GOLDEN STATE VINTNERS INC, 10-K405, 2000-09-28

GOLDEN STATE VINTNERS INC
10-K405, 2000-09-28
MALT BEVERAGES

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549
------------------------

FORM 10-K

(MARK ONE)

<TABLE>
<C> <S>
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>

FOR THE FISCAL YEAR ENDED JUNE 30, 2000
OR

<TABLE>
<C> <S>
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 000-24651
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GOLDEN STATE VINTNERS, INC.

(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C>
DELAWARE 77-0412761
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
</TABLE>

607 AIRPARK ROAD, NAPA, CALIFORNIA 94558

(Address of Principal Executive Offices)

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

Securities registered pursuant to Section 12(b) of the Act:
Class B Common Stock, par value $0.01 per share

Name of each exchange on which registered: The Nasdaq National Market

Securities registered pursuant to Section 12(g) of the Act: None
------------------------

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES /X/ NO / /

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

The aggregate market value of the Class B Common Stock of the Registrant
held by non-affiliates of the Registrant on September 25, 2000, based on the
closing sales price of the Class B Common Stock as reported by Nasdaq on such
date was $33,007,820. All of the shares of Class A Common Stock of the
Registrant are held by affiliates of the Registrant.

The number of shares of the Registrant's Class A and Class B Common Stock
outstanding as of September 25, 2000 was 4,342,528 and 5,155,733 shares,
respectively.

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PART I

THIS ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED JUNE 30, 2000 (THE
"FORM 10-K") CONTAINS "FORWARD-LOOKING STATEMENTS," AS DEFINED UNDER SECTION 27A
OF THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND
SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE
ACT"). FORWARD-LOOKING STATEMENTS ARE STATEMENTS OTHER THAN HISTORICAL
INFORMATION OR STATEMENTS OF CURRENT CONDITION AND RELATE TO FUTURE EVENTS OR
THE FUTURE FINANCIAL PERFORMANCE OF THE COMPANY. SOME FORWARD-LOOKING STATEMENTS
MAY BE IDENTIFIED BY USE OF SUCH TERMS AS "BELIEVES," "ANTICIPATES," "INTENDS"
OR "EXPECTS." SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS,
UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE
OR ACHIEVEMENTS OF THE COMPANY TO BE MATERIALLY DIFFERENT FROM ANY FUTURE
RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH
FORWARD-LOOKING STATEMENTS. THE COMPANY'S ACTUAL RESULTS MAY DIFFER
SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. THE
COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY UPDATE OR REVISE ANY
FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE
EVENTS OR OTHERWISE.

ITEM 1. BUSINESS.

INTRODUCTION

The Company is one of the largest suppliers of premium bulk wines, wine
processing and storage services, wine grapes and case goods in the United
States. Management believes that the Company is a contract supplier of choice
for many of the leading branded wineries in California because of its reputation
for quality and service, extensive vineyard holdings, strategically located
facilities and ability to tailor a full range of products and services to meet
the particular needs of its customers.

The Company provides a broad range of high quality winemaking and processing
services, barrel fermentation and bottling and storage services to many of the
largest branded wineries in California and to a number of international
wineries. The Company supplies premium bulk wine pursuant to long-term supply
agreements with Sutter Home Winery ("Sutter Home"), Canandaigua Wine Company
("Canandaigua"), Sebastiani Vineyards ("Sebastiani"), UDV North America ("UDV"),
Vincor International, Inc. ("Vincor") and other wineries. The Company also
delivers contract wine processing, barrel fermentation and storage services
under contracts with, among others, Robert Mondavi Winery ("Mondavi"), The Wine
Group, and Beringer Wine Estates ("Beringer"). The Company also sells wine
grapes, predominantly to EJ Gallo Winery ("Gallo") and, to a lesser extent
Canandaigua and The Wine Group.

GSV provides custom winemaking and bottling services for a number of
clients, such as JC Boisset USA ("Boisset"), International Wine Services Limited
("IWS"), Wente Vineyards, Smith-Anderson, Trader Joe's and Sterling Vineyards.
In fiscal 2000, the Company derived approximately 10% of its revenues from the
sale of bulk wine and case goods outside of the United States. The Company also
supplies brandy (a distilled derivative of wine) primarily to a single customer
pursuant to a long-term agreement and is one of the largest brandy producers in
the United States.

The combination of GSV's extensive vineyard holdings and five strategically
located facilities has enabled the Company to become what management believes is
one of California's preferred providers of premium bulk wine and related
services. The Company's 9,600 acres of vineyard properties primarily in
California's San Joaquin Valley allow the Company to source high quality wine
grapes at a competitive cost. The Company's wine processing facilities are
generally modern, efficient and automated, and allow for large scale, low-cost
production of premium bulk wine and case goods and the delivery of a full line
of winemaking, processing and storage services. Over the last six years, the
Company has greatly expanded its presence in the California wine industry by
acquiring vineyards and wine and brandy processing facilities and effectively
integrating these assets into GSV's winemaking operations.

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FISCAL 2000 REVENUES
(dollars in millions)

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
BULK WINE AND RELATED SERVICES - $55.8 58%
<S> <C>
Grape Sales - $10.6 11%
Case Goods and Related Services - $15.9 16%
Brandy - $14.6 15%
</TABLE>

COMPANY OPERATIONS

The Company's operations include the following: bulk wine and related
services, grape sales, case goods and related services and brandy. Bulk wine and
related services includes the production and sale of bulk wine, the provision of
custom crushing services, the storage of bulk wine in tanks and barrels and the
delivery of bulk wine barreling services, such as racking and topping. The
Company's grape sales consist of the sale of grapes grown at the Company's
vineyards as well as grapes purchased by the Company from third party growers.
Case goods and related services includes the production of proprietary and
private label bottled wine and wine-related beverages and the provision of
custom bottling and storage services. The Company's brandy business includes the
production of brandy and grape spirits and the provision of brandy barrel
storage and related barreling services.

BULK WINE AND RELATED SERVICES

The Company generates a majority of its revenues from the sale of premium
bulk wine and the delivery of a broad range of wine processing, barrel
fermentation and storage services to its branded winery customers.

The Company sells premium bulk wine to a number of the largest branded
wineries in California, including Canandaigua, Sutter Home, Sebastiani and UDV,
and to a number of international wineries, including Vincor. The Company's
standard bulk wine supply contract establishes the variety of wine, source of
grapes and vintage and generally calls for the delivery of a set number of
gallons of wine or processed grape juice at an agreed upon price per ton of
grapes. The Company supplies, crushes and processes the grapes and typically
stores the wine for six months or more following production. Winemaking
standards are usually agreed to by the parties in advance. GSV generally
guarantees the quality of the wine produced. Delivery of bulk wine is usually
F.O.B. the particular GSV winery.

In fiscal 2000, approximately 68% of the grapes grown at the Company's
vineyards were used internally for the production of bulk wine and brandy.
Additionally, the Company purchases grapes in the marketplace in order to meet
the needs of its bulk wine and brandy customers. The Company typically buys
grapes from numerous growers pursuant to a variety of short-term, long-term, and
evergreen grape purchase contracts entered into prior to grape harvest.
Additionally, after analyzing anticipated grape yields and grape prices during a
harvest, the Company sometimes elects to purchase needed grapes on the spot
market.

The Company produces more than half of its bulk wine at its wine processing
facility in Fresno, which has the capacity to handle approximately 100,000 tons
of grapes annually (the equivalent of 7.2 million

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cases), and is used primarily for the production of premium white and red wines.
GSV also processes smaller quantities of premium bulk wine at its St. Helena,
Cutler, Monterey and Reedley facilities. As is customary in the industry, the
Company engages the services of commissioned wine brokers to sell bulk wine and
services.

The Company also delivers various wine processing, barrel fermentation and
storage services mostly under long-term contracts. GSV is flexible with respect
to providing these services and customizes its products and services to meet the
unique needs of its customers. The Company offers a number of processing and
storage services, including crushing grapes, wine production, fermentation and
storage in stainless steel tanks and oak barrels and other winemaking services.
Under a typical wine processing and storage contract, a wine processing customer
will deliver grapes for crushing, fermentation and storage in separately labeled
tanks or barrels. Recently, growth in the "special natural" category of wines
has adversely impacted the bulk wine market, especially with respect to the
lower priced popular premium segment. The Company believes that the continued
popularity of special natural wines has had and may continue to have an adverse
impact on bulk wine sales and values of certain varietal grapes grown by the
Company in future periods.

WINE GRAPE SALES

In May 1995, the Company entered into long-term grape supply contracts with
Gallo covering certain Chardonnay and Zinfandel grapes that expire in May 2001.
These contracts require the Company to deliver grapes meeting specified sugar
levels and other quality measurements.

Approximately 68% of Company grown grapes for the 1999 harvest were retained
by the Company for internal use in the production of bulk wine, brandy and case
goods in the 2000 fiscal year. Thus, revenues from grape sales to third parties
declined significantly in GSV's 2000 fiscal year. The Company believes its
internal use of grapes is a potentially more profitable allocation of the
Company's resources. Certain of the Company's grape purchase contracts require
GSV to purchase the entire grape production of a number of small vineyards.
Thus, the Company may purchase varieties of grapes in excess of quantities
required in its production of bulk wine. The Company may resell these grapes
into the market at approximate cost.

CASE GOODS AND RELATED SERVICES

The Company produces proprietary and private label products and provides
custom bottling and storage services. These case goods sales are comprised of
wine bottled and sold in a case containing twelve 750ml bottles, or the volume
equivalent. The Company produced more than 1,000,000 cases of wine and wine
related products and services in its 2000 fiscal year.

PRIVATE LABEL CASE GOODS. The sale of private label case goods can include
any or all of the various steps in the winemaking process, from the purchase and
processing of grapes, aging and storage of wine to the bottling and labeling of
the finished product. The majority of the Company's private label case goods
revenues in fiscal 2000 were derived from three customers based on short-term
arrangements that may terminate at any time. Private label case goods are
produced and bottled at the Company's St. Helena and Cutler facilities.

PROPRIETARY AND CONTROL BRANDS. The Company sells proprietary wine products
under a variety of brands in the generic and premium wine categories. Generally,
the Company's BOUNTY and LEBLANC labels sell in the jug category, the Company's
GOLDEN STATE VINTNERS, CUTLER CREEK, J. WILE, MUIRFIELD, SUMMERFIELD and WESTON
brands sell in the popular premium category, the Company's MONTHAVEN, and
DIAMOND GROVE labels compete in the superpremium category and the Company's
EDGEWOOD ESTATE label is sold in the ultrapremium category. The Company's
proprietary wines include different types of premium varietal wines, including
vintage Cabernet Sauvignon, Chardonnay, Merlot and Zinfandel. Many of the
Company's proprietary wines are produced, processed and/or bottled at the
Company's St. Helena winery. The Company's proprietary products are sold
primarily through third party distributors and directly to specific wine and
general merchandise retailers.

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The Company also offers its proprietary brands to retailers, such as large
supermarket chains, for sale on an exclusive basis in certain defined geographic
regions. The terms of the exclusive arrangements for the Company's "control
brands" vary from customer to customer and are negotiated directly with
retailers, rather than through wine wholesalers.

BRANDY

Brandy is produced by processing grapes into wine, distilling the wine and
aging the product in oak barrels for a minimum of two years until the product
can be declared as brandy. The Company is among the largest brandy processors in
the United States and has a long-term brandy production agreement to produce
brandy for sale under the CHRISTIAN BROTHERS label owned by Heaven Hill
Distilleries, Inc. ("Heaven Hill"). Under the terms of this agreement, GSV is
paid for all aspects of the brandy distillation process, including the purchase
of grapes, storage and various processing charges. The Company also produces
brandy for other customers.

INTERNATIONAL

Approximately 10% of the Company's revenues in its 2000 fiscal year were
derived from the sale of wine and wine products internationally. The Company
exports bulk wine and case goods to Canada, Europe and Asia.

WINEMAKING FACILITIES

The Company's five winemaking, distilling and processing facilities are
located in Fresno, Monterey, Napa and Tulare counties and are adjacent to
primary grape growing and winemaking regions in California.

The table below identifies key statistics for each of the Company's
facilities for the 1999 harvest, as reflected in the Company's fiscal year 2000
operations.

PRODUCTION AT THE COMPANY'S WINEMAKING FACILITIES

<TABLE>
<CAPTION>
GALLONS OF
TONS OF GRAPES CASE COOPERAGE
FACILITY NAME CRUSHED EQUIVALENT(1) CAPACITY(3)
------------- -------------- ------------- -------------
(IN MILLIONS)
<S> <C> <C> <C>
Fresno.................................. 88,500 6.3 21.6
Cutler.................................. 8,400 .6 15.9
Reedley................................. 72,100 5.2(2) 17.4
Monterey................................ 18,900 1.4 8.6
Napa Valley............................. 2,000 .1 1.1
------- ---- -------------
Total............................... 189,900 13.6 64.6
======= ==== =============
</TABLE>

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(1) It is industry custom to convert one ton of wine grapes into 170 gallons of
wine, and to convert gallons of wine into cases of twelve 750ml bottles at
the rate of 2.3775 gallons per case.

(2) A majority of grapes processed at Reedley were distilled into brandy and
grape spirits.

(3) Generally 240 gallons of cooperage are required to store one ton of crushed
grapes. Additionally, GSV and its customers have storage requirements for
product aging and use cycles. Management believes the Company's annual
practical crush capacity is between 215,000 to 230,000 tons, based on
available cooperage at the beginning of the crush season.

FRESNO. The Company's Fresno winery is situated on six acres within the
Company's 4,400 acre Fresno vineyard and is located approximately 10 miles
southwest of the city of Fresno. The Fresno winery serves as the Company's bulk
wine processing center for varietal white wines, including Chardonnay and White
Zinfandel and varietal red wines, including Cabernet Sauvignon and Merlot.

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CUTLER. The Company's Cutler facility is the original GSV winery and is
located on approximately 120 acres in Tulare County north of the town of
Visalia. The Cutler winery serves as a bulk wine processing center and bottling
facility for the jug and popular premium segments.

REEDLEY. The Company's Reedley facility is located on a 246-acre parcel in
southern Fresno County, northwest of the town of Reedley. The Company uses the
Reedley facility primarily for the production and storage of brandy.
Additionally, the Reedley facility produces red, white, barrel fermented and
dessert wines.

MONTEREY. The Monterey winery is located on 81 acres in the town of
Soledad, in Monterey County, near California's central coast wine region. The
Company uses the winery primarily for custom processing of small lots of
superpremium and ultrapremium white and red wines for GSV's wine processing
customers and GSV's bottling programs.

NAPA VALLEY WINERY. The Company's Napa Valley winery in St. Helena occupies
approximately 22 acres and is located in the town of St. Helena fronting Highway
29, in Napa Valley. The Napa Valley winery produces primarily superpremium and
ultrapremium white and red wines for a number of the leading branded wineries in
California. A portion of the Company's proprietary and private label case goods
are produced and bottled at the Napa Valley winery.

NAPA VALLEY WAREHOUSE. The Company uses the Napa Valley warehouse for
third-party oak barrel storage and related services. The Napa Valley warehouse
has a 24,000-barrel storage capacity, which was virtually full in fiscal 2000.

FACILITY EXPANSION. The Company has completed a three year, $20 million
capital expenditure program. The purpose of the program had been primarily to
upgrade and expand its facilities for the 1999 crush and for future vintages in
order to meet the anticipated increasing capacity and quality needs of its
customers and allow more flexibility in production scheduling.

VINEYARD OPERATIONS

The Company owns more than 9,600 acres of vineyard properties, of which
approximately 8,000 acres are permanently planted as of June 30, 2000. The table
below identifies the name of each of the Company's vineyards and the acres of
wine grapes at each vineyard.

THE COMPANY'S VINEYARD PROPERTIES

<TABLE>
<CAPTION>
APPROXIMATE
VINEYARD NAME COUNTY LOCATION ACRES PLANTED
------------- --------------- -------------
<S> <C> <C>
Fresno Vineyard............................................. Fresno 3,627(1)
Gravelly Ford Vineyard...................................... Madera 1,652
Lost Hills Vineyard......................................... Kern 1,410
Cawelo Vineyard............................................. Kern 661
Mazzie Vineyard............................................. Kern 619
Monterey Vineyard........................................... Monterey 54
St. Helena Vineyard......................................... Napa 14(2)
--------
Total................................................... 8,037
========
</TABLE>

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(1) Includes 74 vineyard acres under development.

(2) Vineyards under development.

GRAPE PRODUCTION. The following table shows GSV's net vine production by
grape variety from the 1995 to 2000 harvest years and the total grape tonnage
produced by GSV following each summer grape harvest. Information regarding the
Company's 2000 harvest is not yet available, however management believes that
the 2000 harvest will approximate historical per acre yields.

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NET PRODUCTION ACRES OWNED BY GSV AND TONS PRODUCED

<TABLE>
<CAPTION>
NET PRODUCTION ACRES
---------------------------------------------------------------
GRAPE VARIETY 1995 1996 1997 1998 1999 2000
------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
French Colombard (1)........................ 3,114 3,114 2,965 2,965 2,965 2,868
Zinfandel (1)............................... 1,211 1,211 1,211 1,211 1,211 836
Chardonnay (1).............................. 875 875 1,124 1,124 1,124 1,023
Ruby Cabernet............................... 941 941 941 941 1,089 1,089
Merlot...................................... 537 687 687 687 687 687
Barbera..................................... 379 379 379 379 379 379
Carnelian................................... 344 344 344 344 344 344
Chenin Blanc (1)............................ 418 418 313 313 313 261
Other (1)................................... 371 416 416 416 416 333
------ ------ ------ ------ ------ ------
Total Net Production Acres.............. 8,190 8,385 8,380 8,380 8,528 7,820
Total Tons Produced (2)................. 59,183 72,896 88,209 84,122 67,108
</TABLE>

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(1) 708 acres were removed in Spring 2000, including 375 acres of Zinfandel,
101 acres of Chardonnay, 97 acres of French Colombard, 83 acres of Centurian
and 52 acres of Chenin Blanc.

(2) The harvest for vintage 2000 is not complete as of the date of this filing.
Therefore final data is not yet available for 2000.

Typically, the Company's mature vineyards yield approximately 9.5 tons per
acre. Due to a bountiful harvest in the summer of 1997, the Company picked a
record harvest of 88,000 tons of grapes, an average of approximately 10.5 tons
of grapes per acre. The Company's 1998 harvest was at more normal levels and the
1999 harvest was below 1998 yields. Management believes that the 2000 harvest
will approximate normal yields.

In the Company's 2000 fiscal year, the Company removed approximately 700
acres of underperforming vineyards (representing approximately eight percent of
the Company's total vineyard assets), resulting in a $1.8 million charge to wine
grapes cost of sales.

VITICULTURAL PRACTICES. The Company's vineyards and vineyard operations
benefit from above average soil quality and the availability of an economical
and dependable supply of high quality water. The large, contiguous vineyards are
almost entirely machine harvested. Management believes the Company's farming and
harvesting costs per acre of vineyard are in line with the average per acre
farming cost of California Central Valley vineyards. Short-term needs such as
pruning, fertilizing, pesticide spraying and harvesting are contracted to
multiple service providers.

WATER SUPPLY. The Company's Fresno, Gravelly Ford, Mazzie, Cawelo and
Monterey Vineyards benefit from deep aquifers that provide relatively
inexpensive water sources. The Company irrigates these vineyards from wells
located on or near these properties. The quality of the water obtained from the
wells is good. The Company's Lost Hills Vineyard relies upon area
district-supplied water, which is allocated among surrounding properties and
uses. The Company believes its sources of water will be available and sufficient
for the foreseeable future, but various factors such as drought or contamination
could adversely affect the Company's water supply.

AGRICULTURAL HAZARDS. Grape production is subject to many risks common to
agriculture that can materially and adversely affect the quality and quantity of
grapes produced. These hazards include, among other things, adverse weather such
as drought, frost, excessive rain, excessive heat or prolonged periods of cold
weather during the growing season. These weather conditions can materially and
adversely affect the quality and quantity of grapes produced by the Company.

Vineyards are also susceptible to certain diseases, insects and pests, which
can increase farming expenses, reduce yields or kill vines. In the last ten
years phylloxera, a louse that feeds on the roots of

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grape vines, has infested many vineyards in the wine grape producing regions of
California and caused grape yields to decrease. Within a few years of the
initial infestation, phylloxera can leave a vine entirely unproductive.
Phylloxera infestation has been widespread in California, particularly in Napa,
Sonoma, Mendocino and Monterey Counties, and most of the other wine grape
producing areas of the state are affected to some degree. As a result of this
widespread problem, thousands of vineyard acres throughout California have been
replanted with phylloxera-resistant rootstock or, in some cases, taken out of
production completely.

In 1997, GSV discovered a phylloxera infestation in certain acres of the
Company's vineyards. The Company believes that the lighter, sandy, porous soil
in its Fresno, Madera and Kern County vineyards, as compared to the heavier,
clay-like soil in more northern regions such as Napa and Sonoma Counties,
hinders the growth and spread of phylloxera. Additionally, high soil
temperatures and vine vigor in the Central and Southern San Joaquin Valley
mitigate root damage that can be caused by phylloxera. The grape production from
the Company's phylloxera-infested acres in the 1999 harvest did not evidence
lower yields than in other, unaffected acres. Thus, the Company does not believe
phylloxera will have a material adverse effect on vineyard operations and
production, though there can be no assurances phylloxera will not adversely
affect the Company's future harvests.

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

Other pests that may infest vineyards include leafhoppers, thrips,
nematodes, mites, insects, orange tortrix and various grapevine diseases, such
as Pierce's disease, which has destroyed portions of a number of vineyards in
Southern California and elsewhere. Pesticides and the selection of resistant
rootstocks reduce losses from these pests, but do not eliminate the risk of such
loss. Gophers, rabbits, deer and birds can also pose a problem for vineyards,
and wine grapevines are also susceptible to certain viral infections which may
cause reduction of yields. The presence of potentially harmful nematodes in
relatively high numbers has been detected in certain acres of the Company's
vineyards. The Company has countered the infestation with improved irrigation
management and soil fertilization. The Company believes none of these
infestations or infections currently pose a major threat to the Company's
vineyards, although they could do so in the future.

ENVIRONMENTAL MATTERS. The Company's vineyard operations require the
periodic usage of various chemical herbicides, fungicides and pesticides, some
of which contain hazardous or toxic substances. The usage and storage of these
chemicals are, to varying degrees, subject to federal and state regulation.
Additionally, all winemaking and distilling operations are subject to strict
water quality control regulations.

COMPETITION

The markets in which the Company operates are highly competitive and are
dominated by companies with substantially greater financial, production,
personnel and other resources than the Company. In the area of bulk wine
production and processing, the Company competes primarily with JFJ Bronco and
Delicato Winery, as well as a number of smaller companies. The Company's
proprietary label case goods compete with the products of branded wineries and
with other alcoholic and, to a lesser degree, nonalcoholic beverages in the
retail stores where the Company's case goods products are sold and in the
beverage marketplace in general.

The Company also experiences competition from its current and potential
customers. There are an estimated 800 commercial wineries that produce and
market California wine, although, according to

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Gomberg, Fredrikson and Associates ("Fredrikson"), a wine industry consulting
firm, nine wineries account for approximately 60% of California wine sales,
based on total volume of California wine shipments in calendar 1999. Certain
major wineries, including many of the Company's customers, grow a significant
amount of the grapes they need to make wine and produce wine for their own
branded labels.

Numerous wine producers in Europe, South America, South Africa and Australia
also compete with GSV by exporting their wine into the United States. Most
imports are bottled wines; however, some wineries have imported bulk wine for
bottling and sale in the United States. According to Fredrikson, bulk table wine
imports into the United States for these purposes increased from approximately
605,000 gallons in calendar 1995 to approximately 4.9 million gallons in
calendar 1999.

The Company does not believe that it faces a significant competitive threat
from new entrants into the wine grape growing and wine production markets due to
the substantial capital investments and lengthy start-up periods involved in the
development of productive vineyards and winemaking facilities and the
establishment of customer relationships. Rather, the expansion of the Company's
current competitors and the entry of the Company's customers into the bulk wine
business pose a more significant long-term competitive concern for the Company.
Further, the growth in the special natural wine category, which is an alcoholic
beverage made up of less than 50% wine, has increased competition for shelf
space with the popular premium segment of the market, which could adversely
impact the Company's bulk wine and certain varietal grape sales.

CUSTOMERS

The Company provides premium bulk wine pursuant to long-term supply
agreements to wineries such as Canandaigua, Sutter Home, Sebastiani, and UDV and
sells wine grapes to Gallo and others pursuant to long-term grape purchase
contracts. Boisset, IWS Wente, Smith Anderson, and Trader Joe's were among the
Company's private label case goods customers in fiscal 2000. The Company also
provides various wine processing services for Mondavi, Beringer and The Wine
Group, among other wineries, and brandy distillation and production for Heaven
Hill. The Company sells bulk wine internationally to Vincor, Calona Wines
Limited and Vin & Sprit AB, among other wineries.

GOVERNMENT REGULATION

The wine industry is subject to extensive regulation by the Federal Bureau
of Alcohol, Tobacco and Firearms, various foreign agencies and state and local
liquor authorities. These regulations and laws dictate such matters as licensing
requirements, trade and pricing practices, permitted distribution channels,
permitted and required labeling, advertising restrictions and relations with
wholesalers and retailers. Expansion of the Company's existing facilities and
development of new vineyards and wineries may be limited by present and future
zoning ordinances, environmental restrictions and other legal requirements. In
addition, new regulations or requirements or increases in excise taxes, sales
taxes or international tariffs, could materially adversely affect the financial
results of the Company.

TRADEMARKS

The Company's trademarks include GOLDEN STATE VINTNERS, and the proprietary
labels EDGEWOOD ESTATE, MONTHAVEN, DIAMOND GROVE, SUMMERFIELD, WESTON, CUTLER
CREEK, BOUNTY, J. WILE, MUIRFIELD, WILLOW COVE, LEBLANC and GOLDEN GATE
VINEYARDS.

EMPLOYEES

As of June 30, 2000, the Company had approximately 190 full-time equivalent
employees. The Company believes that its employee relations are good. GSV also
employs seasonal labor for wine processing services and other related tasks,
primarily during the late summer and early fall months and contract labor
through independent sources as needed for vineyard development, pruning and
harvesting.

8
<PAGE>
RISK FACTORS

IN EVALUATING THE COMPANY, ITS BUSINESS, OPERATIONS AND FINANCIAL POSITION,
THE FOLLOWING RISK FACTORS SHOULD BE CAREFULLY CONSIDERED, IN ADDITION TO THE
OTHER INFORMATION CONTAINED IN THIS FORM 10-K. THE FOLLOWING FACTORS, AMONG
OTHERS, COULD AFFECT THE COMPANY'S ACTUAL FUTURE OPERATING RESULTS AND COULD
CAUSE SUCH RESULTS TO DIFFER FROM THE RESULTS DISCUSSED ELSEWHERE IN THIS FORM
10-K.

CONCENTRATION OF CUSTOMERS

During fiscal 2000, five of the Company's customers accounted for
approximately 41% of the Company's revenues, with Heaven Hill and Canandaigua
Wine Company accounting for approximately 15% and 8%, respectively. While some
of the Company's largest customers have entered into some form of long-term
contract with the Company, there can be no assurance that each of these
relationships will continue following the expiration of these contracts or that
the volume of business the Company is currently conducting with such customers
will continue at such levels. The loss of any one of the Company's major
customers or a significant reduction in the volume of their business with the
Company could have a material adverse effect on GSV's business, financial
condition and results of operations.

In fiscal 2000, approximately 32% of the Company's grape production (on a
per ton basis) was contracted for sale to third parties, including EJ Gallo
Winery ("Gallo"), Canandaigua and The Wine Group. Such grape sales accounted for
approximately 5.6% of the Company's revenues in fiscal 2000. The Company
restructured its grape supply arrangements with Gallo, and as the Company went
into the 1998 harvest, most of its grape production was not subject to
guaranteed purchase contracts with Gallo or with any other customer. As a result
of these restructuring efforts, GSV experienced a significant decline in grape
sale revenues for fiscal 1999 and fiscal 2000. Further, if the wine industry
were to experience a significant decline in the price of wine grapes, there can
be no assurance that the Company could profitably use or sell such grapes, which
could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company continues to have long-term
grape supply contracts with Gallo, covering certain Zinfandel, Chardonnay and
Ruby Cabernet grapes. These contracts expire in May 2001.

AGRICULTURAL RISKS

Grape production is subject to a variety of agricultural risks. Extreme
weather conditions can materially and adversely affect the quality and quantity
of grapes produced. In 1995 and 1996, variability in production yields in
California's Central Valley contributed to a significant decline in the tonnage
of grapes produced by virtually all vineyards, including those of the Company.
Additionally, in January 1997, severe flooding in the San Joaquin River Basin
destroyed a number of protective levees, damaging a small portion of the
Company's Gravelly Ford vineyards, which damage was not entirely insured. There
can be no assurance that inclement weather in the future will not affect a
substantial portion of the Company's vineyards in any year and have a material
adverse effect on the Company's business, financial condition and results of
operations.

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

Substantially all of the Company's vineyards are planted on their own
rootstock that is not phylloxera-resistant. In the fall of 1997, phylloxera was
discovered in certain acres of the Company's vineyards. The

9
<PAGE>
Company believes that the scope of this phylloxera infestation is modest, though
there can be no assurance in that regard. Additionally, GSV believes the
climate, soil and water conditions in California's San Joaquin Valley slow the
development of phylloxera in vineyard roots. Further, 1998 and 1999 harvest
yields from the Company's phylloxera-infested acres were not notably lower than
yields from surrounding, non-infested acreage. There can, however, be no
assurance that phylloxera will not spread throughout adjoining vineyard acres,
reduce yields and require a significant investment in replanting with
disease-resistant root stock, all of which would have a material adverse effect
on the Company.

Other pests that may infest vineyards include leafhoppers, thrips,
nematodes, mites, insects, orange tortrix and various grapevine diseases, such
as Pierce's disease, which has destroyed portions of a number of vineyards in
Southern California and elsewhere. Pesticides and the selection of resistant
rootstocks reduce losses from these pests, but do not eliminate the risk of such
loss. Gophers, rabbits, deer and birds can also pose a problem for vineyards,
and wine grapevines are also susceptible to certain viral infections which may
cause reduction of yields. In addition, the presence of potentially harmful
nematodes in relatively high numbers has been detected in certain acres of the
Company's vineyards. None of these infestations or infections currently poses a
major threat to the Company's vineyards, although they could do so in the future
and could subject the vineyards to severe damage, which could have a material
adverse effect on the Company.

RISKS RELATING TO THE PRODUCTION OF BULK WINE

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

DEPENDENCE ON CONSUMER DEMAND

The growth of the wine industry and the success of the Company's business
depend to a significant extent on a number of factors relating to discretionary
consumer spending, including the general condition of the economy, federal,
state and local taxation, the deductibility of business entertainment expenses
under federal and state tax laws and general levels of consumer confidence.
Imposition of excise or other taxes on wine could negatively impact the wine
industry by increasing wine prices for consumers. The wine industry is also
subject to changes in consumer tastes and preferences. To the extent wine
consumers reduce consumption of wine in favor of other beverages, such as
special natural wines, or if there should be any significant decline in general
economic conditions or uncertainties regarding future economic prospects that
adversely affect discretionary consumer spending generally, or purchases of wine
specifically, demand for wine and for the Company's products and services could
decline.

In recent years there has been substantial publicity regarding the possible
health benefits of moderate wine consumption. The results of a number of studies
suggest that moderate consumption of wine (or other alcoholic beverages) could
result in decreased mortality and other health benefits. Alternatively,

10
<PAGE>
anti-alcohol groups have, in the past, successfully advocated more stringent
labeling requirements and other regulations designed to discourage consumption
of alcoholic beverages, including wine. More restrictive regulations, negative
publicity regarding alcohol consumption, publication of studies that indicate a
significant health risk from moderate consumption of alcohol or changes in
consumer perceptions of the relative healthfulness or safety of wine generally
could adversely affect the sale and consumption of wine and the demand for wine
and wine grapes and could have a material adverse effect on the Company's
business, financial condition and results of operations.

DEMAND FOR BULK WINE

Bulk wine and related services accounted for approximately 58% of GSV's
revenues in fiscal 2000. The Company continues to focus its resources on
expanding this portion of its business. Any loss of a major bulk wine customer
could reduce GSV's bulk wine revenues, which could have a material adverse
effect on the Company's business, financial condition and results of operations.

CASE GOODS SALES

Sales of case goods and related services accounted for approximately 16% of
revenues in fiscal 2000. A significant portion of the Company's case goods
revenues consists of short-term private label case goods sales. Additionally,
the Company's higher margin proprietary case goods revenues resulted from sales
of the Company's relatively unknown proprietary brands of premium wines. Any
significant increase in the supply of premium wine in the California wine market
that is not met by a corresponding demand could adversely affect the Company's
case goods sales.

WINE GRAPE SUPPLY; PRICING

The Company believes the demand for wine grapes has increased substantially
over recent years and has generally outpaced grape supply. As a result, prices
for premium California wine grapes were at historically high levels following
the 1998 harvest and in some instances continued to rise through the 1999
harvest. However, a number of recent developments resulted in certain California
wine grape and bulk wine prices declining significantly, which could have a
material adverse effect on the Company's business, financial condition and
results of operations. Such developments include (1) plantings of new vineyards,
(2) yield enhancements through technological advances, (3) denser plantings of
vines, and (4) growth in the special natural wine category.

ENVIRONMENTAL RISKS

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

SEASONALITY OF BUSINESS; QUARTERLY REVENUES; FLUCTUATING RESULTS

The wine grape business is extremely seasonal and the Company recognizes the
vast majority of its revenues in the first six months of its fiscal year. GSV is
not positioned to maximize quarter-to-quarter results, and its quarterly results
should not be considered indicative of those to be expected for a full year. The
Company recorded 72% of its revenues during the first six months of the
Company's 2000 fiscal year. GSV has historically operated at a loss in the last
two fiscal quarters due to limited sales during such quarters. In fiscal 1999
and 2000, El Nino-related weather conditions, among other things, caused an

11
<PAGE>
approximate four week delay in the California wine grape harvest as compared to
the prior year's harvest. The late harvest of grapes resulted in increased
revenues in the second and third quarters of fiscal 1999 and 2000 as compared to
the second and third quarters of fiscal 1998. Seasonality of revenues also
affects the Company's cash flow requirements. In the past, GSV has borrowed
funds under lines of credit from late summer through the fall to finance
inventory build-up during the fall crush season. GSV also historically borrows
funds through the spring and summer to finance crop production costs through
harvest. Such seasonality in revenues and borrowings may lead to significant
fluctuations in the Company's reported quarterly results. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

COMPETITION; INDUSTRY FRAGMENTATION

The wine industry is extremely competitive. The Company competes with
several well-capitalized companies in the production of bulk wine. Further, many
of the Company's current and prospective competitors have substantially greater
financial, production, personnel and other resources than the Company. In order
to meet near-term shortfalls in supply, a number of wineries have commenced
purchases of wine from foreign sources. Because of higher production costs in
the United States and the higher prices of grapes in California, especially in
comparison to the prices of years past, some wineries can achieve significant
cost savings, even after taking into account shipping costs, by importing bulk
wine from abroad. Some countries, such as France and Australia, have launched
marketing campaigns to increase their sales in the United States. Foreign
competition can be expected to continue and increase. In addition, the Company's
principal winery customers compete with each other and with other wineries
located in the United States, Europe, South America, South Africa and Australia.
Wine also competes with other alcoholic, and to a lesser degree, nonalcoholic
beverages, and to the extent wine consumers reduce consumption of wine in favor
of such other beverages, demand for wine and the Company's products and services
could decline.

FIXED FARMING COSTS

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

RELIANCE ON KEY PERSONNEL

The Company believes its continued success depends on the active involvement
of Jeffrey B. O'Neill, the Company's Chief Executive Officer, Mark A. Larson,
the Company's President and Chief Operating Officer and Brian R. Thompson, the
Company's Chief Financial Officer. There can be no assurance that these persons
will remain in their management positions with the Company, and the loss of the
services of any of these persons could have an adverse effect on the Company's
business, financial condition and results of operations.

GOVERNMENT REGULATION

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

12
<PAGE>
Wine production and sales are subject to extensive regulation by the Federal
Bureau of Alcohol, Tobacco and Firearms, the California Department of Alcohol
Beverage Control and other state, local and federal governmental authorities
that regulate licensing, trade and pricing practices, labeling, advertising and
other activities. In recent years, federal and state authorities have required
warning labels on beverages containing alcohol. Restrictions imposed by
government authorities on the sale of wine could increase the retail price of
wine, which could have an adverse effect on demand for wine in general. There
can be no assurance that there will not be new or revised laws or regulations
pertaining to the wine industry which could have a negative impact on the
Company's business.

VOLATILITY OF STOCK PRICE

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

ITEM 2. PROPERTIES.

The Company leases approximately 8,000 square feet for its executive
corporate office in Napa, California under a sublease expiring in
September 2002. The Company believes its existing executive office facility will
be adequate to meet the Company's needs for the foreseeable future and that
additional space will be available as needed at commercially reasonable rates.
In addition, the Company owns all of the vineyards and winemaking facilities
described above under "Business--Vineyard Operations" and "--Winemaking
Facilities".

ITEM 3. LEGAL PROCEEDINGS.

None

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

At the 1999 Annual Meeting of Stockholders held on June 29, 2000, the
Company's stockholders approved the following matters:

(1) election of Jeffrey J. Brown, Jeffrey B. O'Neill, Nicholas B. Binkley,
Greg J. Forrest, Keith R. Fox, W. Scott Hedrick, Peter W. Mullin and Douglas R.
Wolter as directors of the Company;

(2) ratification of Deloitte & Touche LLP as the Company's independent
auditors for the Company's 1999 and 2000 fiscal years;

(3) amendment of the 1996 Stock Option Plan to increase the amount of Class
B Common Stock shares available for issuance thereunder from 531,093 to
1,031,093; and

(4) adoption of a form of indemnification agreement to be entered into
between the Company and its directors and certain of its officers, employees and
other agents.

13
<PAGE>
The votes cast on the matters listed above were as follows:

<TABLE>
<CAPTION>
AGAINST OR BROKER
FOR WITHHELD ABSTAINED NON-VOTES
---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
(1) Election of Directors:
Jeffrey J. Brown................................ 46,124,868 0 191,300 0
Jeffrey B. O'Neill.............................. 46,124,868 0 191,300 0
Nicholas B. Binkley............................. 46,124,868 0 191,300 0
Greg J. Forrest................................. 46,124,868 0 191,300 0
Keith R. Fox.................................... 46,124,868 0 191,300 0
W. Scott Hedrick................................ 46,124,868 0 191,300 0
Peter W. Mullin................................. 46,124,868 0 191,300 0
Douglas R. Wolter............................... 46,124,868 0 191,300 0
(2) Ratification of independent auditors............ 46,315,368 300 500 0
(3) Amendment of 1996 Stock Option Plan............. 45,666,900 646,768 2,500 0
(4) Adoption of Indemnification Agreement........... 46,266,818 40,450 8,900 0
</TABLE>

PART II

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

The Company's Class B Common Stock commenced trading on the Nasdaq National
Market on July 22, 1998. The following table sets forth the high and low sales
prices for the Class B Common Stock, as reported by Nasdaq, since July 22, 1998
and during the fiscal year ending June 30, 2000.

<TABLE>
<CAPTION>
FISCAL YEAR ENDING JUNE 30, 2000 HIGH LOW
-------------------------------- -------- --------
<S> <C> <C>
First Quarter............................................... $ 7.00 $ 4.25
Second Quarter.............................................. $ 5.72 $ 3.00
Third Quarter............................................... $ 6.10 $ 4.00
Fourth Quarter.............................................. $ 5.56 $ 3.75
</TABLE>

<TABLE>
<CAPTION>
FISCAL YEAR ENDING JUNE 30, 1999 HIGH LOW
-------------------------------- -------- --------
<S> <C> <C>
First Quarter (commencing July 22, 1998).................... $18.12 $ 9.00
Second Quarter.............................................. $12.31 $ 6.88
Third Quarter............................................... $15.50 $10.25
Fourth Quarter.............................................. $12.00 $ 4.75
</TABLE>

The last reported sale price of the Class B Common Stock on the Nasdaq
National Market on September 25, 2000 was $6.56 per share. As of September 25,
2000, there were 55 holders of record of the Company's Class B Common Stock.

There is no established public trading market for the Company's Class A
Common Stock. As of September 25, 2000, there were four holders of record of the
Company's Class A Common Stock.

The Company has never paid cash dividends on its Common Stock and has no
intention of paying cash dividends in the foreseeable future. The Company
anticipates that all future earnings, if any, generated from operations will be
retained by the Company to develop and expand its business. Any future
determination with respect to the payment of dividends will be at the discretion
of the Board of Directors and will depend upon, among other things, the
Company's operating results, financial condition and capital requirements, the
terms of then-existing indebtedness, general business conditions and such other
factors as the Board of Directors deems relevant. In addition, negative
covenants contained in the Company's senior credit facility currently prohibit
the Company from paying cash dividends on such shares without the prior approval
of the lender.

14
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.

The selected consolidated financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements of the
Company and Notes thereto included elsewhere in this Form 10-K.

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------
1996 1997 1998 1999 2000
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues...................................... $71,755 $ 95,785 $111,994 $107,755 $ 96,912
Cost of sales (1)............................. 58,468 71,662 83,684 83,383 80,845
Gross profit.................................. 13,287 24,123 28,310 24,372 16,067
Selling, general, and administrative
expenses (2)................................ 5,042 7,408 14,451 8,126 7,980
Income from operations........................ 8,245 16,715 13,859 16,246 8,087
Interest expense.............................. 5,344 5,880 6,867 4,522 3,827
Other expense, net............................ 394 677 356 15 6
Income before income taxes.................... 2,507 10,158 6,636 11,709 4,254
Net income.................................... 1,924 6,170 4,184 8,261 2,723
Redeemable preferred stock dividends.......... (1,290) (1,314) (1,272) (400) --
Accretion on preferred stock.................. -- -- -- (1,928) --
Redemption of Junior Preferred Stock.......... -- (405) -- -- --
------- -------- -------- -------- --------
Income available to common stockholders....... 634 4,451 2,912 5,933 2,723
------- -------- -------- -------- --------
Earnings per common share (3):
Basic....................................... $ .09 $ .65 $ .42 $ .63 $ .29
======= ======== ======== ======== ========
Diluted..................................... $ .09 $ .65 $ .41 $ .62 $ .28
======= ======== ======== ======== ========
Weighted average shares outstanding (3):
Basic....................................... 6,856 6,860 6,918 9,349 9,498
======= ======== ======== ======== ========
Diluted..................................... 6,856 6,860 7,325 9,621 9,578
======= ======== ======== ======== ========
</TABLE>

<TABLE>
<CAPTION>
JUNE 30,
----------------------------------------------------
1996 1997 1998 1999 2000
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................... $ 9,335 $ 9,386 $ 8,846 $ 22,025 $ 23,649
Total assets.................................. 90,435 102,111 124,519 128,520 116,743
Total long-term debt.......................... 42,973 49,781 51,918 39,250 36,102
Redeemable preferred stock.................... 10,034 8,813 8,951 -- --
Stockholders' equity.......................... 10,670 12,574 18,136 57,483 60,206
</TABLE>

------------------------
(1) The Company was incorporated for the purpose of acquiring all of the
outstanding capital stock of Golden State Vintners, currently the Company's
consolidated subsidiary. In accordance with purchase accounting
rules applied to the Company's acquisition of Golden State Vintners,
inventory was increased to fair market value. The inventory step-up
increased cost of sales for the year ended June 30, 1996 by $1,563.

(2) Management incentives relating to stock appreciation rights and bonuses
increased selling, general and administrative expenses by $930, $2,141 and
$8,800 for the years ended June 30, 1996, 1997, and 1998, respectively.

(3) See Note 2 of the Notes to Consolidated Financial Statements for an
explanation of the basic and diluted earnings per share computations.

15
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

The following discussion and analysis of the financial condition and results
of operations of Golden State Vintners, Inc. (the "Company" or "GSV") contains
"Forward-Looking Statements," as defined in Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. Forward-Looking Statements are statements other than historical
information or statements of current condition and relate to future events or
the future financial performance of the Company. Some Forward-Looking Statements
may be identified by use of such terms as "believes," "anticipates," "intends"
or "expects." Such Forward-Looking Statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company to be materially different from any future
results, performance or achievements expressed or implied by such
Forward-Looking Statements. The Company's results may differ materially from
those anticipated in such Forward-Looking Statements as a result of a number of
factors, including without limitation, (i) reduced consumer spending or a change
in consumer preferences, which could reduce demand for the Company's wines;
(ii) competition from various domestic and foreign wine producers which could
affect the Company's ability to sustain volume and revenue growth;
(iii) interest rates and other business and economic conditions which could
increase significantly the costs and risks of projected capital spending; and
(iv) the effect of weather and other natural forces on growing conditions and,
in turn, the quality and quantity of grapes produced by the Company. Each of
these factors, and other risks pertaining to the Company, the premium wine
industry and general business and economic conditions, are more fully discussed
herein and from time to time in other filings with the Securities and Exchange
Commission. The Company undertakes no obligation to publicly update or revise
any Forward-Looking Statements, whether as a result of new information, future
events or otherwise.

OVERVIEW

The Company's operations can be distinguished among the following: bulk wine
and related services, grape sales, case goods and related services and brandy.
Bulk wine and related services includes the production and sale of bulk wine,
the provision of custom crushing services, the storage of bulk wine in tanks and
barrels and the delivery of bulk wine barreling services, such as racking and
topping. Grape sales consist of the sale of grapes grown at the Company's
vineyards as well as grapes purchased by the Company from third party growers.
Case goods and related services includes the production of proprietary and
private label bottled wine and wine-based beverages and the provision of custom
bottling and storage services. The Company's brandy business includes the
production of brandy and grape spirits and the provision of brandy barrel
storage and related barreling services. See "Business--Company Operations."

16
<PAGE>
The table below sets forth summary statement of operations data for the
three fiscal years ended June 30, 2000:

SUMMARY STATEMENT OF OPERATIONS DATA
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------
1998 1999 2000
-------- -------- --------
<S> <C> <C> <C>
Revenues...................................... $111,994 $107,755 $ 96,912
Cost of sales................................. 83,684 83,383 80,845
-------- -------- --------
Gross profit.................................. 28,310 24,372 16,067
Selling, general and administrative
expenses.................................... 14,451 8,126 7,980
-------- -------- --------
Income (loss) from operations................. 13,859 16,246 8,087
Interest expense.............................. 6,867 4,522 3,827
Other expense (income), net................... 356 15 6
-------- -------- --------
Income before income taxes.................... 6,636 11,709 4,254
Income taxes.................................. 2,452 3,448 1,531
-------- -------- --------
Net income.................................... $ 4,184 $ 8,261 $ 2,723
======== ======== ========
</TABLE>

The following table reflects summary statement of operations data shown
above, expressed as a percentage of revenues:

PERCENTAGE OF REVENUES

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------
1998 1999 2000
-------- -------- --------
<S> <C> <C> <C>
Revenues............................................... 100.0% 100.0% 100.0%
Cost of sales.......................................... 74.7 77.4 83.4
----- ----- -----
Gross profit........................................... 25.3 22.6 16.6
Selling, general and administrative expenses........... 12.9 7.5 8.2
----- ----- -----
Income from operations................................. 12.4 15.1 8.4
Interest expense....................................... 6.2 4.2 4.0
Other expense, net..................................... 0.3 0.0 0.0
----- ----- -----
Income before income taxes............................. 5.9 10.9 4.4
Income taxes........................................... 2.2 3.2 1.6
----- ----- -----
Net income............................................. 3.7 7.7 2.8
===== ===== =====
</TABLE>

SEASONALITY AND QUARTERLY RESULTS

The Company has experienced and expects to continue to experience seasonal
and quarterly fluctuations in its revenues. Because of the inherent seasonality
of its operations, the Company has historically reported its highest revenues
and net income in its first and second fiscal quarters as the Company sells most
of its grapes in the first quarter, immediately after harvest, sells most of its
bulk wine and brandy in its second quarter, immediately after crush, and
performs many of its wine processing services in the first and second quarters.

As a result, the Company typically reports lower revenues and net income
(loss) in the third and fourth fiscal quarters. In fiscal 1999 and 2000 El
Nino-related weather conditions, among other things, caused an approximate
four-week delay in the California wine grape harvest as compared to normal
harvests.

17
<PAGE>
The following table illustrates the seasonality of the Company's revenues,
gross profit and net income (loss) for each of the four fiscal quarters of the
Company's 2000 fiscal year:

QUARTERLY REVENUES, GROSS PROFIT AND NET INCOME (LOSS)

<TABLE>
<CAPTION>
FISCAL 2000 QUARTER ENDED
------------------------------------------------
SEPT. 30 DEC. 31 MAR. 31 JUNE 30
--------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues......................... $16,356 $ 53,605 $ 15,010 $ 11,941
Percent of revenues for the year
ended June 30, 2000............ 16.9% 55.3% 15.5% 12.3%
Gross profit..................... $ 3,083 $ 10,552 $ 532 $ 1,900
Percent of gross profit for the
year ended June 30, 2000....... 19.2% 65.7% 3.3% 11.8%
Net income (loss)................ $ 331 $ 4,819 $ (1,352) $ (1,075)
Percent of net income (loss) for
the year ended June 30, 2000... 12.2% 177.0% (49.7)% (39.5)%
</TABLE>

RESULTS OF OPERATIONS

The following table illustrates the Company's revenues by source for the
periods indicated:

REVENUES BY SOURCE
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------
1998 1999 2000
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Bulk wine and related services.............. $ 58,928 $ 65,116 $ 55,832
Grape sales................................. 22,817 13,261 10,617
Case goods and related services............. 19,941 15,795 15,911
Brandy...................................... 10,308 13,583 14,552
-------- -------- --------
Total revenues............................ $111,994 $107,755 $ 96,912
======== ======== ========
</TABLE>

The following table illustrates the Company's revenues by source for the
periods indicated, expressed as a percentage of revenues:

PERCENTAGE OF REVENUES BY SOURCE

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------
1998 1999 2000
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Bulk wine and related services....................... 52.6% 60.4% 57.6%
Grape sales.......................................... 20.4 12.3 11.0
Case goods and related services...................... 17.8 14.7 16.4
Brandy............................................... 9.2 12.6 15.0
----- ----- -----
Total revenues..................................... 100.0% 100.0% 100.0%
===== ===== =====
</TABLE>

18
<PAGE>
FISCAL YEARS ENDED JUNE 30, 2000 AND 1999

REVENUES

Total revenues for fiscal 2000 were $96.9 million, a decrease of $10.9
million or 10.1%, as compared to revenues of $107.8 million for fiscal 1999. The
overall decrease in revenues is due to decreases in bulk wine revenues and third
party grape sales as partially offset by increased brandy and case goods
revenues.

BULK WINE AND RELATED SERVICES. For fiscal 2000, revenues from bulk wine
and related services were $55.8 million, a decrease of $9.3 million or 14.3%, as
compared to revenues of $65.1 million in fiscal 1999. Such decrease primarily
resulted from decreased gallons contracted for current vintage wines and to a
lesser extent the reduced California grape harvest. In addition, in fiscal 2000,
the Company has experienced a loss of revenues associated with a major bulk wine
customer. Bulk wine revenues in fiscal 1999 from this customer were
approximately $5.6 million compared to approximately $1.0 million in fiscal
2000. Management is not certain this customer will continue to provide revenues
in future periods to the extent realized in fiscal 1999.

WINE GRAPES. In fiscal 2000, revenues from grape sales were $10.6 million,
a decrease of $2.7 million or 20.3%, as compared to revenues of $13.3 million in
fiscal 1999. Wine grapes revenues consist of revenues from grapes grown on the
Company's vineyards and grapes purchased from outside growers that are resold to
various third parties or "resold grapes." Company grown grape tons delivered to
customers decreased approximately 20,000 tons (or $4.4 million in revenues) from
approximately 42,000 to 22,000 tons in fiscal 2000 compared to fiscal 1999 as a
result of 1) the Company's continued restructuring of grape contracts to utilize
a greater percentage of its own grapes toward the internal production of bulk
wine and brandy and 2) lower yields on company owned vineyard resulting from El
Nino. Resold grape revenue increased to $5.2 million from $3.6 million for
fiscal 2000 and 1999, respectively.

CASE GOODS AND RELATED SERVICES. For fiscal 2000, revenues from case goods
and related services were $15.9 million, an increase of $.1 million or .6%, as
compared to revenues of $15.8 million in fiscal 1999.

BRANDY. For fiscal 2000, revenues from the sale of brandy and grape spirits
were $14.6 million, an increase of $1.0 million or 7.4%, as compared to revenues
of $13.6 million in fiscal 1999. Brandy sales volume increased to approximately
2.4 million proof gallons in fiscal 2000.

COST OF SALES

For fiscal 2000, total cost of sales was $80.8 million, a decrease of $2.6
million or 3.1%, from $83.4 million in fiscal 1999. As a percentage of revenues,
cost of sales for fiscal 2000 was 83.4%, an increase from 77.4% in fiscal 1999.
The increase in cost of sales on a percentage of revenue basis was primarily as
a result of 1) increased per ton grape costs due to decreased grape yields from
Company owned vineyards, 2) the write-off of approximately $1.8 million related
to the removal of approximately 700 acres of vineyards that were underperforming
and were expected to remain so in future periods and 3) the decreased
utilization of bottling facilities significantly due to start-up inefficiencies
associated with the new bottling line in St. Helena.

GROSS PROFIT

In fiscal 2000, the Company realized gross profit of $16.1 million, a
decrease of $8.3 million or 34.0%, as compared to $24.4 million in fiscal 1999.
As a percentage of revenues, gross profit for fiscal 2000 was 16.6%, a decrease
from 22.6% in fiscal 1999, for reasons discussed above under "Cost of Sales."

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

For fiscal 2000, selling, general and administrative expenses were $8.0
million, a decrease of $.1 million or 1.2%, from $8.1 million for fiscal 1999.
The period to period decline is due to a decrease in bad debt expense offset by
increases related to consulting services and research and market development of
various new products.

19
<PAGE>
INTEREST EXPENSE

For fiscal 2000, interest expense was $3.8 million, a decrease of $.7
million or 15.6%, as compared to interest expense of $4.5 million in fiscal
1999. The period to period decline is due to decreased average borrowings on the
Company's line of credit.

NET INCOME

For fiscal 2000, net income was $2.7 million, a decrease of $5.6 million or
67.5%, as compared to net income of $8.3 million in fiscal 1999. Net income for
fiscal 2000 was adversely impacted by factors covered above.

EARNINGS PER SHARE

For fiscal 2000, the basic earnings per share was $.29 as compared to basic
earnings per share of $.63 for fiscal 1999. Net income available to common
shareholders for fiscal 2000 was impacted by reduced net income.

LIQUIDITY AND CAPITAL RESOURCES

The Company's working capital position at June 30, 2000 was $23.6 million,
as compared to $22.0 million at June 30, 1999. The increase in working capital
is primarily due to cash, receivables and inventory generated relative to the
1999 crush. The Company maintains a revolving line of credit for working capital
purposes which is secured by inventory, accounts receivable, the current year's
wine grape crop and other collateral. Collateral balances at June 30, 2000 are
adequate for the Company's working capital requirements. Borrowings under the
line typically peak in November, during the Company's second fiscal quarter. The
revolving line of credit balance was $8.1 million at June 30, 1999, with no
outstanding balance at June 30, 2000. Unused availability under the line of
credit was $28 million at June 30, 2000.

Net cash provided by operating activities for fiscal 2000 was $19.8 million,
as compared to net cash provided by operations of $9.4 million for fiscal 1999.
The increase in cash provided by operations is primarily due to successful
reductions of receivable and inventory levels over the prior year and, in fiscal
1999, the Company made payments on officer notes aggregating $5.7 million.

FISCAL YEARS ENDED JUNE 30, 1999 AND 1998

REVENUES

Revenues for the fiscal year ended 1999 were $107.8 million, a decrease of
$4.2 million or 3.8%, as compared to revenues of $112.0 million in the fiscal
year ended 1998. The overall decrease in revenues was primarily due to the
restructuring of the Company's grape supply relationship with Gallo and a
smaller grape harvest in general, and, to a lesser extent, a reduction in case
goods revenues.

BULK WINE AND RELATED SERVICES. For the Company's 1999 fiscal year,
revenues from bulk wine and related services were $65.1 million, an increase of
$6.2 million or 10.5%, as compared to revenues of $58.9 million in fiscal 1998.
This increase in revenues is primarily due to higher customer demands for
contracted premium red varietal bulk wines and the increase of bulk wine
production and processing and storage service operations at the Company's
Monterey facility.

GRAPE SALES. In fiscal 1999, revenues from grape sales were $13.3 million,
a decrease of $9.5 million or 41.7%, as compared to revenues of $22.8 million in
fiscal 1998. Grape tons delivered to customers decreased to approximately
41,000 tons in fiscal 1999 compared to approximately 76,000 tons in fiscal 1998.
This was primarily a result of the Company's planned re-allocation of grape
resources. For fiscal 1999, the Company restructured its grape contracts to
utilize a greater percentage of its own grapes in the internal production of
bulk wine and brandy. Additionally, year-to-year comparisons were affected by
the above-average grape harvest in the summer and autumn of 1997, which resulted
in greater than normal grape revenues in the Company's 1998 fiscal year, and the
following season's average harvest in 1998, reducing grape revenues in fiscal
year 1999.

20
<PAGE>
CASE GOODS AND RELATED SERVICES. For fiscal 1999, revenues from case goods
and related services were $15.8 million, a decrease of $4.2 million or 21.0%, as
compared to revenues of $20.0 million in fiscal 1998. The period-to-period
decline in case goods and related services revenues was primarily due to a
decline in certain Far East private label case goods sales and the absence of
consolidated revenues from the Company's former 80%-owned partnership, GSV
International Trading Company.

BRANDY. For fiscal 1999, revenues from the sale of brandy and grape spirits
were $13.6 million, an increase of $3.3 million or 32.0%, as compared to
$10.3 million in revenues from the previous period. Brandy sales volume
increased to approximately 2.4 million proof gallons for fiscal 1999 compared to
approximately 1.7 million proof gallons in fiscal 1998, due to an increase in
customer demand.

COST OF SALES

Cost of sales includes all direct and indirect costs to produce the
Company's marketed products. Bulk wine, case goods and brandy cost of sales
generally include wine grape costs, direct and indirect plant production costs
and certain allocated overhead items such as depreciation and insurance.
Vineyard costs include farming expenses and direct and allocated indirect costs.
For fiscal 1999, total cost of sales was $83.4 million, a decrease of
$.3 million or 0.4%, from $83.7 million in fiscal 1998. As a percentage of
revenues, for fiscal 1999, cost of sales was 77.4%, an increase from 74.7% for
fiscal 1998. The increase in cost of sales on a percentage of revenue basis
resulted from a lower than planned fixed costs absorption caused by reduced wine
grape tonnage crushed and processed and a lower volume of case goods sold,
decreased yields in the conversion of wine grapes to bulk wine and brandy, lower
average selling prices of bulk spot market 1997 and 1998 vintage product sold in
1999, and by a substantial increase in the Company's LIFO reserve, offset by the
impact of amounts reserved in fiscal 1998 for wine product contingent
liabilities.

GROSS PROFIT

In fiscal 1999, the Company realized gross profit of $24.4 million, a
decrease of $3.9 million or 13.8%, as compared to gross profit of $28.3 million
for fiscal 1998. As a percentage of revenues, in fiscal 1999 gross margin
declined to 22.6%, from 25.3% in fiscal 1998. The Company's gross margin for
fiscal 1999 was primarily impacted by the items discussed above under "Cost of
Sales".

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses include general administrative
items, corporate overhead and expenses relating to the Management Incentives.
For fiscal 1999, selling, general and administrative expenses were
$8.1 million, a decrease of $6.4 million or 44.1%, from $14.5 million for fiscal
1998. Selling, general and administrative expense was substantially lower in
fiscal 1999 than in fiscal 1998, due to a one-time management incentive
restructuring charge equaling $8.8 million in fiscal 1998.

INTEREST EXPENSE

For fiscal 1999, interest expense was $4.5 million, a decrease of
$2.4 million or 34.8%, as compared to interest expense of $6.9 million in fiscal
1998. At the beginning of fiscal 1999, the Company used a portion of the net
proceeds from its initial public offering to repay approximately $11.9 million
in long-term debt, $5.4 million in officer notes and to reduce its outstanding
line of credit balance by $4.7 million, thereby reducing interest expense for
fiscal 1999, and in future years.

NET INCOME

For fiscal 1999 net income was $8.3 million, an increase of $4.1 million or
97.6%, as compared to net income of $4.2 million for fiscal 1998. As a
percentage of revenues, for fiscal 1999, net income was 7.7%, as compared to
3.7% for fiscal 1998. This increase is largely due to lower interest and
selling, general and administrative expenses in fiscal 1998, lower income taxes,
as a percentage of pre-tax earnings, as a result of a substantial reduction of
the valuation allowance on deferred tax assets, partially offset by a lower
gross profit in fiscal 1999, in each case as explained above.

21
<PAGE>
EARNINGS PER SHARE

For fiscal 1999, basic earnings per share were $.63, an increase of $.21 or
50.0%, as compared to basic earnings per share of $.42 for fiscal 1998. Net
earnings available to common shareholders for fiscal 1999 was impacted by the
increase in net income offset by dividend payments of $0.4 million on shares of
Senior Preferred Stock and, as a result of Company's initial public offering,
accretion of $1.9 million with respect to senior preferred stock redeemed and
junior preferred stock converted in the first quarter of fiscal 1999.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company holds no market risk sensitive trading instruments. All Company
balance sheet items and sales are in U.S. dollars, therefore the Company has no
foreign currency exchange rate risk related to these financial data. The Company
does not use financial instruments for trading purposes.

Certain Company debt is subject to variable interest rate options. The
following chart indicates the Company's fixed and variable rate long and
short-term debt at June 30, 2000, and estimates the balances of such debt in
future periods ($ millions):

<TABLE>
<CAPTION>
JUNE 30,
----------------------------------------------------
2000 2001 2002 2003 2004
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Bank line of credit:
Average Outstanding*................................... $ 7.1 $ 5.0 $ 5.0 $ 5.0 $ 5.0
Weighted average rate for year......................... 6.7% 7.5% 7.5% 7.5% 7.5%
Long-term Debt:
Fixed Rate:
Average Outstanding.................................. $42.6 $38.7 $34.8 $30.9 $26.6
Weighted average rate for year....................... 9.0% 8.8% 8.8% 8.5% 8.7%
</TABLE>

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

* Based on current anticipated cash flow, the Company believes that its bank
line of credit will be periodically used to fund operations in the Company's
peak season.

22
<PAGE>
During its annual business cycle, the Company utilizes a variable interest
rate working capital line at various borrowing levels. The Company's existing
working capital loan agreement offers interest rate options at spreads over
LIBOR and/or lender cost of funds, at maturities selected by the Company. For
the year ended June 30, 2000, the average outstanding balance under this line
was approximately $7.1 million, with a weighted average interest rate of
approximately 6.7%. The Company applied cash generated from operations to reduce
the outstanding balance on its line of credit during fiscal 2000.

At June 30, 2000, the Company had a note payable to an insurance company
with a balance of $28.7 million. On April 21, 2000, the interest rate on the
then outstanding balance was converted from 9.7% to an interest rate equal to
275 basis points over the then five-year U.S. Treasury note rate or 8.99%.
Accordingly, this debt reflected as variable rate debt in previous filings is
now included with fixed rate debt.

At June 30, 2000, the balance on the Company's fixed rate long-term debt was
$39.4 million and carried a weighted average interest rate of approximately
9.1%. The weighted average interest rate for the year ended June 30, 2000 for
all Company debt was approximately 8.6%.

For strategic reasons, the Company enters into forward product sales and
material supply contracts, most of which generally have staggered maturity
dates. Of the Company's four primary lines of business, bulk wine, grape sales
and brandy production are subject to multi-year contracts, while case goods
sales generally occur on a short-term basis. As the primary raw material
component for most Company product is wine grapes, the Company enters into long
and short-term grape purchase contracts to ensure an adequate and cost effective
source of raw material for production. Product sales contracts are substantially
fixed over the term of the contract as to quantity and price. Wine grape
contract terms are similarly fixed at inception for the term of the contract,
although a portion of these contracts contain annual harvest market price
adjustment clauses, against individual harvest year minimum pricing. For fiscal
2000, or the 1999 harvest year, approximately .4% of the Company's total wine
grape purchases on a dollar basis were adjusted upward against contract minimum
prices following the harvest. The Company may experience similar grape price
adjustments during the 2001 fiscal year, with respect to the 2000 harvest year.
The Company's annual operating budget anticipates these wine grape price
adjustments, based on management's knowledge of movements in anticipated wine
grape supply and quality during each harvest year's wine grape crop maturation.

Although the Company's annual wine and brandy production is substantially
committed under sales contracts prior to harvest and production, the Company
intentionally maintains uncommitted product inventory to meet customer demand.
At June 30, 2000, the Company's reported inventory value of bulk wine and brandy
was $10.6 million, of which approximately $4.5 million, or 43%, is contractually
committed to future production programs. The uncommitted amount of inventory,
approximately $6.1 million, or 57%, is reserved primarily for future case goods
sales, which are generally not subject to written preproduction purchase
contracts, and for spot market bulk wine sales. While the Company generally
matches preproduction contractual sales with contracted material supply
agreements, the Company will continue to maintain certain uncommitted inventory
to service short-term customer needs.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

See the Index included at "Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K."

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

None.

23
<PAGE>
PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The information required by this Item is incorporated herein by reference to
the Company's Proxy Statement relating to the 2000 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission within 120
days after June 30, 2000.

ITEM 11. EXECUTIVE COMPENSATION.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

24
<PAGE>
PART IV

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

(a) Documents filed as part of this Report:

(1) Index to Consolidated Financial Statements:

<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Independent Auditors' Report................................ 29

Consolidated Balance Sheets as of June 30, 1999 and 2000.... 30

Consolidated Statements of Income for the Three Years in the
Period Ended June 30, 2000................................ 31

Consolidated Statements of Stockholders' Equity for the
Three Years in the Period Ended June 30, 2000............. 32

Consolidated Statements of Cash Flows for the Three Years in
the Period Ended
June 30, 2000............................................. 33

Notes to Consolidated Financial Statements.................. 34
</TABLE>

(2) Index to Financial Statement Schedules:

<TABLE>
<S> <C>
Independent Auditors' Report on Supplementary Financial
Schedule.................................................. 50

Schedule II--Valuation and Qualifying Accounts.............. 51
</TABLE>

(3)(a) Exhibits:

(b) Reports on Form 8-K:

None

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
--------------------- -----------------------
<C> <S>
2.1 Stock Purchase Agreement dated as of April 27, 1995 by and
among the Registrant, Golden State Vintners and certain
shareholders of Golden State Vintners filed as Exhibit 2.1
to the Company's Registration Statement on Form S-1
(Registration No. 333-51443) and incorporated by reference
herein.

2.2 Vineyard Purchase Agreement dated May 16, 1995 between the
Registrant and The Grape Group, Inc. filed as Exhibit 2.1 to
the Company's Registration Statement on Form S-1
(Registration No. 333-51443) and incorporated by reference
herein.

3.1 Amended and Restated Certificate of Incorporation of the
Registrant filed as Exhibit 2.1 to the Company's
Registration Statement on Form S-1 (Registration
No. 333-51443) and incorporated by reference herein.

3.2 Bylaws of the Registrant filed as Exhibit B to the Company's
Proxy Statement for an Annual Meeting of Stockholders filed
September 28, 2000 and incorporated by reference herein.

3.3 Certificate of Designations of the 12% Senior Redeemable
Preferred Stock of the Registrant, as amended and currently
in effect filed as Exhibit 3.4 to the Company's Registration
Statement on Form S-1 (Registration No. 333-51443) and
incorporated by reference herein.

3.4 Certificate of Powers, Designations, Preferences and
Relative, Participating, Optional and Other Special Rights
of Junior Exchangeable Preferred Stock and Qualifications,
Limitations and Restrictions Thereof of the Registrant, as
amended and currently in effect filed as Exhibit 3.5 to the
Company's Registration Statement on Form S-1 (Registration
No. 333-51443) and incorporated by reference herein.
</TABLE>

25
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
--------------------- -----------------------
<C> <S>
4.1 Form of Class B Common Stock Certificate of the Registrant
filed as Exhibit 4.1 to the Company's Registration Statement
on Form S-1 (Registration No. 333-51443) and incorporated by
reference herein.

4.2 Registration Rights Agreement dated as of April 27, 1995 by
and among the Registrant and certain holders of the
Registrant's Common Stock filed as Exhibit 4.2 to the
Company's Registration Statement on Form S-1 (Registration
No. 333-51443) and incorporated by reference herein.

4.3 Registration Rights Agreement dated October 10, 1996 by and
among the Registrant and certain holders of the Registrant's
Common Stock filed as Exhibit 4.3 to the Company's
Registration Statement on Form S-1 (Registration
No. 333-51443) and incorporated by reference herein.

10.1 1996 Stock Option Plan ("1996 Stock Plan") of the Registrant
filed as Exhibit 10.1 to the Company's Registration
Statement on Form S-1 (Registration No. 333-51443) and
incorporated by reference herein.

10.2 Form of Incentive Stock Option Agreement under the 1996
Stock Plan filed as Exhibit 10.2 to the Company's
Registration Statement on Form S-1 (Registration
No. 333-51443) and incorporated by reference herein.

10.3 Form of Nonqualified Stock Option Agreement under the 1996
Stock Plan filed as Exhibit 10.3 to the Company's
Registration Statement on Form S-1 (Registration
No. 333-51443) and incorporated by reference herein.

10.4 Form of Indemnification Agreement between the Registrant and
its officers and directors filed as Exhibit B to the
Company's Proxy Statement for an Annual Meeting of
Stockholders, filed June 8, 2000, and incorporated by
reference herein.

10.5 Employment Agreement dated as of April 27, 1995 between the
Registrant and Jeffrey B. O'Neill filed as Exhibit 10.5 to
the Company's Registration Statement on Form S-1
(Registration No. 333-51443) and incorporated by reference
herein.

10.6 Securities Purchase Agreement dated April 21, 1995 among the
Registrant, Golden State Vintners and John Hancock Mutual
Life Insurance Company ("John Hancock"), as amended, filed
as Exhibit 10.6 to the Company's Registration Statement on
Form S-1 (Registration No. 333-51443) and incorporated by
reference herein.

10.7 First Mortgage Note Due April 1, 2005 issued by Golden State
Vintners in favor of John Hancock in the principal amount of
$35,000,000.00 filed as Exhibit 10.7 to the Company's
Registration Statement on Form S-1 (Registration
No. 333-51443) and incorporated by reference herein.

10.8 Continuing Corporate Guaranty dated April 27, 1995 entered
into by the Registrant in favor of John Hancock filed as
Exhibit 10.8 to the Company's Registration Statement on
Form S-1 (Registration No. 333-51443) and incorporated by
reference herein.

10.9 Security Agreement dated as of April 21, 1995 entered into
by Golden State Vintners in favor of John Hancock filed as
Exhibit 10.9 to the Company's Registration Statement on
Form S-1 (Registration No. 333-51443) and incorporated by
reference herein.

10.10 Intercreditor Agreement dated as of April 21, 1995 among
Golden State Vintners, John Hancock and Sanwa Bank
California ("Sanwa"), as amended, filed as Exhibit 10.10 to
the Company's Registration Statement on Form S-1
(Registration No. 333-51443) and incorporated by reference
herein.
</TABLE>

26
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
--------------------- -----------------------
<C> <S>
10.11 Continuing Guaranty dated as of April 21, 1998 between the
Registrant and Sanwa filed as Exhibit 10.14 to the Company's
Registration Statement on Form S-1 (Registration
No. 333-51443) and incorporated by reference herein.

10.12 Management Agreement dated May 31, 1997 between the
Registrant and Forrest Binkley & Brown Partners L.P. filed
as Exhibit 10.22 to the Company's Registration Statement on
Form S-1 (Registration No. 333-51443) and incorporated by
reference herein.

10.13 1998 Director Stock Option Plan (the "Director Plan") filed
as Exhibit 10.23 to the Company's Registration Statement on
Form S-1 (Registration No. 333-51443) and incorporated by
reference herein.

10.14 Stock Option Agreement dated as of December 31, 1997 between
the Registrant and Jeffrey B. O'Neill filed as Exhibit 10.24
to the Company's Registration Statement on Form S-1
(Registration No. 333-51443) and incorporated by reference
herein.

10.15 Stock Option Agreement dated as of December 31, 1997 between
the Registrant and Brian R. Thompson filed as
Exhibit 10.25 to the Company's Registration Statement on
Form S-1 (Registration No. 333-51443) and incorporated by
reference herein.

10.16 Employment Agreement dated as of January 1, 1998 between the
Registrant and Jeffrey B. O'Neil filed as Exhibit 10.26 to
the Company's Registration Statement on Form S-1
(Registration No. 333-51443) and incorporated by reference
herein.

10.17 Form of Stock Option Agreement under the Director Plan filed
as Exhibit 10.29 to the Company's Registration Statement on
Form S-1 (Registration No. 333-51443) and incorporated by
reference herein.

10.18 Promissory Note dated September 30, 1986 between the
Registrant, as assignee of original maker, The Grape Group
and The Prudential Insurance Company of America filed as
Exhibit 10.30 to the Company's Registration Statement on
Form S-1 (Registration No. 333-51443) and incorporated by
reference herein.

10.19 Promissory Note dated January 1, 1998 between the Registrant
and Jeffrey B. O'Neill filed as Exhibit 10.33 to the
Company's Registration Statement on Form S-1 (Registration
No. 333-51443) and incorporated by reference herein.

10.20 Promissory Note dated January 1, 1998 between the Registrant
and Brian R. Thompson filed as Exhibit 10.34 to the
Company's Registration Statement on Form S-1 (Registration
No. 333-51443) and incorporated by reference herein.

10.21 Accounts Receivable Credit Agreement dated as of July 5,
2000 between Sanwa and the Registrant.

21.1 Subsidiaries of the Registrant filed as Exhibit 21.1 to the
Company's Registration Statement on Form S-1 (Registration
No. 333-51443) and incorporated by reference herein.

23.1 Consent of Deloitte & Touche LLP

24.1 Power of Attorney (included on page 47).

27.1 Financial Data Schedule.
</TABLE>

27
<PAGE>
INDEPENDENT AUDITORS' REPORT

To the Stockholders and Board of Directors
of Golden State Vintners, Inc.

We have audited the accompanying consolidated balance sheets of Golden State
Vintners, Inc. and subsidiaries (the "Company") as of June 30, 1999 and 2000,
and the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended June 30, 2000. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company at June 30, 1999
and 2000, and the results of its operations and its cash flows for each of the
three years in the period ended June 30, 2000, in conformity with accounting
principles generally accepted in the United States of America.

DELOITTE & TOUCHE LLP

Fresno, California
August 15, 2000

28
<PAGE>
GOLDEN STATE VINTNERS, INC.

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
JUNE 30,
---------------------------
1999 2000
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents.................................... $ 29,594 $ 39,244
Trade receivables--net.................................. 9,938,963 7,441,232
Inventories............................................. 27,171,992 22,069,778
Refundable income taxes................................. 4,131,544 2,419,881
Refundable deposits and prepaid expenses................ 728,549 754,579
Deferred income taxes................................... 388,151 --
------------ ------------
Total current assets.................................. 42,388,793 32,724,714
PROPERTY, PLANT AND EQUIPMENT--Net.......................... 84,034,087 83,687,870
NOTE RECEIVABLE............................................. 1,722,322 --
DEFERRED FINANCING COSTS AND OTHER ASSETS................... 374,610 330,221
------------ ------------
TOTAL ASSETS................................................ $128,519,812 $116,742,805
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank line of credit....................................... $ 8,100,000 $ --
Cash overdraft............................................ 964,467 --
Accounts payable.......................................... 4,029,023 2,963,360
Payable to growers........................................ 659,838 360,285
Payroll and related liabilities........................... 634,391 961,179
Accrued interest.......................................... 886,177 823,116
Other accrued liabilities................................. 191,346 616,857
Deferred income taxes..................................... -- 94,707
Current portion of long-term debt......................... 4,898,757 3,256,001
------------ ------------
Total current liabilities............................... 20,363,999 9,075,505
LONG-TERM DEBT.............................................. 39,250,458 36,102,451
DEFERRED INCOME TAXES....................................... 11,422,201 11,358,680
COMMITMENTS AND CONTINGENCIES (Notes 10 and 12)
STOCKHOLDERS' EQUITY:
Common stock:
Class A common stock; 4,342,528 outstanding at June 30,
1999 and 2000......................................... 43,425 43,425
Class B common stock; 5,155,733 outstanding at June 30,
1999 and 2000......................................... 51,558 51,558
Additional paid-in capital................................ 44,836,541 44,836,541
Retained earnings......................................... 12,551,630 15,274,645
------------ ------------
Total stockholders' equity............................ 57,483,154 60,206,169
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $128,519,812 $116,742,805
============ ============
</TABLE>

See notes to consolidated financial statements.

29
<PAGE>
GOLDEN STATE VINTNERS, INC.

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------
1998 1999 2000
------------ ------------ -----------
<S> <C> <C> <C>
REVENUES, net:
Bulk wine................................................. $ 58,928,186 $ 65,116,190 $55,832,192
Wine grapes............................................... 22,817,043 13,260,863 10,616,502
Case goods................................................ 19,941,205 15,794,918 15,910,972
Brandy and spirits........................................ 10,307,735 13,583,441 14,552,343
------------ ------------ -----------
Total revenues.......................................... 111,994,169 107,755,412 96,912,009
COST OF SALES............................................... 83,684,275 83,382,860 80,845,033
------------ ------------ -----------
GROSS PROFIT................................................ 28,309,894 24,372,552 16,066,976
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................ 14,450,949 8,126,170 7,980,066
------------ ------------ -----------
INCOME FROM OPERATIONS...................................... 13,858,945 16,246,382 8,086,910
INTEREST EXPENSE............................................ (6,867,209) (4,521,836) (3,827,121)
OTHER EXPENSE, net.......................................... (356,113) (15,458) (5,774)
------------ ------------ -----------
INCOME BEFORE INCOME TAXES.................................. 6,635,623 11,709,088 4,254,015
INCOME TAXES................................................ 2,452,000 3,448,000 1,531,000
------------ ------------ -----------
NET INCOME.................................................. 4,183,623 8,261,088 2,723,015
REDEEMABLE PREFERRED STOCK DIVIDENDS........................ (1,271,242) (400,000) --
ACCRETION ON PREFERRED STOCK................................ -- (1,927,648) --
------------ ------------ -----------
EARNINGS AVAILABLE TO COMMON STOCKHOLDERS................... $ 2,912,381 $ 5,933,440 $ 2,723,015
------------ ------------ -----------
EARNINGS PER COMMON SHARE:
BASIC..................................................... $ 0.42 $ 0.63 $ 0.29
============ ============ ===========
DILUTED................................................... $ 0.41 $ 0.62 $ 0.28
============ ============ ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
BASIC..................................................... 6,917,904 9,348,628 9,498,261
------------ ------------ -----------
DILUTED................................................... 7,325,324 9,621,144 9,578,117
------------ ------------ -----------
</TABLE>

See notes to consolidated financial statements.

30
<PAGE>
GOLDEN STATE VINTNERS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON STOCK
----------------------------------------- ADDITIONAL RETAINED
CLASS A CLASS B CLASS E CLASS K PAID-IN CAPITAL EARNINGS TOTAL
-------- -------- -------- -------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1997........... $ -- $19,176 $ 4,141 $ 344 $ 8,844,136 $ 3,705,809 $12,573,606
Stock option exercise.......... -- 1,061 -- 102 1,860,140 -- 1,861,303
Tax benefit of stock option
exercise..................... -- -- -- -- 788,532 -- 788,532
Dividends paid on redeemable
preferred stock.............. -- -- -- -- -- (1,271,242) (1,271,242)
Net income..................... -- -- -- -- -- 4,183,623 4,183,623
------- ------- ------- ----- ----------- ----------- -----------
BALANCE, JUNE 30, 1998........... -- 20,237 4,141 446 11,492,808 6,618,190 18,135,822
Issuance of common stock....... 43,425 29,827 (4,141) (446) 33,922,835 -- 33,991,500
Public offering costs.......... -- -- -- -- (1,614,294) -- (1,614,294)
Conversion of Junior Preferred
Stock........................ -- 1,304 -- -- 889,221 (156,694) 733,831
Stock option exercise.......... -- 190 -- -- 90,744 -- 90,934
Tax benefit of stock option
exercise..................... -- -- -- -- 55,227 -- 55,227
Accretion on Senior Preferred
stock........................ -- -- -- -- -- (1,770,954) (1,770,954)
Dividends paid on redeemable
preferred stock.............. -- -- -- -- -- (400,000) (400,000)
Net income..................... -- -- -- -- -- 8,261,088 8,261,088
------- ------- ------- ----- ----------- ----------- -----------
BALANCE, JUNE 30, 1999........... 43,425 51,558 -- -- 44,836,541 12,551,630 57,483,154
Net income..................... -- -- -- -- -- 2,723,015 2,723,015
------- ------- ------- ----- ----------- ----------- -----------
BALANCE, JUNE 30, 2000........... $43,425 $51,558 -- -- $44,836,541 $15,274,645 $60,206,169
======= ======= ======= ===== =========== =========== ===========
</TABLE>

See notes to consolidated financial statements.

31
<PAGE>
GOLDEN STATE VINTNERS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------
1998 1999 2000
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income................................................ $ 4,183,623 $ 8,261,088 $ 2,723,015
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 4,144,814 4,453,503 6,211,116
Provision for doubtful accounts......................... 90,000 1,100,000 (200,000)
Loss on disposal of assets.............................. 45,463 61,392 1,836,167
Deferred income taxes................................... 2,723,240 3,384,182 419,337
Change in deferred tax valuation allowance.............. (571,992) (1,250,963) --
Changes in operating assets and liabilities, net of
effects of dissolution of GSVI Partnership in 1998:
Trade receivables..................................... (3,042,528) (3,453,324) 2,697,731
Inventories........................................... (8,436,654) 4,128,111 5,143,100
Prepaid expenses...................................... (1,210,992) (495,439) (26,030)
Accounts payable...................................... 2,053,866 109,428 (1,065,663)
Payable to growers.................................... (139,363) (263,848) (299,553)
Accrued interest...................................... 526,536 (240,845) (63,061)
Payroll and related liabilities....................... 4,961,258 (5,717,871) 326,788
Deferred compensation................................. (1,989,112) -- --
Other accrued liabilities............................. 1,474,228 (1,212,524) 425,511
Income taxes payable.................................. (4,417,067) 581,670 1,711,663
------------ ------------ ------------
Net cash provided by operating activities............. 395,320 9,444,560 19,840,121
------------ ------------ ------------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment................ (5,537,312) (8,128,184) (7,614,425)
Proceeds from note receivable............................. -- -- 1,722,322
Partnership dissolution................................... (97,576) -- --
Refund (payment) of deposits.............................. 142,000 (2,750) (18,890)
------------ ------------ ------------
Net cash used in investing activities................... (5,492,888) (8,130,934) (5,910,993)
------------ ------------ ------------
FINANCING ACTIVITIES:
Borrowings on line of credit.............................. 61,800,000 56,350,000 25,900,000
Payments on line of credit................................ (56,400,000) (66,450,000) (34,000,000)
Cash overdraft increase................................... 801,495 162,972 (964,467)
Payments on long-term debt................................ (2,862,685) (14,581,297) (4,855,011)
Payment of financing costs................................ (10,000) -- --
Proceeds from stock option exercises...................... 1,861,303 90,934 --
Payment of dividends on redeemable preferred stock........ (1,271,242) (400,000) --
Issuance of capital stock................................. -- 33,991,500 --
Public offering costs..................................... -- (487,969) --
Redemption of preferred stock............................. -- (10,000,000) --
------------ ------------ ------------
Net cash provided by (used in) financing activities..... 3,918,871 (1,323,860) (13,919,478)
------------ ------------ ------------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS................. (1,178,697) (10,234) 9,650
CASH AND EQUIVALENTS, BEGINNING OF PERIOD................... 1,218,525 39,828 29,594
------------ ------------ ------------
CASH AND EQUIVALENTS, END OF PERIOD......................... $ 39,828 $ 29,594 $ 39,244
============ ============ ============
</TABLE>

See notes to consolidated financial statements.

32
<PAGE>
GOLDEN STATE VINTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND OPERATIONS

Golden State Vintners, Inc. (the "Company"), formerly Golden State
Acquisition Corp., a Delaware corporation, was formed on April 26, 1995 for the
purpose of acquiring and holding for investment all of the outstanding capital
stock of Golden State Vintners ("GSV"), a California corporation. Such
acquisition occurred on April 27, 1995.

The Company processes and bottles wine, brandy and juice for sale, primarily
in bulk, to other wineries and processors located principally in California. The
Company experiences seasonal fluctuations in its revenues. Due to the inherent
seasonality of its grape harvesting and crushing operations, the Company
generally reports its highest revenues and net income in its first and second
fiscal quarters.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the Company, its wholly owned
subsidiary, GSV, and through June 1998 an 80% owned partnership, GSV
International Trading Company (GSVI). All significant intercompany transactions
and accounts have been eliminated. During June 1998, the Company dissolved its
partnership interest and received a note for $1,722,322 in exchange for its
investment in GSVI, cash advances and related interest. The note was paid in
January 2000.

ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures 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.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of certain financial instruments, including cash,
receivables, accounts payable, and other accrued liabilities, approximate the
amounts recorded in the balance sheet because of the relatively short-term
maturities of these financial instruments. The fair value of bank, insurance
company, and other long-term financing at June 30, 2000 approximate the amounts
recorded in the balance sheet based on information available to the Company with
respect to current interest rates and terms for similar financial instruments.

CASH EQUIVALENTS

For purposes of reporting cash flows, the Company considers cash equivalents
to include all short-term investments with an original maturity of three months
or less.

TRADE RECEIVABLES

Substantially all accounts receivable are due from wine distributors and
major wineries located principally in California. The Company performs periodic
credit evaluations of its customers' financial condition and generally does not
require collateral for its sales. Trade and other receivables at June 30, 1999
and 2000 are net of an allowance for doubtful accounts of approximately
$1,272,000 and $957,000 respectively.

33
<PAGE>
GOLDEN STATE VINTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES

The Company changed its method of costing wine inventories effective
July 1, 1995 from the first-in, first-out ("FIFO") method, to the last-in,
first-out ("LIFO") method. The Company also changed to the LIFO method for
brandy inventory effective July 1, 1996. Inventories at June 30, 1999 and 2000
would have been higher by $3,909,047 (including $336,237 for brandy inventories)
and $3,905,405 (including $513,875 for brandy inventories), respectively, had
the Company used FIFO cost rather than LIFO cost for valuation of its
inventories. Such differences at June 30, 1999 and 2000 include a $2,576,051 and
$(359,415), respectively year end adjustment to recognize changes between
estimated interim and final year end LIFO balances. Juice is stated at the lower
of average cost or net realizable value. Inventories of supplies are stated at
the lower of FIFO cost or market. Costs associated with the current year's
unharvested grape crop are deferred and recognized in the subsequent year when
the grapes are harvested. Wine inventories are classified as current assets in
accordance with recognized trade practice although some products will not be
sold in the following year.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost. Depreciation and
amortization are computed using the straight-line method over the estimated
lives of the related assets, as follows:

<TABLE>
<S> <C>
Land Improvements.................................... 30 years
Vineyards............................................ 20 years
Buildings............................................ 7 to 48 years
Cooperage............................................ 10 to 30 years
Equipment............................................ 7 to 20 years
</TABLE>

Costs incurred in developing vineyards, including related interest costs,
are capitalized until the vineyards become commercially productive. Maintenance
and repairs are charged to operating costs as incurred. The cost of betterments
is capitalized. Gains or losses on the disposition of assets are included in
income. Amortization of assets held under capital leases is included in
depreciation expense.

DEFERRED FINANCING COSTS

Financing costs incurred to obtain new financing are deferred and amortized
over the term of the related loan. At June 30, 1999 and 2000, such costs were
$363,860 and $300,580, respectively, which were net of accumulated amortization
of $286,440 and $332,220, respectively.

REVENUE RECOGNITION

Sales of bulk wine, juice and brandy are recognized at the time the product
specifications of the purchase contract are met and the product has been
accepted by the buyer, title has passed to the buyer, and there is no right of
return in the contract. In certain cases the contract requirements specify that
the Company store such product after it has been sold and require the buyer to
pay a storage fee. Sales of wine grapes and cased goods are recognized at the
time of delivery to the customer. Wine processing and storage fees are
recognized as those services are provided. Revenues relating to product stored
by the Company after it has been sold totalled approximately $18,800,000,
$24,000,000 and $26,795,000 in the years ended June 30, 1998, 1999 and 2000,
respectively. At June 30, 1999 accounts receivable includes

34
<PAGE>
GOLDEN STATE VINTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
approximately $4,900,000 (none at June 30, 2000), pertaining to product sales in
which the products were stored by the Company at such dates.

MAJOR CUSTOMERS

Wine grape sales to Gallo accounted for approximately 17%, 9% and 4% of
total revenues in the years ended June 30, 1998, 1999 and 2000, respectively.

The Company's brandy sales are primarily to one customer. Such sales,
together with bulk wine and case goods sales to such customer, accounted for
approximately 13%, 17% and 15% of total revenues in the years ended June 30,
1998, 1999 and 2000, respectively. In addition, a bulk wine customer accounted
for approximately 8%, 12% and 8% of total revenues in the years ended June 30,
1998, 1999 and 2000 respectively.

INCOME TAXES

The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes ("FAS 109"),
and provides deferred income taxes for the differences between the tax bases of
assets and liabilities and their related financial statement amounts using
current income tax rates. Deferred tax assets are reduced by a valuation
allowance if it is more likely than not that some portion or all of the deferred
tax asset will not be realized.

STOCK-BASED COMPENSATION

The Company accounts for stock-based awards using the intrinsic value method
prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB 25"), and recognizes compensation expense for certain
stock-based awards granted to employees as required by APB 25. Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123"), became effective in fiscal year 1997 and requires
disclosure of certain pro forma information as if the Company had adopted the
fair value method of accounting for stock-based compensation prescribed by FAS
123 (see Note 7).

EARNINGS (LOSS) PER COMMON SHARE

Basic earnings per share is computed by dividing earnings available to
common stockholders by the weighted average number of common shares outstanding
during the period. Diluted earnings per share is computed by dividing earnings
available to common stockholders adjusted for the effects of preferred stock
dividends, interest on convertible debt, and other changes in income or loss
resulting from the presumed conversion of potential common shares, if any, by
the weighted average common shares outstanding during the period plus potential
common shares outstanding. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the Company.

35
<PAGE>
GOLDEN STATE VINTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Basic and fully diluted earnings per share ("EPS") are determined as
follows:

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------
1998 1999 2000
----------- ----------- -----------
<S> <C> <C> <C>
BASIC EPS COMPUTATION
Numerator:
Net income........................................... $ 4,183,623 $ 8,261,088 $ 2,723,015
Less: Redeemable preferred stock dividends........... (1,271,242) (400,000) --
Accretion on preferred stock.................... -- (1,927,648) --
----------- ----------- -----------
Income available to common stockholders.............. $ 2,912,381 $ 5,933,440 $ 2,723,015
=========== =========== ===========
Denominator:
Weighted average common shares....................... 6,917,904 9,348,628 9,498,261
=========== =========== ===========
Basic EPS.............................................. $ .42 $ .63 $ .29
=========== =========== ===========
DILUTED EPS COMPUTATION
Numerator:
Income available to common stockholders.............. $ 2,912,381 $ 5,933,440 $ 2,723,015
Add: Junior Preferred Stock dividends................ 71,242 -- --
----------- ----------- -----------
Income available to common stockholders and assumed
conversions........................................ $ 2,983,623 $ 5,933,440 $ 2,723,015
=========== =========== ===========
Denominator:
Weighted average common shares outstanding........... 6,917,904 9,348,628 9,498,261
Junior Preferred Stock............................... 130,343 -- --
Stock options........................................ 277,077 272,516 79,856
----------- ----------- -----------
Adjusted weighted average common shares.............. 7,325,324 9,621,144 9,578,117
=========== =========== ===========
Diluted EPS............................................ $ .41 $ .62 $ .28
=========== =========== ===========
</TABLE>

Options to purchase approximately 866,000 and 1,004,000 shares of common
stock at various prices per share were outstanding at June 30, 1999 and 2000,
respectively, but were not included in diluted EPS computations because the
exercise prices were greater than the estimated fair values of the common shares
for the periods then ended.

NEW ACCOUNTING PRONOUNCEMENTS

In June 1997, the Financial Accounting Standards Board (the "FASB") adopted
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income," which requires that an enterprise report, by major
components and as a single total, the change in its net assets during the period
from nonowner sources. The Company does not have any items of other
comprehensive income and therefore comprehensive income equals net income.

In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 133 defines
derivatives, requires that derivatives be carried at fair value and provides
hedge accounting when certain conditions are met. In June 2000, the FASB issued
SFAS No. 138, which amends

36
<PAGE>
GOLDEN STATE VINTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
certain provisions of SFAS 133 to address several issues causing implementation
difficulties for entities in the application of SFAS No. 133. The Company will
adopt SFAS 133 and the corresponding amendments under SFAS 138 on July 1, 2000.
Adoption of this standard is not expected to have a material impact on the
Company's consolidated financial position, results of operations or cash flows.

In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin 101 (SAB) 101), "Revenue Recognition in Financial
Statements," which clarifies the SEC's view in applying generally accepted
accounting principles to revenue recognition in financial statements. Management
believes that SAB 101, which will be adopted effective July 1, 2000, will have
no material impact on the Company's consolidated financial position, results of
operations or cash flows.

RECLASSIFICATIONS

Certain reclassifications have been made to the 1999 amounts in order for
them to conform to the 2000 presentation.

3. INVENTORIES

Inventories consist of the following:

<TABLE>
<CAPTION>
JUNE 30,
-------------------------
1999 2000
----------- -----------
<S> <C> <C>
Bulk wine.......................................... $14,249,675 $ 9,379,513
Cased and bottled wine............................. 3,584,337 2,510,044
Brandy............................................. 916,606 1,275,576
Juice, supplies and other.......................... 1,213,724 1,354,764
Unharvested crop costs............................. 7,207,650 7,549,881
----------- -----------
Total............................................ $27,171,992 $22,069,778
=========== ===========
</TABLE>

4. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:

<TABLE>
<CAPTION>
JUNE 30,
--------------------------
1999 2000
----------- ------------
<S> <C> <C>
Land and improvements............................. $13,339,381 $ 13,689,655
Vineyards......................................... 27,232,624 26,353,287
Buildings......................................... 11,596,989 12,397,231
Cooperage......................................... 21,304,910 23,129,374
Equipment......................................... 19,023,385 25,896,802
Construction in progress.......................... 7,971,248 4,043,455
----------- ------------
Total........................................... 100,468,537 105,509,804
Less accumulated depreciation and amortization.... 16,434,450 21,821,934
----------- ------------
Property, plant and equipment--net................ $84,034,087 $ 83,687,870
=========== ============
</TABLE>

37
<PAGE>
GOLDEN STATE VINTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
For the years ended June 30, 1999 and 2000, the Company capitalized
approximately $325,000 and $300,000, respectively of interest primarily related
to vineyards under development included in construction in progress. In the
Company's 2000 fiscal year, the Company removed approximately 700 acres of
underperforming vineyards from production (representing approximately eight
percent of the Company's total vineyard assets), resulting in a $1.8 million
charge to wine grape cost of sales.

5. BANK LINE OF CREDIT AND LONG-TERM DEBT

The Company has a revolving bank line of credit, expiring July 2002, which
provides for borrowings of up to $28,000,000 with variable interest based on
interest rate options elected by the Company. Borrowings on the line were
$8,100,000 at June 30, 1999 and none at June 30, 2000. Unused availability under
the line of credit was $28,000,000 at June 30, 2000.

Long-term debt is as follows:

<TABLE>
<CAPTION>
JUNE 30,
-------------------------
1999 2000
----------- -----------
<S> <C> <C>
Insurance company Senior Secured First Mortgage Notes,
principal and interest at 8.99% payable $370,000 monthly,
balance of $18,845,000 due April 1, 2005.................. $30,308,342 $28,720,320
Insurance company note payable, interest at 11.6% payable
annually, annual principal payments of $200,000, balance
of $1,724,000 due on October 1, 2002...................... 2,324,156 2,124,156
Bank term loan, interest payable monthly at 8.19%, principal
repaid in May 2000........................................ 1,910,749 --
Unsecured loan due to related party, non-interest bearing,
discounted (at 10%) to present value, payable based on
excess cash flows (as defined)............................ 732,490 796,738
Capital lease obligations and other loans, interest
principally at 6.6% (See Note 9).......................... 8,873,478 7,717,238
----------- -----------
Total..................................................... 44,149,215 39,358,452
Less current portion........................................ (4,898,757) (3,256,001)
----------- -----------
Long-term portion........................................... $39,250,458 $36,102,451
=========== ===========
</TABLE>

Substantially all of the Company's assets are pledged as collateral for
revolving bank loans and long-term debt. The insurance company loan agreement,
as amended, and bank credit agreements include various financial covenants
which, among other things, require that the Company maintain certain specified
financial ratios and restrict the amount of capital expenditures, additional
indebtedness and certain investments. Further, dividends may not be declared and
paid without prior approval. Management believes the Company was in compliance
with the covenants of its bank credit agreements as of June 30, 2000.

During 1998, the Company entered into a master leasing agreement with a bank
to finance up to $11 million of cooperage and processing equipment. The lease is
collateralized by the property and requires

38
<PAGE>
GOLDEN STATE VINTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. BANK LINE OF CREDIT AND LONG-TERM DEBT (CONTINUED)
monthly principal and interest payments. As of June 30, 2000, the cumulative
amount of property financed and capitalized totaled approximately $9,495,000.

Under the terms of the insurance company Securities Purchase Agreement (the
"Agreement") dated April 21, 1995, the Company may, at its option, prepay the
outstanding Senior Secured First Mortgage Notes (the "Notes") in whole or in
part, after April 1, 1998 at a price equal to the principal amount of the Notes
plus accrued interest, plus a premium as defined in the agreement. Prepayment of
all outstanding Notes and accrued interest thereon is required on the occurrence
of certain events, as defined in the Agreement.

Scheduled annual maturities of long-term debt, including capital leases, as
of June 30, 2000 are as follows:

<TABLE>
<S> <C>
2001................................................... $ 3,256,001
2002................................................... 3,473,201
2003................................................... 5,279,620
2004................................................... 3,855,018
2005................................................... 21,047,310
Thereafter............................................. 2,447,302
-----------
Total.............................................. $39,358,452
===========
</TABLE>

6. INCOME TAXES

The components of income tax expense are as follows:

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------
1998 1999 2000
---------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal................................ $ 96,358 $ 871,717 $ 961,995
State.................................. 204,394 443,064 148,776
---------- ---------- ----------
300,752 1,314,781 1,110,771
Deferred:
Federal................................ 2,662,412 2,766,674 505,169
State.................................. 60,828 617,508 (85,832)
---------- ---------- ----------
2,723,240 3,384,182 419,337
Change in valuation allowance............ (571,992) (1,250,963) 892
---------- ---------- ----------
$2,452,000 $3,448,000 $1,531,000
========== ========== ==========
</TABLE>

The Company recognized certain tax benefits related to stock option
exercises in the amount of $788,532 and $55,227, for the year ended June 30,
1998 and 1999 respectively. There were no stock option exercises in the year
ended June 30, 2000. These benefits were both recorded as a decrease to income
taxes payable and an increase in paid-in-capital.

39
<PAGE>
GOLDEN STATE VINTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. INCOME TAXES (CONTINUED)
The Company's income tax provision differs from the amount determined by
applying the statutory federal income tax (benefit) rate, due to the following:

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------
1998 1999 2000
--------- --------- ---------
<S> <C> <C> <C>
Federal statutory tax rate.................. 35.00 % 35.00 % 35.00 %
Permanent items............................. .59 .30 .80
State income taxes, net of federal.......... 2.64 5.98 .98
Change in valuation allowance............... (8.62) (10.68) .02
Change in credit carryforwards.............. 3.52 -- --
Other....................................... 3.82 (1.15) (.80)
------ ------ ------
36.95 % 29.45 % 36.00 %
====== ====== ======
</TABLE>

Deferred income tax assets and liabilities consist of the following:

<TABLE>
<CAPTION>
JUNE 30,
---------------------------
1999 2000
------------ ------------
<S> <C> <C>
Current assets (liabilities):
Inventory costing......................................... $ (302,169) $ (833,168)
State franchise taxes..................................... 132,153 35,994
Capitalized interest...................................... 226,635 207,774
Reserves.................................................. -- 263,771
Allowance for doubtful accounts........................... 544,760 409,821
Property taxes............................................ (290,935) (370,377)
Benefits.................................................. 63,082 117,232
Other..................................................... 14,625 74,246
------------ ------------
Total................................................... $ 388,151 $ (94,707)
============ ============
Long-term assets (liabilities):
Purchase accounting....................................... $ (4,553,520) $ (4,259,366)
Accelerated depreciation.................................. (8,807,610) (9,832,651)
Operating loss carryforwards.............................. 1,035,209 439,480
Tax credit carryforwards.................................. 871,343 2,387,639
Other..................................................... 382,285 257,018
Valuation allowance....................................... (349,908) (350,800)
------------ ------------
Total................................................... $(11,422,201) $(11,358,680)
============ ============
</TABLE>

40
<PAGE>
GOLDEN STATE VINTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. INCOME TAXES (CONTINUED)

The Company has federal and state alternative minimum tax ("AMT") credit
carryforwards of approximately $1,962,000 and $236,000, respectively, that may
be used for an indefinite period. In addition, the Company has a state
manufacturers tax credit of approximately $190,000 which expires in 2010.

As of June 30, 2000, the Company has federal operating loss carryforwards
which expire as follows:

<TABLE>
<S> <C>
2004.................................................... $ 972,000
2005.................................................... 321,000
----------
Total................................................. $1,293,000
==========
</TABLE>

7. SHAREHOLDERS' EQUITY

COMMON STOCK

The Company's authorized capital stock is as follows at June 30, 2000:

<TABLE>
<CAPTION>
AUTHORIZED
PAR VALUE SHARES
--------- ----------
<S> <C> <C>
Class A........................................ $.01 6,000,000
Class B........................................ $.01 54,000,000
</TABLE>

Class A common stock have ten votes for each share and are convertible into
Class B common stock on a share-for-share basis at the option of the stockholder
or upon certain transfers of current stock ownership. Class B common stock have
one vote for each share. Class A and Class B common stockholders share equally
in dividend distributions (if declared by the Board of Directors) and
liquidation rights.

On July 21, 1998, the Company completed an underwritten public offering of
4,300,000 shares of Class B Common Stock, at an offering price of $17.00 per
share (the "Offering"). The proceeds to the Company from the Offering of
$32,377,206, net of public offering costs of $1,614,294, were primarily used to
repay the Company's line of credit, certain bank term loans, officers notes, and
senior redeemable preferred stock, including related dividends. The unamortized
discount of $1,927,648, associated with the redemption of the senior redeemable
preferred stock and the conversion of junior redeemable preferred stock was
reflected as a deduction from net income available to common stockholders in
fiscal 1999.

Changes in the Company's common stock outstanding during the years ended
June 30, 1998 and 1999 (no changes in 2000) are as follows:

<TABLE>
<CAPTION>
CLASS OF COMMON STOCK
----------------------------------------------
A B E K
---------- --------- ---------- --------
<S> <C> <C> <C> <C>
Shares outstanding, June 30,
1997............................ -- 5,561,012 1,200,829 99,860
Issuance of stock (options
exercise)....................... -- 307,600 -- 29,617
---------- --------- ---------- --------
Shares outstanding, June 30,
1998............................ -- 5,868,612 1,200,829 129,477
Issuance of stock (public
offering)....................... 4,342,528 (862,222) (1,200,829) (129,477)
Conversion of Junior Preferred
Stock........................... -- 130,343 -- --
Issuance of stock (options
exercise)....................... -- 19,000 -- --
---------- --------- ---------- --------
Shares outstanding, June 30, 1999
and 2000........................ 4,342,528 5,155,733 -- --
---------- --------- ---------- --------
</TABLE>

41
<PAGE>
GOLDEN STATE VINTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. SHAREHOLDERS' EQUITY (CONTINUED)
INCENTIVE COMPENSATION AND STOCK OPTION PLANS

An incentive stock plan (terminated in 1996) provided for grants of stock
appreciation rights ("SARs") to officers, directors and certain key employees.
The SARs entitled the holder to receive cash payments equal to the excess of the
fair market value of the rights over the base price for such rights, had an
unlimited term and generally became exercisable over a two year period.
Compensation expense accrued pursuant to the Company's incentive stock plan was
$6,300,000 for the year ended June 30, 1998 (none in 1999 and 2000). In 1998,
the President's bonus was restructured resulting in accrued compensation expense
of $2.5 million. Such compensation was paid to key employees in the amount of
$5.4 million in 1998 and $5.4 million in 1999.

The Company's 1996 Stock Option Plan covers 1,393,925 shares of authorized
but unissued Class B Common Stock. The Plan provides for the grant of incentive
and nonstatutory stock options to officers, key employees and others, at prices
not less than fair value. Options granted generally become exercisable 25%
annually and expire after 10 years.

In April 1998, the Company adopted the 1998 Director Stock Option Plan (the
"Plan"), which covers 348,000 shares of authorized but unissued Class B Common
Stock. Under the terms of the Plan, options may be granted to non-employee
members of the Company's Board of Directors at prices not less than fair market
value (as defined), are fully vested after one year and expire ten years after
issuance. The Plan also provides for annual grants of options to purchase 10,005
shares of common stock on May 1 of each year commencing May 1, 1999 to each
non-employee director who has remained in continuous service.

A summary of SAR and stock option activity is as follows:

<TABLE>
<CAPTION>
NUMBER OF WEIGHTED
-------------------- AVERAGE EXERCISE
STOCK PRICE PER RIGHT/
OPTIONS SARS OPTION
--------- -------- ----------------
<S> <C> <C> <C>
Outstanding at June 30, 1997............. 800,933 794,347 $ 3.19
Granted ($3.02 weighted average fair
value per option).................... 907,021 -- $11.99
Exercised.............................. (337,217) -- $ 4.88
Terminated............................. (6,525) (794,347) $ 1.59
--------- --------
Outstanding at June 30, 1998............. 1,364,212 -- $ 9.35
Granted ($4.41 weighted average fair
value per option).................... 6,000 -- $17.00
Exercised.............................. (19,000) -- $ 4.79
Terminated............................. (2,175) -- $ 4.79
--------- --------
Outstanding at June 30, 1999............. 1,349,037 -- $ 9.46
Granted ($2.58 weighted average fair
value per option).................... 377,527 -- $ 3.87
Terminated............................. (55,793) -- $ 9.20
--------- -------- ------
Outstanding at June 30, 2000............. 1,670,771 -- $ 8.21
--------- -------- ------
Exercisable at June 30, 2000............. 1,091,561 -- $10.30
--------- --------
Available for grant at June 30, 2000..... 509,284 --
--------- --------
</TABLE>

42
<PAGE>
GOLDEN STATE VINTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. SHAREHOLDERS' EQUITY (CONTINUED)
The following table summarizes information about stock options outstanding at
June 30, 2000.

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------------------------ ----------------------------
RANGE OF NUMBER WEIGHTED WEIGHTED NUMBER WEIGHTED
EXERCISE OUTSTANDING AVERAGE REMAINING AVERAGE EXERCISABLE AVERAGE
PRICES AT 6/30/00 CONTRACTUAL LIFE EXERCISE PRICE AT 6/30/00 EXERCISE PRICE
--------------------- ----------- ----------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 3.47 to $ 6.03 834,459 7.9 years $ 4.33 261,049 $ 4.66
$12.07 to $12.08 836,312 7.5 $12.07 830,512 $12.07
--------- ---------
$ 3.47 to $12.08 1,670,771 7.7 $ 8.21 1,091,561 $10.30
========= =========
</TABLE>

In 1998, the Board of Directors and the Company's stockholders approved a
recapitalization and stock split, which resulted in each share of the Company's
common stock being split into 2.9 shares of common stock. The recapitalization
and stock split was effected by the filing of the Amended and Restated
Certificate of Incorporation of the Company with the Delaware Secretary of State
on July 20, 1998. The recapitalization was in the form of (i) the creation by
the Company of a new Class A Common Stock and a new Class B Common Stock,
(ii) the conversion of all of the Company's outstanding shares of old Class B
Common Stock on a one-for-one basis into shares of Company's newly-created
Class A Common Stock, (iii) the conversion of all of the Company's outstanding
shares of old Class E Common Stock and old Class K Common Stock on a one-for-one
basis into shares of the Company's newly-created Class B Common Stock, (iv) a
2.9-for-1 stock split for each of the Company's outstanding shares of a
newly-created Class A Common Stock and newly-created Class B Common Stock, and
(v) the conversion of all of the Company's outstanding shares of Junior
Preferred Stock into 130,343 shares of the Company's newly-created Class B
Common Stock. All common stock related data in the accompanying financial
statements of the Company reflect the stock split for all periods presented.

FAS 123 requires the disclosure of pro forma net income amounts had the
Company adopted the fair value method for valuation of stock based compensation
prescribed by that statement. Under FAS 123, the fair value of stock-based
awards to employees is calculated using option pricing models, even though such
models were developed to estimate the fair value of freely tradable, fully
transferable options without vesting restrictions, which significantly differ
from the Company's stock option awards. These models require certain subjective
assumptions which greatly affect the calculated values. The Company's
calculations were made using the Black-Scholes option pricing model with the
following weighted average assumptions: expected life, 5.0 years as of June 30,
1998, 1999 and 2000, respectively; risk free interest rates, 6.0% as of
June 30, 1998 and 1999, respectively, and 6.2% as of June 30, 2000; no expected
volatility in the year ended June 30, 1998, 79% expected volatility for the year
ended June 30, 1999, and 77% expected volativity for the year ended June 30,
2000 and no dividends during the expected term. The Company's calculations are
based on a multiple option valuation approach and forfeitures are recognized as
they occur. Proforma net income for the years ended June 30, 1998, 1999 and 2000
would have been $217,166, $404,837 and $543,029 respectively less than net
income as reported if the computed fair values of the stock option awards had
been amortized to expense over the vesting period of the awards. Proforma
earnings per share for the year ended June 30, 1998, 1999 and 2000 would have
been as follows: basic--$0.39, $0.59 and $0.23 and diluted--$0.38, $0.57 and
$0.23 respectively.

8. RETIREMENT PLANS

The Company's 401(k) plan, established in 1996, provides retirement benefits
to full-time employees that meet certain eligibility requirements. Under the
401(k) plan, employees may elect to have up to 15% of their annual eligible
compensation, subject to certain limitations, deferred and deposited with a

43
<PAGE>
GOLDEN STATE VINTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. RETIREMENT PLANS (CONTINUED)
qualified trustee. The Company may elect to make an annual discretionary
contribution to the Plan of up to 25% of each participant's eligible
compensation, subject to certain limitations. Participants' voluntary
contributions and Company contributions to the Plan vest immediately. The
Company also contributes to a winery workers' retirement plan which provides
retirement benefits for union employees. In the event of withdrawal or plan
termination the Company could be liable for its proportionate share of a plan's
unfunded vested benefits. The information required to determine the amount of
this contingent obligation is not readily available. Retirement plan costs
charged to operations were $78,323, $101,220 and $104,448 for the years ended
June 30, 1998, 1999, and 2000, respectively.

9. LEASES

The Company leases cooperage and equipment under both capital and operating
lease arrangements. Future minimum payments by fiscal year and in aggregate
under such capital leases and noncancellable operating leases with terms of one
year or more consist of the following at June 30, 2000:

<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
----------- ----------
<S> <C> <C>
2001................................................ $ 1,623,528 $ 627,369
2002................................................ 1,579,814 584,939
2003................................................ 1,579,814 225,808
2004................................................ 1,579,814 41,265
2005................................................ 1,360,030 --
Thereafter.......................................... 1,714,252 --
----------- ----------
Total minimum lease payments........................ 9,437,252 $1,479,381
==========
Amount representing interest........................ 1,720,014
-----------
Net present value of minimum lease payments......... 7,717,238
Less current maturities............................. (1,125,392)
-----------
$ 6,591,846
===========
</TABLE>

The following is a summary of cost and accumulated amortization on
capitalized cooperage and equipment leases:

<TABLE>
<CAPTION>
JUNE 30,
------------------------
1999 2000
---------- -----------
<S> <C> <C>
Cooperage........................................... $6,941,040 $ 7,586,711
Equipment........................................... 2,947,970 2,768,060
Less accumulated amortization....................... (834,567) (1,303,406)
---------- -----------
$9,054,443 $ 9,051,365
========== ===========
</TABLE>

Rent expense totaled $650,190, $903,874 and $890,310 for the years ended
June 30, 1998, 1999 and 2000, respectively.

10. BUSINESS SEGMENT INFORMATION

Effective July 1, 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This statement required that a public
business enterprise report financial and descriptive information about its

44
<PAGE>
GOLDEN STATE VINTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. BUSINESS SEGMENT INFORMATION (CONTINUED)
reportable operating segments. Adoption of this statement had no impact on the
Company's consolidated financial position, results of operations or cash flows.

The Company's chief decision maker evaluates performance based on gross
profit of the following four segments: bulk wine, wine grapes, case goods and
brandy. The bulk wine segment includes the production and sale of bulk wine, the
provision of custom crushing services, the storage of bulk wine in tanks and
barrels and the delivery of bulk wine barreling services, such as racking and
topping. The Company's wine grapes segment consists of the farming and
harvesting of Company owned vineyards and subsequent sales or internal use of
produced grapes as well as grapes purchased by the Company for resale. The case
goods segment includes the production of proprietary and private label bottled
wine and wine-related beverages and the provision of custom bottling and storage
services. The Company's brandy segment includes the production of brandy and
spirits and the provision of brandy barrel storage and related barreling
services. The Company also analyzes information on capital expenditures,
depreciation and amortization and assets utilized by each of the four segments.

Segment information as of June 30, 1999 and 2000 and for the years ended
June 30, 1998, 1999 and 2000 is as follows:

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------
1998 1999 2000
----------- ------------ ------------
<S> <C> <C> <C>
Revenues, net:
Bulk wine................................................. $58,928,186 $ 65,116,190 $ 55,832,192
Wine grapes............................................... 22,817,043 13,260,863 10,616,502
Case goods................................................ 19,941,205 15,794,918 15,910,972
Brandy.................................................... 10,307,735 13,583,441 14,552,343
----------- ------------ ------------
Total revenues, net..................................... 111,994,169 107,755,412 96,912,009
Cost of Sales:
Bulk wine................................................. 49,357,853 51,872,756 44,468,581
Wine grapes............................................... 11,199,483 9,238,208 10,704,360
Case goods................................................ 14,783,877 12,433,359 14,572,716
Brandy.................................................... 8,343,062 9,838,537 11,099,376
----------- ------------ ------------
Total cost of sales..................................... 83,684,275 83,382,860 80,845,033
Gross Profit:
Bulk wine................................................. 9,570,333 13,243,434 11,363,611
Wine grapes............................................... 11,617,560 4,022,655 (87,858)
Case goods................................................ 5,157,328 3,361,559 1,338,256
Brandy.................................................... 1,964,673 3,744,904 3,452,967
----------- ------------ ------------
Total gross profit...................................... $28,309,894 $ 24,372,552 $ 16,066,976
=========== ============ ============
Capital Expenditures:
Bulk wine................................................. $ 8,473,995 $ 7,381,021 $ 4,359,304
Wine grapes............................................... 1,638,440 1,620,255 413,380
Case goods................................................ 86,814 742,397 2,019,138
Brandy.................................................... 272,704 808,403 721,432
Corporate................................................. 789,365 987,015 101,171
----------- ------------ ------------
Total................................................... $11,261,318 $ 11,539,061 $ 7,614,425
=========== ============ ============
Depreciation and amortization:
Bulk wine................................................. $ 2,006,217 $ 3,008,156 $ 4,471,833
Wine grapes............................................... 1,223,898 680,068 550,883
Case goods................................................ 98,945 113,881 233,035
</TABLE>

45
<PAGE>
GOLDEN STATE VINTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. BUSINESS SEGMENT INFORMATION (CONTINUED)

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------
1998 1999 2000
----------- ------------ ------------
<S> <C> <C> <C>
Brandy.................................................... 427,358 486,561 614,696
Corporate................................................. 388,396 164,837 340,669
----------- ------------ ------------
Total................................................... $ 4,144,814 $ 4,453,503 $ 6,211,116
=========== ============ ============
</TABLE>

<TABLE>
<CAPTION>
JUNE 30
---------------------------
1999 2000
------------ ------------
<S> <C> <C>
Total Assets:
Bulk wine................................................. $ 61,737,483 $ 58,459,525
Wine grapes............................................... 39,641,163 35,948,798
Case goods................................................ 9,840,071 9,950,461
Brandy.................................................... 7,763,168 8,554,474
Corporate................................................. 9,537,927 3,829,547
------------ ------------
Total................................................... $128,519,812 $116,742,805
============ ============
</TABLE>

11. COMMITMENTS AND CONTINGENCIES

GRAPE PURCHASE COMMITMENTS

The Company enters into grape purchase and bulk wine sales contracts in the
normal course of business. Contracted prices to be paid for grapes are fixed or
fluctuate with prevailing market prices at the time of purchase based on
contract terms. Bulk wine sales contracts are generally at fixed prices.

EQUIPMENT AND COOPERAGE PURCHASE COMMITMENTS

As of June 30, 2000, the Company had entered into contracts aggregating
approximately $1,276,000 for the purchase of processing equipment and cooperage.

12. RELATED PARTY TRANSACTIONS

The Company has $423,392 of accrued interest payable to officers as of
June 30, 2000.

13. SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental cash flow information is as follows:

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------
1998 1999 2000
---------- ---------- ----------
<S> <C> <C> <C>
Interest paid.............................................. $6,271,616 $5,138,846 $4,143,279
Income taxes paid.......................................... 4,728,372 3,700,000 1,400,000
Property acquired under capital lease...................... 5,724,006 3,410,877 --
Tax benefit of stock option exercises...................... 788,532 55,227 --
Conversion of junior preferred stock to common stock....... -- 733,831 --
</TABLE>

46
<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.

<TABLE>
<S> <C> <C>
GOLDEN STATE VINTNERS, INC.

By: /s/ BRIAN R. THOMPSON
-----------------------------------------
Brian R. Thompson
CHIEF FINANCIAL OFFICER
September 28, 2000
</TABLE>

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Jeffrey B. O'Neill, Mark A. Larson, Brian R.
Thompson and Jeffrey J. Brown, and each of them his true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments to this Report on Form 10-K, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.

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 dates indicated.

<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ JEFFREY B. O'NEILL Chief Executive Officer and
------------------------------------------- Director (Principal September 28, 2000
Jeffrey B. O'Neill Executive Officer)

/s/ MARK A. LARSON
------------------------------------------- Chief Operating Officer and September 28, 2000
Mark A. Larson President

Chief Financial Officer and
/s/ BRIAN R. THOMPSON Secretary (Principal
------------------------------------------- Financial Officer and September 28, 2000
Brian R. Thompson Accounting Officer)

/s/ JEFFREY J. BROWN Chairman of the Board,
------------------------------------------- Assistant Secretary and September 28, 2000
Jeffrey J. Brown Director
</TABLE>

47
<PAGE>

<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ NICHOLAS B. BINKLEY
------------------------------------------- Director September 28, 2000
Nicholas B. Binkley

/s/ DOUGLAS R. WOLTER
------------------------------------------- Director September 28, 2000
Douglas R. Wolter

/s/ KEITH R. FOX
------------------------------------------- Director September 28, 2000
Keith R. Fox

/s/ W. SCOTT HEDRICK
------------------------------------------- Director September 28, 2000
W. Scott Hedrick

/s/ PETER W. MULLIN
------------------------------------------- Director September 28, 2000
Peter W. Mullin

/s/ GREG J. FORREST
------------------------------------------- Director September 28, 2000
Greg J. Forrest
</TABLE>

48
<PAGE>
INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTARY FINANCIAL SCHEDULE

To the Stockholders and Board of Directors
of Golden State Vintners, Inc.

We have audited the consolidated financial statements of Golden State Vintners,
Inc. and subsidiaries (the "Company") as of June 30, 1999 and 2000, and for each
of the three years in the period ended June 30, 2000, and have issued our report
thereon dated August 15, 2000. Such consolidated financial statements and report
will be included in the 2000 Annual Report to Stockholders and are incorporated
herein by reference. Our audits also included the supplementary financial
schedule listed in Item 14(a)(2). This consolidated supplementary financial
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audits. In our opinion, such consolidated
supplementary financial schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.

DELOITTE & TOUCHE LLP

Fresno, California
August 15, 2000

49
<PAGE>
ITEM 14(a)(2)

GOLDEN STATE VINTNERS, INC.

SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND END OF
YEAR EXPENSES DEDUCTIONS YEAR
------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>

Year ended June 30, 1998:
Allowance for uncollectible accounts............ $ 100 $ 90 $ (14) $ 176

Year ended June 30, 1999:
Allowance for uncollectible accounts............ 176 1,100 (4) 1,272

Year ended June 30, 2000:
Allowance for uncollectible accounts............ 1,272 (200) (115) 957
</TABLE>