,501,000 in 1996. This increase resulted from the combination of a 1% sales
decline for markets opened prior to 1995 and a 75% increase for markets opened
during 1995.
 
     The number of cases sold by the Company increased by 43,148, or 15.5%, to
321,395 in 1997 from 278,247 in 1996. From 1995 to 1996, the number of cases
sold increased from 253,500 to 278,247, a 9.8% increase. The average case
price for cases sold by the Company decreased from $110.19 in 1996 to $100.44
in 1997, an 8.8% decrease. This average price decrease was primarily due to a
decision to offer wines at lower price points to generate higher sales and
response rates. Geerlings & Wade believes this average price adjustment makes
the Company more competitive. However, the Company does not see the need to
lower prices further to compete in the market place. This does not preclude
price adjustments that may be necessary to track price trends in the
marketplace that may be precipitated by market factors such as a drop in the
price of wine from suppliers or major changes in foreign currency exchange
rates. In 1996, Geerlings & Wade changed the product mix to lower- priced
products and discounted some product to reduce inventory. The average case
price for cases sold by the Company decreased from $113.04 in 1995 to $110.19
in 1996, a 2.5% decrease. This average price decrease was primarily due to
variations in the product mix sold between the two years. The average number
of cases purchased per year increased from 2.82 in 1996 to 2.91 in 1997. This
is an encouraging trend and one which the Company plans to foster. The average
number of cases purchased per customer each year increased from 2.64 in 1995
to 2.82 in 1996. This increase was attributable, in part, to higher
circulation of the house mailings, which have higher average orders than
acquisition mailings and by the discontinuance of sales of 3-bottle shipments
in the fall of 1996.
 
 Gross Profit
 
     In 1997, gross profit increased $1,203,000, or 8.4%, from $14,313,000 in
1996 to $15,517,000 in 1997 and increased as a percentage of sales from 45.4%
in 1996 to 46.0% in 1997. This increase in gross profit resulted from improved
purchasing by the Company and by favorable changes in foreign currency
exchange rates. Gross profit increased $733,000, or 5.4%, from $13,580,000 in
1995 to $14,313,000 in 1996, while decreasing as a percentage of sales from
45.7% in 1995 to 45.4% in 1996. This decrease in gross profit as a percentage
of sales resulted from higher wine costs and discounting of certain prices to
reduce inventory of certain products. Gross
 
                                      16
<PAGE>
 
profit per case was $48.28 in 1997, which was a decrease of $3.16 per case
from $51.44 in 1996. In 1995, the gross profit per case was $53.57 per case.
This trend results from lowering the average price paid for each case of wine
sold by the Company. The Company hopes to reverse this trend now that the
Company has realigned its product pricing and plans to improve gross margin as
a percentage of sales by improved purchasing.
 
 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
 
     Selling, general and administrative expenses fell by $360,000, or 2.5%,
from $14,427,000 in 1996 to $14,067,000 in 1997, while decreasing as a
percentage of sales from 45.8% in 1996 to 41.7% in 1997. This decrease in
selling, general, and administrative expenses was primarily attributable to
increasing shipping and handling fees to offset the related delivery expenses,
reducing salaries and lowering the cost per piece of mail for prospecting
campaigns. The opening of the Michigan facility added to the Company's
fulfillment expense as did increased staffing in the customer service and sales
departments which was done to improve the level of customer service. Marketing
costs were marginally higher in 1997. Most of the increase resulted from mailing
the additional catalog in the Spring of 1997. Selling, general and
administrative expenses decreased $263,000, or 1.8%, from $14,690,000 in 1995 to
$14,427,000 in 1996, while decreasing as a percentage of sales from 49.4% in
1995 to 45.8% in 1996. Delivery expenses were reduced in 1996 by instituting
less expensive packaging and by introducing a shipping and handling charge of
$3.95 for 3-, 6- and 12-bottle cases beginning in April 1996. The Company also
reduced costs in 1996 by mailing significantly fewer prospect mail pieces in
1996 than it did in 1995.
 
 INTEREST INCOME (EXPENSE)
 
     Net interest expense decreased by $234,000, or 91.1%, from $257,000 of net
interest expense to $23,000 of net expense in 1997. This dramatic drop in net
interest expense was due to paying down the line of credit with cash generated
from operations. In the second quarter of 1997, the line of credit was repaid
and excess cash was invested in interest-bearing financial instruments. For
1996, net interest expense increased $220,000, or 595%, from net interest
expense of $37,000 in 1995 to a net interest expense of $257,000 in 1996. This
increase in net interest expense was due to increased borrowings under the
Company's line of credit to support working capital needs throughout 1996.
 
 PROVISION FOR INCOME TAXES
 
     The Company was subject to corporate level income taxes for the entirety of
1995, 1996 and 1997. Income taxes were benefited at approximately 41% in 1995
and 1996 and income taxes were provided at 42% in 1997. These tax rates are
reflective of the Company's effective C corporation income tax rates in each
of these periods.
 
 LIQUIDITY AND CAPITAL RESOURCES
 
     The Company's primary capital needs continue to be funding the cost of
prospect mailings and purchases of inventory to support sales growth. As of
December 31, 1997, the Company had cash and cash equivalents totaling
$358,000. In addition, the Company has a credit facility with The First
National Bank of Boston ("BankBoston") comprised of a revolving discretionary
demand line of credit in the maximum principal amount equal to the lesser of
50% of qualifying inventory or $5.0 million (the "Line of Credit"). The Line
of Credit bears interest at BankBoston's base rate (which approximates the
prime rate) plus three quarters of one percent (3/4%), and is collateralized
by substantially all of the assets of the Company. As of December 31, 1997,
$1,901,000 was outstanding under the Line of Credit.
 
     In 1997, the Company generated $42,000 in cash from operating activities
compared to generating $2,432,000 in 1996. The decrease in cash generated from
operations resulted primarily from an increase in inventory of $2,625,000, in
accounts receivable of $252,000 and in prepaid expenses of $700,000 but was
offset by increases in accounts payable of $1,259,000, accrued expenses of
$478,000, accrued sales, income and payroll tax of $691,000 and net income of
$823,000.
 
                                      17
<PAGE>
 
     At December 31, 1997 and December 31, 1996 the Company had working capital
of $9,303,000 and $8,045,000, respectively. The Company intends to lower
inventory levels and expects to reach desired inventory levels in the second
quarter of 1998. The Company expects that once reduced, inventory levels will
fluctuate with seasonal demand and overall sales growth. As a result of the
alcoholic beverage regulatory scheme within which the Company operates, the
Company is required to maintain separate inventories in each of the markets in
which it operates a licensed facility and is not permitted to transfer
inventory between such facilities. As a result, the Company believes that its
overall inventory levels are necessarily higher than would be required if the
Company were not subject to such regulatory requirements.
 
     During 1997, net cash of $43,000 was used in investing activities. The
Company used cash from operations and borrowings under its Line of Credit to
invest approximately $193,000 in property and equipment. These purchases
included approximately $120,000 in computer and telephone hardware and
software enhancements, and $60,000 of leasehold improvements and furniture and
fixtures purchases. The Company also invested $12,000 for equipment employed
at its warehouses. The Company began using third-party delivery services in
Arizona and Colorado in 1997, and, therefore, sold its delivery vehicles
previously used for delivery in these states.
 
     During 1997, total cash used for financing activities was $415,000 of which
$4,943,000 of borrowings under the Line of Credit was a source of funds and
$4,900,000 was used for repayment of Line of Credit borrowings.
 
     The Company believes that cash flows from operations and current cash
balances, together with the Line of Credit, will be sufficient to meet the
Company's working capital needs and capital expenditure requirements for the
foreseeable future.
 
 EXCHANGE RATES
 
     The Company engages in currency-hedging activities related to firm
commitments for the purchase of inventories in an effort to fix costs and
manage the impact of exchange rate fluctuations. The Company maintains two
separate foreign exchange lines with BankBoston and The Chase Manhattan Bank,
each of which allow the Company to enter into forward currency exchange
contracts of up to $500,000 maturing on any one day. As of December 31, 1997,
the Company had no foreign exchange contracts outstanding.
 
 FACTORS THAT MAY AFFECT FUTURE RESULTS
 
     This Annual Report on Form 10-K contains certain forward-looking statements
within the meaning of the Federal Securities Laws. Actual results could differ
materially from those projected in the forward-looking statements as a result
of certain risk factors, including but not limited to those set forth below,
other one-time events and other important factors disclosed previously and
from time to time in the Company's other filings with the Securities and
Exchange Commission.
 
     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 law and regulation, 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. 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
 
                                      18
<PAGE>
 
its results of operations. The Company's growth strategy includes expansion of
its business into additional states; however, there can be no assurance that
the Company will be successful in obtaining licenses in any additional states.
Geerlings & Wade offers its customers the opportunity to purchase one- and
three-year memberships. This membership program has from time to time
generated regulatory scrutiny, and there can be no assurance that the Company
will be able to continue its membership program in its current form in
existing markets or that markets in which the Company may become licensed in
the future will allow the sale of memberships, which could have a 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, the Company was not profitable in
1995 and 1996 and there can be no assurance that it will operate profitably in
the future. In addition, the Company has only limited management, operational
and financial resources to accommodate continued growth, should it occur. The
Company's ability to manage growth effectively will require it to continue to
implement and improve its operational and financial systems and to hire and
train new employees. These demands are expected to require additional
management resources and the development of additional expertise by existing
management. The failure to manage growth effectively would have a material
adverse effect on the Company. There can be no assurance that Geerlings & Wade
will be able successfully to attract and retain the skilled and experienced
personnel required to manage its business.
 
     Effectiveness and Cost of Mailings; Cost of Paper. The Company targets
potential new customers and solicits orders from existing customers through
direct mail marketing campaigns. Direct mail marketing campaigns are capital-
intensive and the cost-effectiveness of such campaigns depends, to a large
extent, upon the accuracy of assumptions and judgments made by the Company.
There can be no assurance that such direct marketing campaigns will be
completed on a cost-effective basis. The failure of any such marketing
campaign to identify new customers or to generate new purchases from existing
customers on a cost-effective basis may have a material adverse effect on the
Company's business and 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, like
the UPS driver strike in 1997, 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. Most of the Company's wine is sourced by the Company, Mr. van
Hoof or the Company's primary domestic negotiant, Codera Wine Group, Inc. 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 and 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
 
                                      19
<PAGE>
 
both the national and regional economies can affect both the quantity and the
price of wines that consumers are willing to purchase.
 
     Competition; Changes in Consumer Tastes. The Company competes with a broad
range of wine specialty stores, retail liquor stores, other direct-mail wine
merchants and certain supermarket stores, many of which may have significantly
greater resources than the Company. Additionally, the Company's wines compete
with other alcoholic and non-alcoholic beverages. There can be no assurance
that the Company will be able to 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.
 
     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, such as the 500% increase which was imposed in 1991,
or increases in state excise tax levels, may have a material adverse effect on
the Company's business and its results of operations. In 1997, approximately 70%
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. Wine making 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.
 
     Year 2000 Compliance. The Company depends on computer systems for all
phases of its operations, including production, sales, distribution and
delivery. Because many of the Company's computer software programs recognize
only the last two digits of the year in any date (e.g., "97" for "1997"), some
software may fail to operate properly in 1999 and 2000 if the software is not
reprogrammed or replaced (the "Year 2000 Problem"). The Company believes that
many of its suppliers also have Year 2000 Problems, which could affect the
Company. The Company intends to timely mitigate and/or prevent the adverse
effects of the Year 2000 Problem, and to pursue compliance by suppliers. It is
not possible, at present, to quantify the overall cost of this work, nor the
financial effect of the Year 2000 Problem if it is not timely resolved. The
Company presently believes, however, that the cost of fixing the Year 2000
Problem will not have a material adverse effect on the Company's financial
position, liquidity or results from operations.
 
     Market Risk. The Company does not engage in activity involving market risk
sensitive instruments that are material to the business.
 
                                      20
<PAGE>
 
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 the pages following said page F-1.
 
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
 
     Certain information required by this Item is included under the captions
"Executive Compensation--Executive Officers of the Company", "Election of
Directors--Nominees for Election as Director at the Annual Meeting",
"Directors Whose Terms Expire in 1999," "Director Whose Terms Expire in 2000"
and "Information Concerning the Board and Its Committees" in the Proxy
Statement for use in connection with the Company's 1998 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--Summary Compensation Table," "Compensation Committee
Report" and "Employment Arrangements" in the Proxy Statement, and is
incorporated herein by reference.
 
ITEM 12:  Security Ownership of Certain Beneficial Owners and Management
 
     The information required by this Item is included under the caption
"Ownership of Common Stock" in the Proxy Statement, and is incorporated herein
by reference.
 
ITEM 13:  Certain Relationships and Related Transactions
 
  N/A
 
                                      21
<PAGE>
 
                                    PART IV
 
ITEM 14:  Exhibits, Financial Statement Schedules, and Reports on Form 8-K
 
     (a)  The financial statements and financial statement schedules filed as
part of this Report are listed and indexed at Page F-1.
 
     Listed below are all Exhibits filed as part of this Report. Certain
Exhibits are incorporated herein by reference to (i) the Company's Registration
Statement on Form S-1 originally filed on May 5, 1994 (File No. 33-78624), and
(ii) documents previously filed by the Company with the Securities and Exchange
Commission under the Securities Act of 1933, as amended and the Securities
Exchange Act of 1934, as amended.
 
<TABLE>
<CAPTION>
                                                                     Sequential
 Exhibit No.                      Description                         Page No.
 -----------                      -----------                        ----------
 <C>         <S>                                                     <C>
  3.1        Form of Amended and Restated Articles or
             Organization of the Company.(1)
  3.2        Amended and Restated By-laws of the Company.(1)
  4.1        Specimen Certificate of Common Stock.(1)(2)
  4.2        Registration Rights Agreement by and among certain
             Stockholders and the Company.(1)
 10.1        Lease Agreement between the Company and Naughton
             Company dated April 11, 1994.(1)
 10.2        Lease Agreement between the Company and John Hancock
             Mutual Life Insurance Company dated July 31, 1992.(1)
 10.3        California Public Warehouse Letter Agreement.(1)
 10.4        Form of Employment Agreement for Phillip D.
             Wade.(1)*
 10.5        Form of Employment Agreement for Huib E.
             Geerlings.(1)*
 10.6        Consulting Agreement between the Company and Peter
             van Hoof effective as of April 1, 1994.(1)
 10.7        $2,500,000 demand Discretionary Line of Credit dated
             January 7, 1994, as amended by letter agreement
             dated April 27, 1994, between The First National
             Bank of Boston and the Company.(1)
 10.8        Promissory Note of the Company in favor of The First
             National Bank of Boston dated January 7, 1994.(1)
 10.9        Security Agreement between the Company and The First
             National Bank of Boston dated January 7, 1994.(1)
 10.10       Stock Option Plan, as amended.(1)(10)
 10.11       Non-Employee Director Stock Option Plan.(1)
 10.12       Employee Stock Purchase Plan.(1)
 10.13       Lease Agreement between the Company and Pacific
             Realty Associates, L.P. dated July 18, 1994.(4)
 10.14       Lease Agreement between the Company and Flint Lee
             Limited Partnership dated August 31, 1994.(4)
 10.15       Lease Agreement between the Company and 47th Avenue
             Industrial Properties dated October 6, 1994.(4)
 10.16       Lease Agreement between the Company and Mehland
             Developers dated October 31, 1994.(4)
 10.17       Letter Agreement dated as of March 15, 1995 between
             the Company and the First National Bank of Boston.(4)
 10.18       Lease agreement between the Company and Hohokam
             Realty Condominiums dated October 31, 1994.(5)
 10.19       Lease agreement between the Company and Bruce K. and
             Gayle J. Hoyt dated November 23, 1994.(6)
</TABLE>
 
                                      22
<PAGE>
 
<TABLE>
<CAPTION>
                                                                     Sequential
 Exhibit No.                      Description                         Page No.
 -----------                      -----------                        ----------
 <S>         <C>                                                     <C>
 10.20       Master Agreement dated as of June 9, 1995 by and
             between Geerlings and Wade, Inc. and Chemical Bank, a
             New York banking corporation./6/
 10.21       Lease Agreement between the Company and The Naughton
             Company dated August 16, 1995./7/
 10.22       Lease Agreement between the Company and Cole Taylor
             Bank dated August 23, 1995./7/
 10.23       $ 5,000,000 demand Discretionary Line of Credit dated
             January 7, 1994, as amended by letter agreement dated
             October 13, 1995, between The First National Bank of
             Boston and the Company./7/
 10.24       Lease Agreement between the Company and Debra
             Campbell dated July 15, 1996./8/
 10.25       Lease Agreement between the Company and Simon
             Champagne dated July 24, 1996./8/
 10.26       Employment letter agreement between the Company and
             Jay L. Essa dated September 9, 1996./8/*
 10.27       Lease Agreement between the Company and Enviro-zyme
             International, Incorporated dated January 6, 1997./9/
 10.28       Lease Agreement between the Company and William Eddy
             dated January 24, 1997./9/
 10.29       Employment letter agreement between the Company and
             David R. Pearce dated November 8, 1996./9/*
 10.30       Lease Amendment between the Company and 47th Avenue
             South Properties, LLC dated February 1, 1998./11/
 10.31       Lease Addendum between the Company and Mehland
             Developers dated January 13, 1998./11/
 10.32       Lease Amendment between the Company and PBP-N, Inc.
             dated October 9, 1997./11/
 10.33       Lease Agreement between the Company and 216-218
             Newbury Street Realty Trust dated January 20, 1998./11/
 10.34       Lease Amendment between the Company and Bruce K. Hoyt
             dated March 18, 1998./11/
 23          Consent of Arthur Andersen LLP.
</TABLE>

______________________
 /1/ Filed as an Exhibit to the Company's Registration Statement on Form S-1
     filed on May 5, 1994 (File No. 33-78624) and incorporated by reference
     herein.
 /2/ Filed as an Exhibit to Amendment No. 1 to the Company's Registration
     Statement on Form S-1 filed on June 9, 1994 (File No. 33-78624) and
     incorporated by reference herein.
 /3/ Filed as an Exhibit to the Company's Form 10-Q for the quarterly period
     ended July 1, 1994 filed on August 15, 1994 (File No. 0-24048) and
     incorporated by reference herein.
 /4/ Filed as an Exhibit to the Company's Form 10-K for the year ended
     December 31, 1994 (File No. 0-24048) and incorporated by reference
     herein.
 /5/ Filed as an Exhibit to the Company's Form 10-Q for the quarterly period
     ended March 31, 1995 filed on May 15, 1995 (File No. 0-24048) and
     incorporated by reference herein.
 /6/ Filed as an Exhibit to the Company's Form 10-Q for the quarterly period
     ended June 30, 1995 filed on August 14, 1995 (File No. 0-24048) and
     incorporated by reference herein.
 /7/ Filed as an Exhibit to the Company's Form 10-K for the fiscal year ended
     December 31, 1995 filed on March 29, 1996 (File No. 0-24048) and
     incorporated by reference herein.
 /8/ Filed as an Exhibit to the Company's Form 10-Q for the quarterly period
     ended September 28, 1996 filed on November 12, 1996 (File No. 0-24048)
     and incorporated by reference herein.
 /9/ 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.
/10/ 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.
/11/ 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.
  *  Management Contract or Compensation Plan
 
     (b)  No Current Reports on Form 8-K were filed by the Company during the
fourth quarter of 1997.
 
                                      23
<PAGE>
 
                                  SIGNATURES
 
     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
 
                                          Geerlings & Wade, Inc.
 
                                                      /s/ Jay L. Essa
                                          _____________________________________
                                              Jay L. Essa President and Chief
                                                     Executive Officer
 
Date: March 27, 1998
 
     Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
 
              Signature                        Title                 Date
 
        /s/ Huib E. Geerlings          Chairman of the          March 27, 1998
-------------------------------------   Board and Director
          Huib E. Geerlings

 
           /s/ Jay L. Essa             President, Chief         March 27, 1998
-------------------------------------   Executive Officer
             Jay L. Essa                and Director
                                        (Principal
                                        Executive Officer)
 
         /s/ David R. Pearce           Vice President,          March 27, 1998
-------------------------------------   Chief Financial
           David R. Pearce              Officer and
                                        Treasurer
                                        (Principal
                                        Financial and
                                        Accounting Officer)
 
         /s/ Phillip D. Wade           Director                 March 27, 1998
-------------------------------------
           Phillip D. Wade
 

         /s/ James C. Curvey           Director                 March 27, 1998
-------------------------------------
           James C. Curvey

 
      /s/ John M. Connors, Jr.         Director                 March 27, 1998
-------------------------------------
        John M. Connors, Jr.
 

         /s/ Gordon R. Cooke           Director                 March 27, 1998
-------------------------------------
           Gordon R. Cooke
 

           /s/ Robert Webb             Director                 March 27, 1998
-------------------------------------
             Robert Webb
 
                                      24
<PAGE>
 
     Excise Taxes, Customs Duties and Tariffs.  The federal government and
various states impose excise taxes, duties and tariffs on wine.  Increases in
the federal excise tax on wine, such as the 500% increase which was imposed in
1991, or increases in state excise tax levels, may have a material adverse
effect on the Company's business and its results of operations.   In 1997,
approximately 70% 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.  Wine making 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.

     Year 2000 Compliance.  The Company depends on computer systems for all
phases of its operations, including production, sales, distribution and
delivery.  Because many of the Company's computer software programs recognize
only the last two digits of the year in any date (e.g., "97" for "1997"), some
software may fail to operate properly in 1999 and 2000 if the software is not
reprogrammed or replaced (the "Year 2000 Problem").  The Company believes that
many of its suppliers also have Year 2000 Problems, which could affect the
Company.  The Company intends to timely mitigate and/or prevent the adverse
effects of the Year 2000 Problem, and to pursue compliance by suppliers.  It is
not possible, at present, to quantify the overall cost of this work, nor the
financial effect of the Year 2000 Problem if it is not timely resolved.  The
Company presently believes, however, that the cost of fixing the Year 2000
Problem will not have a material adverse effect on the Company's financial
position, liquidity or results from operations.

     Market Risk.  The Company does not engage in activity involving market risk
sensitive instruments that are material to the business.

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 the pages following said page F-1.

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

     None.

                                       25
<PAGE>
 
                                   PART III

ITEM 10:  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Certain information required by this Item is included under the captions
"Executive Compensation - Executive Officers of the Company", "Election of
Directors - Nominees for Election as Director at the Annual Meeting", "Directors
Whose Terms Expire in 1999," "Director Whose Terms Expire in 2000" and
"Information Concerning the Board and Its Committees" in the Proxy Statement for
use in connection with the Company's 1998 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 - Summary Compensation Table,"  "Compensation Committee 
Report" and "Employment Arrangements" in the Proxy Statement, and is
incorporated herein by reference.

ITEM 12:  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

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

ITEM 13:  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     N/A
                                       26
<PAGE>
 
                                    PART IV
                                        
ITEM 14:  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

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

     Listed below are all Exhibits filed as part of this Report.  Certain
Exhibits are incorporated herein by reference to (i) the Company's Registration
Statement on Form S-1 originally filed on May 5, 1994 (File No. 33-78624), and
(ii) documents previously filed by the Company with the Securities and Exchange
Commission under the Securities 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//*/
10.5   Form of Employment Agreement for Huib E. Geerlings./1//*/
10.6   Consulting Agreement between the Company and Peter van Hoof
       effective as of April 1, 1994./1/
10.7   $2,500,000 demand Discretionary Line of Credit dated January 7, 1994,
       as amended by letter agreement dated April 27, 1994, between
       The First National Bank of Boston and the Company./1/
10.8   Promissory Note of the Company in favor of The First National Bank
       of Boston dated January 7, 1994./1/
10.9   Security Agreement between the Company and The First National Bank
       of Boston dated January 7, 1994./1/
10.10  Stock Option Plan, as amended./1//0/
10.11  Non-Employee Director Stock Option Plan./1/
10.12  Employee Stock Purchase Plan./1/
10.13  Lease Agreement between the Company and Pacific Realty Associates, L.P.
       dated July 18, 1994./4/
10.14  Lease Agreement between the Company and Flint Lee Limited Partnership
       dated August 31, 1994./4/
10.15  Lease Agreement between the Company and 47th Avenue Industrial Properties
       dated October 6, 1994./4/
10.16  Lease Agreement between the Company and Mehland Developers
       dated October 31, 1994./4/
10.17  Letter Agreement dated as of March 15, 1995 between the Company and the
       First National Bank of Boston./4/
10.18  Lease agreement between the Company and Hohokam Realty Condominiums dated
       October 31, 1994./5/
</TABLE> 

                                       27
<PAGE>
 
<TABLE> 
<S>    <C> 
10.19  Lease agreement between the Company and Bruce K. and Gayle J. Hoyt dated
       November 23, 1994./6/
10.20  Master Agreement dated as of June 9, 1995 by and between Geerlings and
       Wade, Inc. and Chemical Bank, a New York banking corporation./6/
10.21  Lease Agreement between the Company and The Naughton Company dated
       August 16, 1995./7/
10.22  Lease Agreement between the Company and Cole Taylor Bank dated
       August 23, 1995./7/
10.23  $5,000,000 demand Discretionary Line of Credit dated January 7, 1994, as
       amended by letter agreement dated October 13, 1995, between The First
       National Bank of Boston and the Company./7/
10.24  Lease Agreement between the Company and Debra Campbell dated
       July 15, 1996./8/
10.25  Lease Agreement between the Company and Simon Champagne dated
       July 24, 1996./8/
10.26  Employment letter agreement between the Company and Jay L. Essa dated
       September 9, 1996./8//*/
10.27  Lease Agreement between the Company and Enviro-zyme International,
       Incorporated dated January 6, 1997./9/
10.28  Lease Agreement between the Company and William Eddy dated
       January 24, 1997./9/
10.29  Employment letter agreement between the Company and David R. Pearce dated
       November 8, 1996./9//*/
10.30  Lease Amendment between the Company and 47th Avenue South Properties, LLC
       dated February 1, 1998./11/ 
10.31  Lease Addendum between the Company and Mehland Developers dated January
       13, 1998./11/ 
10.32  Lease Amendment between the Company and PBP-N, Inc. dated October 9,
       1997./11/ 
10.33  Lease Agreement between the Company and 216-218 Newbury Street Realty
       Trust dated January 20, 1998./11/ 
10.34  Lease Amendment between the Company and Bruce K. Hoyt dated March 18, 
       1998./11/ 
23     Consent of Arthur Andersen LLP.
</TABLE> 

_____________________________
/1/  Filed as an Exhibit to the Company's Registration Statement on Form S-1
     filed on May 5, 1994 (File No. 33-78624) and incorporated by reference
     herein.
/2/  Filed as an Exhibit to Amendment No. 1 to the Company's Registration
     Statement on Form S-1 filed on June 9, 1994 (File No. 33-78624) and
     incorporated by reference herein.
/3/  Filed as an Exhibit to the Company's Form 10-Q for the quarterly period
     ended July 1, 1994 filed on August 15, 1994 (File No. 0-24048) and
     incorporated by reference herein.
/4/  Filed as an Exhibit to the Company's Form 10-K for the year ended December
     31, 1994 (File No. 0-24048) and incorporated by reference herein.
/5/  Filed as an exhibit to the Company's Form 10-Q for the quarterly period
     ended March 31, 1995 filed on May 15, 1995 (File No. 0-24048) and
     incorporated by reference herein.
/6/  Filed as an exhibit to the Company's Form 10-Q for the quarterly period
     ended June 30, 1995 filed on August 14, 1995 (File No. 0-24048) and
     incorporated by reference herein.
/7/  Filed as an exhibit to the Company's Form 10-K for the fiscal year ended
     December 31, 1995 filed on March 29, 1996 (File No. 0-24048) and
     incorporated by reference herein.
/8/  Filed as an exhibit to the Company's Form 10-Q for the quarterly period
     ended September 28, 1996 filed on November 12, 1996 (File No. 0-24048) and
     incorporated by reference herein.
/9/  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.
/10/ 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
     refrence herein.
/11/ 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.
* Management Contract or Compensation Plan

(b)  No Current Reports on Form 8-K were filed by the Company during the fourth
quarter of 1997.

                                      28
<PAGE>
 
                                SIGNATURES


     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                  GEERLINGS & WADE, INC.


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



Date:  February 12, 1999 
 

 

                                       29
<PAGE>
 
                                SIGNATURES


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

/s/ Huib E. Geerlings       Chairman of the Board and          February 12, 1999
-------------------------   Director
Huib E. Geerlings        
                         

/s/ Jay L. Essa             President, Chief Executive Officer February 12, 1999
-------------------------   Officer and Director
Jay L. Essa                 (Principal Executive Officer)


/s/ David R. Pearce         Vice President, Chief Financial    February 12, 1999
-------------------------   Officer, and Treasurer
David R. Pearce             (Principal Financial and
                            Accounting Officer)
                         

/s/ John M. Connors, Jr.    Director                           February 12, 1999
-------------------------
John M. Connors, Jr.     
                         

/s/ Robert Webb             Director                           February 12, 1999
-------------------------
Robert Webb

                                       30
<PAGE>
 
                   INDEX OF EXHIBITS FILED WITH THIS REPORT
<TABLE> 
<CAPTION> 
Exhibit No.                              Description                             Sequential Page No.
----------------------------------------------------------------------------------------------------
<C>    <S>                                                                       <C> 
10.30  Lease Amendment between the Company and 47th Avenue South Properties,
       LLC dated February 1, 1998.
10.31  Lease Addendum between the Company and Mehland Developers dated
       January 13, 1998.
10.32  Lease Amendment between the Company and PBP-N, Inc. dated October 9, 1997.
10.33  Lease Agreement between the Company and 216-218 Newbury Street Realty
       Trust dated January 20, 1998.
10.34  Lease Amendment between the Company and Bruce K. Hoyt dated March 18,
       1998.
23     Consent of Arthur Andersen LLP.
</TABLE> 
<PAGE>
 
                                     INDEX
 
<TABLE>
<CAPTION>
                                                                          PAGE
                                                                          ----
<S>                                                                       <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS................................. F-2
BALANCE SHEETS AS OF DECEMBER 31, 1997 AND 1996.......................... F-3
STATEMENTS OF OPERATIONS FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED
 DECEMBER 31, 1997....................................................... F-4
STATEMENTS OF STOCKHOLDERS' EQUITY FOR EACH OF THE THREE YEARS IN THE
 PERIOD ENDED DECEMBER 31, 1997.......................................... F-5
STATEMENTS OF CASH FLOWS FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED
 DECEMBER 31, 1997....................................................... 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, 1997 and 1996, and the related
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
 
  We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
 
  In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Geerlings & Wade, Inc. as
of December 31, 1997 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
 
Boston, Massachusetts
January 30, 1998


/s/ Arthur Andersen LLP
 
                                      F-2
<PAGE>
 
                             GEERLINGS & WADE, INC.
 
                                 BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                            December 31,
                                                       ------------------------
                                                          1996         1997
                                                       -----------  -----------
<S>                                                    <C>          <C>
                        ASSETS
CURRENT ASSETS:
  Cash and cash equivalents........................... $   774,514  $   358,043
  Accounts receivable.................................     307,409      559,046
  Inventory...........................................   8,359,765   10,984,590
  Prepaid mailing costs...............................     813,208      957,483
  Prepaid expenses and other current assets...........     326,399      987,034
  Deferred income taxes...............................     500,000      855,910
                                                       -----------  -----------
      Total current assets............................  11,081,295   14,702,106
                                                       -----------  -----------
PROPERTY AND EQUIPMENT, AT COST:
  Office and computer equipment.......................   1,988,855    2,103,555
  Motor vehicles......................................     177,056       77,875
  Furniture and fixtures..............................     365,749      369,216
                                                       -----------  -----------
                                                         2,531,660    2,550,646
  Less--accumulated depreciation......................     910,112    1,240,777
                                                       -----------  -----------
                                                         1,621,548    1,309,869
                                                       -----------  -----------
OTHER ASSETS..........................................     249,425      112,367
                                                       -----------  -----------
                                                       $12,952,268  $16,124,342
                                                       ===========  ===========
         LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Cash overdraft...................................... $   472,469  $       --
  Line of credit......................................     939,019      982,395
  Accounts payable....................................     641,944    1,900,761
  Current portion of deferred revenue.................     542,305      766,392
  Deferred income taxes...............................         --       141,000
  Accrued sales, income and payroll taxes.............     241,345      931,860
  Accrued expenses....................................     198,803      677,098
                                                       -----------  -----------
      Total current liabilities.......................   3,035,885    5,399,506
                                                       -----------  -----------
DEFERRED REVENUE, LESS CURRENT PORTION................     390,868      363,163
                                                       -----------  -----------
COMMITMENTS (NOTE 5)
STOCKHOLDERS' EQUITY:
  Preferred stock, $.01 par value
    Authorized--1,000,000 shares
    Outstanding--none.................................         --           --
  Common stock, $.01 par value Authorized--10,000,000
   shares Issued and outstanding--3,777,525 shares and
   3,781,343 shares in 1996 and 1997, respectively....      37,774       37,812
  Additional paid-in capital..........................   9,716,256    9,729,781
  Retained (deficit) earnings.........................    (228,515)     594,080
                                                       -----------  -----------
      Total stockholders' equity......................   9,525,515   10,361,673
                                                       -----------  -----------
                                                       $12,952,268  $16,124,342
                                                       ===========  ===========
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                      F-3
<PAGE>
 
                             GEERLINGS & WADE, INC.
 
                            STATEMENTS OF OPERATIONS
 
<TABLE>
<CAPTION>
                                             Years Ended December 31,
                                        -------------------------------------
                                           1995         1996         1997
                                        -----------  -----------  -----------
<S>                                     <C>          <C>          <C>
SALES.................................. $29,717,901  $31,501,236  $33,701,832
COST OF SALES..........................  16,138,372   17,187,877   18,185,364
                                        -----------  -----------  -----------
    Gross profit.......................  13,579,529   14,313,359   15,516,468
SELLING, GENERAL AND ADMINISTRATIVE
 EXPENSES..............................  14,690,116   14,426,514   14,066,529
                                        -----------  -----------  -----------
    Income (loss) from operations......  (1,110,587)    (113,155)   1,449,939
INTEREST INCOME........................      67,273          --        20,975
INTEREST EXPENSE.......................    (103,831)    (257,259)     (44,319)
                                        -----------  -----------  -----------
    Income (loss) before provision
     (benefit) for income taxes........  (1,147,145)    (370,414)   1,426,595
(BENEFIT) PROVISION FOR INCOME TAXES...    (470,000)    (152,000)     604,000
                                        -----------  -----------  -----------
    Net income (loss).................. $  (677,145) $  (218,414) $   822,595
                                        ===========  ===========  ===========
NET INCOME (LOSS) PER SHARE:
  Basic................................ $     (0.18) $     (0.06) $      0.22
                                        ===========  ===========  ===========
  Diluted.............................. $     (0.18) $     (0.06) $      0.22
                                        ===========  ===========  ===========
WEIGHTED AVERAGE COMMON AND COMMON
 EQUIVALENT SHARES OUTSTANDING (NOTE
 3):
  Basic................................   3,754,891    3,776,376    3,779,538
                                        ===========  ===========  ===========
  Diluted..............................   3,754,891    3,776,376    3,796,460
                                        ===========  ===========  ===========
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                      F-4
<PAGE>
 
                             GEERLINGS & WADE, INC.
 
                       STATEMENTS OF STOCKHOLDERS' EQUITY
 
<TABLE>
<CAPTION>
                            Common Stock
                         ------------------- Additional Retained       Total
                         Number of   $.01     Paid-In   Earnings   Stockholders'
                          Shares   Par Value  Capital   (deficit)     Equity
                         --------- --------- ---------- ---------  -------------
<S>                      <C>       <C>       <C>        <C>        <C>
BALANCE, DECEMBER 31,
 1994................... 3,725,000  $37,250  $9,356,188 $667,044    $10,060,482
  Exercise of common
   stock options........    50,243      502     349,139      --         349,641
  Net loss..............       --       --          --  (677,145)      (677,145)
                         ---------  -------  ---------- --------    -----------
BALANCE, DECEMBER 31,
 1995................... 3,775,243   37,752   9,705,327  (10,101)     9,732,978
  Issuance of stock
   under employee stock
   purchase plan........     2,282       22      10,929      --          10,951
  Net loss..............       --       --          --  (218,414)      (218,414)
                         ---------  -------  ---------- --------    -----------
BALANCE, DECEMBER 31,
 1996................... 3,777,525   37,774   9,716,256 (228,515)     9,525,515
  Issuance of stock
   under employee stock
   purchase plan........     3,818       38      13,525      --          13,563
  Net income............       --       --          --   822,595        822,595
                         ---------  -------  ---------- --------    -----------
BALANCE, DECEMBER 31,
 1997................... 3,781,343  $37,812  $9,729,781 $594,080    $10,361,673
                         =========  =======  ========== ========    ===========
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                      F-5
<PAGE>
 
                             GEERLINGS & WADE, INC.
                                        
                            STATEMENTS OF CASH FLOWS
 
<TABLE>   
<CAPTION>
                                               Years Ended December 31,
                                         --------------------------------------
                                            1995          1996         1997
                                         -----------  ------------  -----------
<S>                                      <C>          <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)....................  $  (677,145) $   (218,414)  $  822,595
  Adjustments to reconcile net income
   (loss) to net cash (used in)
   provided by operating activities
    Depreciation and amortization......      463,341       570,605      536,301
    Deferred income taxes..............     (248,000)     (152,000)    (214,910)
    Gain on disposal of fixed asset....          --        (16,102)      (5,707)
    Changes in current assets and
     liabilities
      Accounts receivable..............        1,098      (245,439)    (251,637)
      Inventory........................   (6,251,498)    3,673,800   (2,624,824)
      Prepaid mailing costs............       74,726       (13,120)    (144,275)
      Prepaid expenses and other
       assets..........................     (433,761)      785,691     (699,486)
      Accounts payable.................      (63,750)   (2,082,918)   1,258,818
      Deferred revenue.................      439,525       100,422      196,382
      Accrued expenses.................       60,665       138,138      478,295
      Accrued sales, income and payroll
       taxes...........................       62,597      (108,538)     690,515
                                         -----------  ------------  -----------
        Net cash (used in) provided by
         operating activities..........   (6,572,202)    2,432,125       42,067
                                         -----------  ------------  -----------
CASH FLOWS USED IN INVESTING ACTIVI-
 TIES:
  Purchases of property and equipment,
   net.................................   (1,015,150)     (775,820)    (192,769)
  Proceeds from sale of property and
   equipment...........................       17,956        30,893       56,550
  Decrease in other assets.............     (121,191)     (129,539)      93,211
                                         -----------  ------------  -----------
        Net cash used in investing
         activities....................   (1,118,385)     (874,466)     (43,008)
                                         -----------  ------------  -----------
CASH FLOWS USED IN FINANCING ACTIVI-
 TIES:
  Bank overdraft.......................          --        472,469     (472,469)
  Borrowings under line of credit......    6,378,412     8,960,890    4,943,349
  Repayments under line of credit......   (3,363,000)  (11,037,283)  (4,899,973)
  Decrease in deferred financing
   costs...............................        2,606           --           --
  Proceeds from issuance of shares
   under the Employee Stock Purchase
   Plan................................      349,641        10,951       13,563
                                         -----------  ------------  -----------
        Net cash provided by (used in)
         financing activities..........    3,367,659    (1,592,973)    (415,530)
                                         -----------  ------------  -----------
NET DECREASE IN CASH AND CASH EQUIVA-
 LENTS.................................   (4,322,928)      (35,314)    (416,471)
CASH AND CASH EQUIVALENTS, BEGINNING OF
 YEAR..................................    5,132,756       809,828      774,514
                                         -----------  ------------  -----------
CASH AND CASH EQUIVALENTS, END OF
 YEAR..................................  $   809,828  $    774,514  $   358,043
                                         ===========  ============  ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
 INFORMATION:
Cash paid during the year for
  Interest.............................  $    63,451  $    275,107  $    44,939
                                         ===========  ============  ===========
  Income taxes.........................  $   535,691  $        --   $   259,650
                                         ===========  ============  ===========
</TABLE>    
 
   The accompanying notes are an integral part of these financial statements.
 
                                      F-6
<PAGE>
 
                            GEERLINGS & WADE, INC.
 
                         NOTES TO FINANCIAL STATEMENTS
 
                               DECEMBER 31, 1997
 
(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 licensed facilities in 14 states. Federal, state and local
laws strictly govern the sale of wine in each market served by the Company.
 
(2)  Summary of Significant Accounting Policies
 
     The accompanying financial statements reflect the application of certain
accounting policies and use of management's estimates described in this note
and elsewhere in the accompanying notes to financial statements.
 
 (a) Management Estimates
 
     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
 
 (b) Revenue Recognition
 
     Revenue from merchandise sales is recognized at the time of shipment to the
customer. The Company offers one-, and three-year membership programs to
customers, which provide them with certain preferred customer privileges.
Revenue derived from memberships is recognized over the related membership
period. Sales returns, which are not material, are recorded in the period of
return.
 
 (c) Cash and Cash Equivalents
 
     The Company applies Statement of Financial Accounting Standards (SFAS) No.
115, Accounting for Certain Investments in Debt and Equity Securities.
 
     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, 1997 cash equivalents consist of investments in
a money market account.
 
 (d) Credit Card Policy
 
     The Company's agreement with a credit card processing company provides for
the electronic processing of credit approvals and electronic submission of
transactions. Payment is transmitted to the Company's bank account within two
to four days of the order transaction. Credit card processing fees amounted to
approximately $586,000, $634,000 and $723,000 for the years ended December 31,
1995, 1996 and 1997, respectively, and are included in selling, general and
administrative expenses in the accompanying statements of operations.
 
 (e) Inventory
 
     The Company values inventory at the lower of cost (first-in, first-out) or
net realizable market value (estimated proceeds upon sale, net of fulfillment
expenses).
 
     During 1996 and 1997, the Company purchased approximately $3,544,000 and
$3,223,000, respectively of inventory through wholesale channels with a single
supplier. Total or partial loss of the business relationship with this
supplier could result in a temporary near-term disruption of the Company's
ability to source domestically produced wine product. Management believes that
alternative sources of supply are readily available to mitigate the Company's
potential loss exposure.
 
                                      F-7
<PAGE>
 
                            GEERLINGS & WADE, INC.
 
                  NOTES TO FINANCIAL STATEMENTS--(Continued)
 
 
  Included in the Company's inventory are approximately $637,000 and $106,000
of paid reservations of certain vintage wines as of December 31, 1996 and
1997, respectively. In its efforts to reduce the levels of such inventory, the
Company sold approximately $532,000 and $283,000 of such reserves to its
customers during 1996 and 1997, respectively. The Company bears the ultimate
liability for the wine reservations sold until delivered and accepted by the
customers.
 
 (f) Depreciation
 
  The Company provides for depreciation using the straight-line method by
charges to operations in amounts that allocate the cost of the assets over
their estimated useful lives as follows:
 
<TABLE>
<CAPTION>
                                                                     Estimated
       Asset Classification                                         Useful Life
       --------------------                                         -----------
     <S>                                                            <C>
     Office and computer equipment.................................  3-5 years
     Motor vehicles................................................    3 years
     Furniture and fixtures........................................    5 years
</TABLE>
 
 (g) Other Assets
 
     Other assets primarily consist of costs of acquiring liquor licenses which
are amortized on a straight-line basis over five years, their estimated useful
life.
 
 (h) Advertising Costs
 
     Advertising expense was $6,522,678, $4,575,253 and $4,756,042 for the years
ended December 31, 1995, 1996 and 1997, 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 for up to five months. Revenue estimates are used to
determine the cost recovery period of prepaid mailing costs.  Total amounts
capitalized as of December 31, 1996 and 1997 are $813,208 and $957,483,
respectively. Amortization expense for materials mailed to prospective customers
of $2,436,850 and $2,159,147 was recorded as of December 31, 1996 and 1997, 
respectively.
 
 (i) Deferred Revenue
 
     Deferred revenue of $933,173 and $1,129,555 as of December 31, 1996 and
1997, respectively, represents customer prepayments, payments for wine
reservations and deferred membership revenues. Of these amounts, $304,020 and
$320,031, as of December 31, 1996 and 1997, respectively, represent customer
prepayments, $78,912 and $211,459, as of December 31, 1996 and 1997
respectively, represented payments for wine reservations and $550,240 and
$598,065, as of December 31, 1996 and 1997, respectively, represent deferred
membership revenues.
 
 (j) Foreign Currency Transactions
 
     Periodically, the Company may enter into foreign exchange contracts to
hedge currency exposure on firm inventory purchase commitments. The Company
charges foreign currency gains or losses to operations in accordance with 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,
1997, the Company did not have any foreign exchange contracts outstanding.
 
 (k) Fiscal Year
 
     The Company's fiscal year ends on December 31. For interim reporting
purposes, the Company closes its books on the last day of each interim fiscal
quarter.
 
                                      F-8
<PAGE>
 
                            GEERLINGS & WADE, INC.
 
                  NOTES TO FINANCIAL STATEMENTS--(Continued)
 
 (l) Long-Lived Assets
 
     The Company applies the provisions of 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 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, 1996 and 1997, the Company determined that there was no
impairment of long-lived assets.
 
 (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,
investment in wine futures and notes payable. The estimated fair value of
these financial instruments approximates their carrying value.
 
 (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 equivalents in highly rated financial instruments.
 
 (o) Recently Issued Accounting Standards
 
     In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income
and SFAS No. 131, Disclosures About Segments of an Enterprise and Related
Information. Both SFAS No. 130 and 131 are effective for fiscal years
beginning after December 15, 1997. The Company believes that the adoption of
these new accounting standards will not have a material impact on the
Company's financial statements.
 
(3) Income (Loss) Per Share
 
     In February 1997, the FASB issued SFAS No. 128, Earnings per Share. This
standard is effective for fiscal periods ending after December 15, 1997 and
requires presentation of both basic and diluted earnings per share on the face
of the statements of income. These financial statements have been prepared and
presented based on the new standard. Prior period amounts have been restated
to conform to current year presentation. For the years ended December 31,
1995, 1996 and 1997, 112,089, 257,619 and 227,902 of anti-dilutive shares,
respectively, have been excluded from the weighted average number of common
and dilutive potential common shares outstanding.
 
     Basic and diluted income (loss) per share, as required by SFAS No. 128, is
as follows:
 
<TABLE>
<CAPTION>
                                                  Years Ended December 31,
                                                -------------------------------
                                                  1995       1996       1997
                                                ---------  ---------  ---------
   <S>                                          <C>        <C>        <C>
   Net income (loss)..........................  $(677,145) $(218,414) $ 822,595
                                                =========  =========  =========
   Basic weighted average shares outstanding..  3,754,891  3,776,376  3,779,538
   Weighted average common equivalent shares..        --         --      16,922
                                                ---------  ---------  ---------
   Diluted weighted average shares
    outstanding...............................  3,754,891  3,776,376  3,796,460
                                                =========  =========  =========
   Basic income (loss) per share..............  $   (0.18) $   (0.06) $    0.22
                                                =========  =========  =========
   Diluted income (loss) per share............  $   (0.18) $   (0.06) $    0.22
                                                =========  =========  =========
</TABLE>
 
                                      F-9
<PAGE>
 
                            GEERLINGS & WADE, INC.
 
                  NOTES TO FINANCIAL STATEMENTS--(Continued)
 
(4)  Line of Credit
 
     The Company has a demand credit line with a bank that allows the Company to
borrow the lesser of $5,000,000 or 50% of certain inventories, as defined. The
line of credit bears interest at the bank's base rate (8.50% at December 31,
1997) plus 3/4%. No commitment fees apply to the unutilized portion of the
credit line. The line of credit is subject to annual reviews by the bank.
Borrowings under the line are collateralized by all assets of the Company. At
December 31, 1997, $982,395 was outstanding under this line-of-credit
agreement.
 
     The Company issued a standby letter of credit in the original amount of
$240,000 as security on its Massachusetts lease. The letter of credit is
reduced ratably over 36 months and expires on August 2, 1998.
 
     The Company maintains separate foreign exchange facilities with two banks,
each of which allows the Company to enter into forward exchange contracts of
up to $500,000, maturing on any one day, for the hedging of future foreign
currency needs. At December 31, 1997, there were no outstanding forward
exchange contracts.
 
(5)  Commitments and Contingencies
 
 (a) Lease Commitments
 
     The Company leases facilities under operating lease agreements expiring
through January 2001. Future minimum rental payments due under these
agreements as of December 31, 1997 are as follows:
 
<TABLE>
<CAPTION>
Fiscal Year                                                             Amount
-----------                                                           ----------
<S>                                                                   <C>
1998................................................................. $  728,244
1999.................................................................    717,922
2000.................................................................    483,036
2001.................................................................     50,415
                                                                      ----------
                                                                      $1,979,617
                                                                      ==========
</TABLE>
 
     Total rental expense under these agreements included in the accompanying
statements of operations is approximately $509,000, $799,000 and $862,000 for
the years ended December 31, 1995, 1996 and 1997, 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.
 
(6)  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-10
<PAGE>
 
                            GEERLINGS & WADE, INC.
 
                  NOTES TO FINANCIAL STATEMENTS--(Continued)
 
 
  The components of the (benefit) provision for income taxes are as follows:
 
<TABLE>
<CAPTION>
                                                  1995       1996       1997
                                                ---------  ---------  ---------
   <S>                                          <C>        <C>        <C>
   Current
     Federal................................... $(222,000) $     --   $ 647,000
     State.....................................       --         --     172,000
                                                ---------  ---------  ---------
                                                 (222,000)       --     819,000
                                                ---------  ---------  ---------
   Deferred
     Federal...................................  (212,000)  (119,000)  (168,000)
     State.....................................   (36,000)   (33,000)   (47,000)
                                                ---------  ---------  ---------
                                                 (248,000)  (152,000)  (215,000)
                                                ---------  ---------  ---------
                                                $(470,000) $(152,000) $ 604,000
                                                =========  =========  =========
</TABLE>
 
     The reconciliation of the federal statutory rate to the effective tax rate
for the years ended December 31, 1995, 1996 and 1997 for income taxes are as
follows:
 
<TABLE>
<CAPTION>
                                                           1995   1996   1997
                                                           ----   ----   ----
   <S>                                                     <C>    <C>    <C>
   Income tax (benefit) provision at federal statutory
    rate.................................................. (34)%  (34)%   34%
   State taxes, net of federal benefit....................  (5)    (6)     6
   Tax-exempt municipal bond interest.....................  (3)   --     --
   Other, net.............................................   1     (1)     2
                                                           ---    ---    ---
                                                           (41)%  (41)%   42%
                                                           ===    ===    ===
</TABLE>
 
     Deferred income taxes relate to the following temporary differences as of
December 31, 1996 and 1997:
 
<TABLE>
<CAPTION>
                                                              1996      1997
                                                            --------  ---------
   <S>                                                      <C>       <C>
   Net operating loss carryforward......................... $ 56,000  $     --
   Deferred revenue........................................  299,000    366,000
   Capitalized inventory...................................   58,000     80,000
   Nondeductible reserves..................................  136,000    198,000
   Other temporary differences.............................      --     205,000
   Depreciation and amortization...........................  (49,000)   (35,000)
   Deferred costs..........................................      --    (106,000)
                                                            --------  ---------
     Total deferred taxes.................................. $500,000  $ 715,000
                                                            ========  =========
</TABLE>
 
(7)  Stockholders' Equity
 
 (a) Preferred Stock
 
     The Company has authorized 1,000,000 shares of $.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.
 
                                     F-11
<PAGE>
 
                            GEERLINGS & WADE, INC.
 
                  NOTES TO FINANCIAL STATEMENTS--(Continued)
 
 (b) Stock Option Plans
 
  The Employee Stock Option Plan (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 450,000 shares of common stock has been reserved for options to be
granted under the Option Plan.
 
  The Nonemployee Directors' Stock Option Plan (Director Plan) was adopted by
the Board of Directors and the stockholders on April 8, 1994 to provide for
the granting of nonqualified options to directors of the Company. The options
under the Director Plan are granted at fair market value on the date of grant.
Such options are subject to vesting over three years and carry a 10-year term.
A total of 50,000 shares of common stock have been reserved for options to be
granted under the Director Plan.
 
  Activity under the Option Plan and Director Plan is summarized as follows:
 
<TABLE>
<CAPTION>
                                      Option Plan                            Director Plan
                         --------------------------------------- --------------------------------------
                                      Weighted                               Weighted
                          Number    Average Price Exercise Price  Number   Average Price Exercise Price
                         of Shares    Per Share     Per Share    of Shares   Per Share     Per Share
                         ---------  ------------- -------------- --------- ------------- --------------
<S>                      <C>        <C>           <C>            <C>       <C>           <C>
Outstanding, December
 31, 1995...............   97,089      $12.20      $8.48-$16.00   15,000      $11.13      $8.00-$15.25
                         --------      ------      ------------   ------      ------      ------------
  Granted...............  255,953        5.37         3.63-8.00    7,500        4.50              4.50
  Terminated............ (117,923)      11.24        4.13-16.00      --          --                --
  Exercised.............      --          --                --       --          --                --
                         --------      ------      ------------   ------      ------      ------------
Outstanding, December
 31, 1996...............  235,119        5.26         3.63-8.00   22,500        8.92        4.50-15.25
                         --------      ------      ------------   ------      ------      ------------
  Granted...............   75,900        4.42         4.00-5.13   15,000        4.46         4.38-4.63
  Terminated............  (97,129)       5.52         3.63-8.00   (7,500)       9.33        4.50-15.25
  Exercised.............      --          --                --       --          --                --
                         --------      ------      ------------   ------      ------      ------------
Outstanding, December
 31, 1997...............  213,890      $ 4.84      $ 3.78-$8.00   30,000      $ 6.85      $4.38-$15.25
                         ========      ======      ============   ======      ======      ============
Exercisable, December
 31, 1997...............   93,867      $ 5.66      $ 3.78-$8.00    9,998      $ 9.83      $4.50-$15.25
                         ========      ======      ============   ======      ======      ============
</TABLE>
 
     In October 1995, the FASB issued SFAS No. 123, Accounting for Stock-Based
Compensation, which requires the measurement of the fair value of stock
options or warrants to be included in the statement of operations or disclosed
in the notes to the financial statements. The Company has determined that it
will continue to account for stock-based compensation for employees under
Accounting Principles Board Opinion No. 25 and elect the disclosure-only
alternative under SFAS No. 123. Options granted in 1995, 1996 and 1997 have
been valued using the Black-Scholes option pricing model prescribed by SFAS
No. 123. The weighted average assumptions used for the years ended December
31, 1995, 1996 and 1997 are as follows:
 
<TABLE>
<CAPTION>
                                                           December 31,
                                                     --------------------------
                                                      1995     1996      1997
                                                     -------  -------  --------
   <S>                                               <C>      <C>      <C>
   Risk-free interest rate..........................     6.5%     6.5% 6.3-6.61%
   Expected dividend yield..........................     --       --        --
   Expected lives................................... 5 years  5 years   5 years
   Expected volatility..............................      68%      68%       86%
</TABLE>
 
                                     F-12
<PAGE>
 
                            GEERLINGS & WADE, INC.
 
                  NOTES TO FINANCIAL STATEMENTS--(Continued)
 
     The weighted average grant date fair value of options granted during the
years ended December 31, 1995, 1996 and 1997 under these plans is $4.17, $2.51
and $2.37, respectively.
 
  As of December 31, 1995, 1996 and 1997, the weighted average remaining
contractual life of outstanding options under these plans is 9.16, 9.44 and
9.42 years, respectively.
 
  Had compensation cost for the Company's stock option plans and Employee
Stock Purchase Plan been determined consistent with SFAS No. 123, the
Company's net (loss) income and net (loss) income per share would have been
the following pro forma amounts:
 
<TABLE>
<CAPTION>
                                                         December 31,
                                                 ------------------------------
                                                   1995       1996       1997
                                                 ---------  ---------  --------
   <S>                                           <C>        <C>        <C>
   Net (loss) income
     As reported................................ $(677,145) $(218,414) $822,595
     Pro forma..................................  (680,065)  (325,799)  661,277
   Basic net (loss) income per share
     As reported................................ $   (0.18) $   (0.06) $   0.22
     Pro forma..................................     (0.18)     (0.09)     0.18
</TABLE>
 
     The Black-Scholes option pricing model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are
fully transferable. In addition, option pricing models require the input of
highly subjective assumptions, including expected stock price volatility.
Because the Company's stock options have characteristics significantly
different from those of traded options and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its stock options.
 
 (d) Employee Stock Purchase Plan
 
     The Employee Stock Purchase Plan (the Purchase Plan) was adopted by the
Board of Directors and the stockholders on April 8, 1994 to allow eligible
employees, as defined in the Purchase Plan, to purchase shares of common stock
during one or more six-month periods through payroll deductions. Shares are
purchased at 85% of the lower of the stock price at the beginning or ending
day of the period. A total of 50,000 shares of common stock have been reserved
for purchase under the Purchase Plan. As of December 31, 1996 and 1997, a
cumulative total of 2,282 shares and 6,100 shares, respectively, of common
stock have been purchased by employees under the Purchase Plan.
 
(8) Employee Savings Plan
 
     On January 31, 1996, the Board of Directors of the Company voted to approve
the adoption of the Geerlings & Wade, Inc. 401(k) Employee Savings Plan (the
Plan), effective March 1, 1996. The Plan has features that provide for tax-
deferred employee benefits under section 401(k) of the Internal Revenue Code.
Employees of the Company may participate in the Plan after one year of
service. The Company matches 50% of individual contributions, up to 6% of base
salary, as defined. Employee contributions vest immediately, while Company
matching contributions fully vest after five years of service, as defined. For
the fiscal years ended December 31, 1996 and 1997, the Company's contribution
expense was $47,000 and $56,500, respectively, under the Plan.
 
                                     F-13
<PAGE>
 
                            GEERLINGS & WADE, INC.
                                        
                         NOTES TO FINANCIAL STATEMENTS
                               DECEMBER 31, 1997

                                  (Continued)


(7)  STOCKHOLDERS' EQUITY

   (a)  Preferred Stock

        The Company has authorized 1,000,000 shares of $.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 (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 450,000 shares of common
        stock has been reserved for options to be granted under the Option Plan.

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

                                      F-14
<PAGE>
 
                            GEERLINGS & WADE, INC.
                                        
                         NOTES TO FINANCIAL STATEMENTS
                               DECEMBER 31, 1997

                                  (Continued)


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

<TABLE>
<CAPTION>
                                --------------OPTION PLAN-----------------   -------------DIRECTOR PLAN----------------
                                                WEIGHTED                                     WEIGHTED                 
                                  NUMBER     AVERAGE PRICE   EXERCISE PRICE    NUMBER     AVERAGE PRICE   EXERCISE PRICE 
                                 OF SHARES     PER SHARE       PER SHARE      OF SHARES     PER SHARE       PER SHARE    

<S>                             <C>            <C>             <C>             <C>         <C>              <C> 
Outstanding, 
December 31, 1995                  97,089        $12.20         $8.48-$16.00    15,000      $11.13          $8.00-$15.25
                                 --------        ------         ------------    ------      ------          ------------

   Granted                        255,953          5.37          3.63-  8.00     7,500        4.50           4.50 
   Terminated                    (117,923)        11.24          4.13- 16.00         -           -              -
   Exercised                            -             -             -                -           -              -
                                 --------        ------         ------------    ------      ------          ------------

Outstanding, 
December 31, 1996                 235,119          5.26          3.63-  8.00    22,500        8.92           4.50- 15.25  
                                 --------        ------         ------------    ------      ------          ------------

   Granted                         75,900          4.42          4.00-  5.13    15,000        4.46           4.38-  4.63
   Terminated                     (97,129)         5.52          3.63-  8.00    (7,500)       9.33           4.50- 15.25
   Exercised                            -             -             -                -           -              -
                                 --------        ------         ------------    ------      ------          ------------
                                                                                                      
Outstanding, 
December 31, 1997                 213,890        $ 4.84         $3.78-$  8.00   30,000      $ 6.85          $4.38-$15.25
                                 ========        ======         =============   ======      ======          ============
Exercisable, 
December 31, 1997                  93,867        $ 5.66         $3.78-$  8.00    9,998      $ 9.83          $4.50-$15.25
                                 ========        ======         =============   ======      ======          ============

</TABLE>


       In October 1995, the FASB issued SFAS No. 123, Accounting for Stock-Based
       Compensation, which requires the measurement of the fair value of stock
       options or warrants to be included in the statement of operations or
       disclosed in the notes to the financial statements.  The Company has
       determined that it will continue to account for stock-based compensation
       for employees under Accounting Principles Board Opinion No. 25 and elect
       the disclosure-only alternative under SFAS No. 123.  Options granted in
       1995, 1996 and 1997 have been valued using the Black-Scholes option
       pricing model prescribed by SFAS No. 123.  The weighted average
       assumptions used for the years ended December 31, 1995, 1996 and 1997 are
       as follows:

<TABLE>
<CAPTION>
                                                        -----------------December 31,----------------
                                                             1995            1996            1997         
<S>                                                     <C>              <C>              <C>
       Risk-free interest rate                              6.5%              6.5%         6.3-6.61%
       Expected dividend yield                                -                  -                 -
       Expected lives                                    5 years           5 years           5 years
       Expected volatility                                   68%               68%               86%
</TABLE>

       The weighted average grant date fair value of options granted during the
       years ended December 31, 1995, 1996 and 1997 under these plans is $4.17,
       $2.51 and $2.37, respectively.  

                                     F-15
<PAGE>
 
                            GEERLINGS & WADE, INC.

                         NOTES TO FINANCIAL STATEMENTS
                               DECEMBER 31, 1997

                                  (Continued)


       As of December 31, 1995, 1996 and 1997, the weighted average remaining
       contractual life of outstanding options under these plans is 9.16, 9.44
       and 9.42 years, respectively.

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


<TABLE>
<CAPTION>
                                                                                               
                                                           ----------------December 31,------------------
                                                              1995            1996            1997        
                                                 
<S>                                                      <C>              <C>              <C>
     Net (loss) income            
           As reported                                        $(677,145)       $(218,414)        $822,595
           Pro forma                                           (680,065)        (325,799)         661,277
                                                                                                         
     Basic net (loss) income per share                                                                   
           As reported                                           $(0.18)          $(0.06)           $0.22
           Pro forma                                              (0.18)           (0.09)            0.18     
</TABLE>


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


   (d)  Employee Stock Purchase Plan


       The Employee Stock Purchase Plan (the Purchase Plan) was adopted by the
       Board of Directors and the stockholders on April 8, 1994 to allow
       eligible employees, as defined in the Purchase Plan, to purchase shares
       of common stock during one or more six-month periods through payroll
       deductions.  Shares are purchased at 85% of the lower of the stock price
       at the beginning or ending day of the period.  A total of 50,000 shares
       of common stock have been reserved for purchase under the Purchase Plan.
       As of December 31, 1996 and 1997, a cumulative total of 2,282 shares and
       6,100 shares, respectively, of common stock have been purchased by
       employees under the Purchase Plan.

                                      F-16
<PAGE>
 
                            GEERLINGS & WADE, INC.
                                        
                         NOTES TO FINANCIAL STATEMENTS
                               DECEMBER 31, 1997

                                  (Continued)



(8)  EMPLOYEE SAVINGS PLAN


     On January 31, 1996, the Board of Directors of the Company voted to approve
     the adoption of the Geerlings & Wade, Inc. 401(k) Employee Savings Plan
     (the Plan), effective March 1, 1996. The Plan has features that provide for
     tax-deferred employee benefits under section 401(k) of the Internal Revenue
     Code. Employees of the Company may participate in the Plan after one year
     of service. The Company matches 50% of individual contributions, up to 6%
     of base salary, as defined. Employee contributions vest immediately, while
     Company matching contributions fully vest after five years of service, as
     defined. For the fiscal years ended December 31, 1996 and 1997, the
     Company's contribution expense was $47,000 and $56,500, respectively, under
     the Plan.

                                      F-17