10-K/A 1 a2077045z10-ka.htm 10-K/A
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A
(Amendment No. 1)

(Mark One)

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

For the fiscal year ended June 30, 2001
OR

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

For the transition period from to

Commission file number 1-14305

GOLDEN STATE VINTNERS, INC.

(Exact name of registrant as specified in its charter)

Delaware		77-0412761
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

607 Airpark Road, Napa, California 94558

(Address of Principal Executive Offices)

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, 2001, based on the closing sales price of the Class B Common Stock as reported by Nasdaq on such date was $27,719,005. 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, 2001 was 4,342,528 and 5,170,459 shares, respectively.

EXPLANATORY NOTE:

The Registrant hereby files this report on Form 10-K/A to amend its Annual Report on Form 10-K for the year ended June 30, 2001, solely to (i) revise Items 6, 7 and 8 to reflect the classification of certain items, previously reported as other income and expense, as components of operating income in the Consolidated Statements of Income, (ii) revise Item 7 to include selected quarterly financial data for each of the quarters in the fiscal years ended June 30, 2001 and 2000, and (iii) to correct the Registrant's Commission file number on the cover page. No other items or exhibits in the Registrant's Annual Report on Form 10-K for the year ended June 30, 2001 are amended.

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.

		Year Ended June 30,
		1997			1998			1999			2000		2001
		(in thousands, except per share data)
Statement of operations data:
Revenues		$	95,785		$	111,981		$	107,755		$	96,912	$	97,935
Cost of sales			71,996			83,691			83,398			81,075		77,489
Gross profit			23,789			28,290			24,357			15,837		20,446
Selling, general, and administrative expenses (1)			7,396			14,675			8,126			7,756		10,826
Income from operations			16,393			13,615			16,231			8,081		9,620
Interest expense			5,880			6,867			4,522			3,827		2,955
Minority interest			355			112			—			—		—
Income before income taxes			10,158			6,636			11,709			4,254		6,665
Net income			6,170			4,184			8,261			2,723		4,379
Redeemable preferred stock dividends			(1,314	)		(1,272	)		(400	)		—		—
Accretion on preferred stock			—			—			(1,928	)		—		—
Redemption of Junior Preferred Stock			(405	)		—			—			—		—

Income available to common stockholders			4,451			2,912			5,933			2,723		4,379

Earnings per common share (2):
	Basic	$	.65		$	.42		$	.63		$	.29	$	.46

	Diluted	$	.65		$	.41		$	.62		$	.28	$	.45

Weighted average shares outstanding (2):
	Basic		6,860			6,918			9,349			9,498		9,507

	Diluted		6,860			7,325			9,621			9,578		9,838

	June 30,
	1997		1998		1999		2000		2001
Balance sheet data:
Working capital	$	9,386	$	8,846	$	22,025	$	23,649	$	20,895
Total assets		102,111		124,519		128,520		116,743		131,181
Total long-term debt		49,781		51,918		39,250		36,102		39,792
Redeemable preferred stock		8,813		8,951		—		—		—
Stockholders' equity		12,574		18,136		57,483		60,206		64,726

(1): Management incentives relating to stock appreciation rights and bonuses increased selling, general and administrative expenses by $2,141 and $8,800 for the years ended June 30, 1997 and 1998, respectively.
(2): See Note 2 of the Notes to Consolidated Financial Statements for an explanation of the basic and diluted earnings per share computations.

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 production and sale of bulk wine, custom crushing services, 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, wine related and malt-based alcoholic beverages and custom bottling and storage services. The Company's brandy business includes the production of brandy and grape spirits and brandy barrel storage and related barreling services. See "Business—Company Operations."

The table below sets forth summary statement of operations data for the three fiscal years ended June 30, 2001:

Summary Statement of Operations Data
(in thousands)

	Year Ended June 30,
	1999		2000		2001
Revenues	$	107,755	$	96,912	$	97,935
Cost of sales		83,398		81,075		77,489

Gross profit		24,357		15,837		20,446
Selling, general and administrative expenses		8,126		7,756		10,826

Income (loss) from operations		16,231		8,081		9,620
Interest expense		4,522		3,827		2,955

Income before income taxes		11,709		4,254		6,665
Income taxes		3,448		1,531		2,286

Net income	$	8,261	$	2,723	$	4,379

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

Percentage of Revenues

	Year Ended June 30,
	1999		2000		2001
Revenues	100.0	%	100.0	%	100.0	%
Cost of sales	77.4		83.7		79.1

Gross profit	22.6		16.3		20.9
Selling, general and administrative expenses	7.5		8.0		11.1

Income from operations	15.1		8.3		9.8
Interest expense	4.2		3.9		3.0

Income before income taxes	10.9		4.4		6.8
Income taxes	3.2		1.6		2.3

Net income	7.7		2.8		4.5

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.

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 2001 and 2000 fiscal year:

Quarterly Revenues, Gross Profit and Net Income (Loss)

	Fiscal 2001 Quarter Ended
	Sept. 30			Dec. 31			Mar. 31			June 30
	(in thousands, except per share data)
Revenues	$	18,868		$	44,950		$	20,859		$	13,258
Percent of revenues for the year ended June 30, 2001		19.3	%		45.9	%		21.3	%		13.5	%
Gross profit	$	3,727		$	10,945		$	3,766		$	2,008
Percent of gross profit for the year ended June 30, 2001		18.2	%		53.6	%		18.4	%		9.8	%
Net income (loss)	$	543		$	4,858		$	(22	)	$	(1,000	)
Percent of net income (loss) for the year ended June 30, 2001		12.4	%		111.0	%		(.5	)%		(22.9	)%
Diluted earnings (loss) per common share	$	0.06		$	0.49		$	0.00		$	(0.10	)

	Fiscal 2000 Quarter Ended
	Sept. 30			Dec. 31			Mar. 31			June 30
	(in thousands, except per share data)
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	$	3,004			10,552			384			1,857
Percent of gross profit for the year ended June 30, 2000		19.0	%		66.8	%		2.4	%		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	%		176.9	%		(49.6	)%		(39.5	)%
Diluted earnings (loss) per common share	$	0.03		$	0.51		$	(0.14	)	$	(0.12	)

Results of Operations

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

Revenues by Source
(in thousands)

			Year Ended June 30,
			1999		2000		2001
Revenues:
	Bulk wine and related services		$	65,116	$	55,832	$	57,384
	Grape sales			13,261		10,617		6,810
	Case goods and related services			15,795		15,911		20,258
	Brandy			13,583		14,552		13,483

		Total revenues	$	107,755	$	96,912	$	97,935

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

			Year Ended June 30,
			1999		2000		2001
Revenues:
	Bulk wine and related services		60.4	%	57.6	%	58.6	%
	Grape sales		12.3		11.0		6.9
	Case goods and related services		14.7		16.4		20.7
	Brandy		12.6		15.0		13.8

		Total revenues	100.0	%	100.0	%	100.0	%

Fiscal Years Ended June 30, 2001 and 2000

Revenues

Total revenues for fiscal 2001 were $97.9 million, an increase of $1.0 million or 1.0%, as compared to revenues of $96.9 million in fiscal 2000. The overall slight increase in revenues was primarily due to increased revenues in the bulk wine and case goods segments largely offset by decreased wine grape sales resulting from the planned reduction in sales of Company grown grapes and from decreased volume of "resold grapes," both at lower prices as compared to the prior year.

Bulk Wine and Related Services. For fiscal 2001, revenues from bulk wine and related services were $57.4 million, an increase of $1.6 million or 2.9%, as compared to $55.8 million during fiscal 2000. Increased custom processing volumes and bulk wine volumes were partially offset by overall lower unit pricing on bulk wine sales during fiscal 2001.

Wine Grapes. In fiscal 2001, revenues from wine grape sales were $6.8 million, a decrease of $3.8 million or 35.8%, as compared to revenues of $10.6 million for fiscal 2000. Wine grape revenues include sales of grapes grown on the Company's vineyards and grapes purchased from outside growers and resold to various third parties or "resold grapes." Revenues from Company grown grapes decreased approximately $0.8 million or 14.8% from approximately $5.4 million for fiscal year 2000 to $4.6 million for fiscal 2001, consistent with the Company's plan to use more Company grown grapes in its operations. The decrease in revenues is primarily due to lower unit prices realized in fiscal 2001. Resold grape revenue decreased to $2.2 million from $5.2 million for fiscal 2001 and 2000, respectively. The decline in resold grape revenue resulted from lower volume and lower unit pricing realized in fiscal 2001.

Case Goods and Related Services. For fiscal 2001, revenues from case goods and related services were $20.3 million, an increase of $4.4 million or 27.7%, as compared to revenues of $15.9 million for the first nine months of fiscal 2000. The period to period increase in case goods and related services revenues was due to an increased volume of international case goods sales.

In the fourth quarter of fiscal 2001, the Company commenced custom bottling services for malt-based alcoholic beverages on its $10 million high-speed bottling line. Revenues related to such production were approximately $.4 million in fiscal 2001. Initial production levels were not at peak capacity. The Company expects production levels and related revenues to increase in fiscal 2002.

Brandy. For fiscal 2001, revenues from the sale of brandy and grape spirits were $13.5 million, a decrease of $1.1 million or 7.5%, as compared to revenues of $14.6 million in fiscal 2000. The decrease in brandy revenues in fiscal 2001 is primarily due to lower unit pricing stemming from the lower cost of brandy grapes used in production in fiscal 2001, partially offset by increased volume in fiscal 2001.

Cost of Sales.

For fiscal 2001, total cost of sales was $77.5 million, a decrease of $3.6 million or 4.4%, from $81.1 million in fiscal 2000. As a percentage of revenues, cost of sales for fiscal 2001 was 79.1%, a decrease from 83.7% in fiscal 2000. The decrease in cost of sales on a percentage of revenue basis was primarily the result of higher margins on bulk wine sales favorably impacted by the LIFO reserve and lower grape costs which were partially offset by lower unit pricing. For fiscal 2001, the Company's benefit to cost of sales from LIFO was approximately $2.7 million, primarily associated with the bulk wine segment. In addition, vineyard removal costs decreased from $1.8 million to $0.3 million from fiscal 2000 to fiscal 2001 respectively. Case goods cost of sales were negatively impacted by additional costs associated with integrating new bottling activity into the Company's historical bottling programs, and by write-offs of certain dry goods and packaged products.

Gross Profit

In fiscal 2001, the Company realized gross profit of $20.4 million, an increase of $4.6 million or 29.1%, as compared to $15.8 million for fiscal 2000. As a percentage of revenues, gross profit for fiscal 2001 was 20.9%, an increase from 16.3% for fiscal 2000. The Company's gross profit and gross margin for fiscal 2001 were the result of items discussed above under "Cost of Sales."

Selling, General and Administrative

For fiscal 2001, selling, general and administrative expenses were $10.8 million, an increase of $3.0 million or 38.5% from $7.8 million for fiscal 2000 primarily due to increased professional services expenses and increased payroll and related expenses consistent with the Company's goal to strengthen and enhance its management team. In addition, the Company recognized a $.9 million charge related to power generating equipment committed to be purchased by the Company but subsequently cancelled. The charge includes preliminary engineering costs incurred and estimated losses on the resale of such equipment.

Interest Expense

For fiscal 2001, interest expense was $3.0 million, a decrease of $0.8 million or 21.1%, as compared to $3.8 million in fiscal 2000. The period to period decline is primarily due to decreased weighted average borrowings on the Company's line of credit and long-term debt and increased capitalized interest relative to increased capital expenditures.

Net Income

For fiscal 2001, net income was $4.4 million, an increase of $1.7 million or 63.0%, as compared to net income of $2.7 million in fiscal 2000. Net income was impacted by factors discussed above.

Earnings Per Share

For fiscal 2001, diluted earnings per share was $0.45 compared to diluted earnings per share of $0.28 for fiscal 2000.

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 was 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 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. Company grown grape tons delivered to customers decreased by approximately 20,000 tons (or $4.4 million in revenues) from approximately 42,000 in fiscal 1999 to 22,000 tons in fiscal 2000 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 vineyards 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 from approximately 2.1 million in 1999.

Cost of Sales

For fiscal 2000, total cost of sales was $81.1 million, a decrease of $2.3 million or 2.8%, from $83.4 million in fiscal 1999. As a percentage of revenues, cost of sales for fiscal 2000 was 83.7%, 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 a new bottling line in St. Helena.

Gross Profit

In fiscal 2000, the Company realized gross profit of $15.8 million, a decrease of $8.6 million or 35.2%, as compared to $24.4 million in fiscal 1999. As a percentage of revenues, gross profit for fiscal 2000 was 16.3%, 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 $7.8 million, a decrease of $.3 million or 3.7%, 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.

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, 2001 was $20.9 million, compared to $23.6 million at June 30, 2000. The decrease in working capital is due to cash expenditures for fixed assets. 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. Borrowings under the line typically peak in November, during the Company's second fiscal quarter. There were no outstanding balances under the revolving line of credit at June 30, 2001 or 2000. Unused availability under the line of credit was $16 million at June 30, 2001.

Net cash provided by operating activities for fiscal 2001 was $15.6 million, compared to net cash provided by operating activities of $19.8 million for fiscal 2000. The decrease in cash provided by operations resulted from increased receivables and lower inventory liquidations as compared to fiscal 2000.

Capital expenditures for fiscal 2001 were $19.3 million, compared to $7.6 million in fiscal 2000. The Company funded these expenditures from cash provided by operations, its working capital line and a capital lease. The Company intends to finance current and future capital expenditures through long-term financing arrangements although operating and working capital line sources are adequate for the Company's current capital expenditure programs.

California is currently experiencing volatility in energy costs and supply. Company operations depend on predictable sources of electricity and natural gas for efficient and cost effective performance. The Company intended to mitigate the effects of possible power outages by purchasing power generating equipment to provide power to essential manufacturing systems, however, due to revised favorable projections of energy supplies, the Company changed its plans regarding such purchases. The Company recognized a charge of approximately $0.9 million (included in selling, general and administrative expenses) related to preliminary engineering costs incurred and estimated losses on the resale of such equipment.

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 as of June 30, 2000 and 2001, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended June 30, 2001. Our audits also included the supplementary financial schedule listed in the Index at Item 14(a)(2). These financial statements and the supplementary financial schedule 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 Golden State Vintners, Inc. and subsidiaries at June 30, 2000 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2001, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such supplementary financial schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

DELOITTE & TOUCHE LLP

Fresno, California
August 14, 2001

GOLDEN STATE VINTNERS, INC.

CONSOLIDATED BALANCE SHEETS

				June 30,
				2000		2001
ASSETS
CURRENT ASSETS:
		Cash and equivalents		$	39,244	$	488,507
		Trade receivables—net			7,441,232		10,042,126
		Inventories			22,069,778		22,926,688
		Refundable income taxes			2,419,881		1,686,619
		Refundable deposits and prepaid expenses			754,579		412,683

			Total current assets		32,724,714		35,556,623
PROPERTY, PLANT AND EQUIPMENT—Net					83,687,870		94,720,354
DEFERRED FINANCING COSTS AND OTHER ASSETS					330,221		903,880

TOTAL ASSETS				$	116,742,805	$	131,180,857

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
	Accounts payable			$	2,963,360	$	5,684,342
	Payable to growers				360,285		194,815
	Payroll and related liabilities				961,179		1,769,924
	Accrued interest				823,116		387,532
	Other accrued liabilities				616,857		914,832
	Deferred income taxes				94,707		1,313,970
	Current portion of long-term debt				3,256,001		4,395,722

		Total current liabilities			9,075,505		14,661,137
LONG-TERM DEBT					36,102,451		39,792,467
DEFERRED COMPENSATION					—		149,255
DEFERRED INCOME TAXES					11,358,680		11,852,463
COMMITMENTS AND CONTINGENCIES (Notes 10 and 12)
STOCKHOLDERS' EQUITY:
	Common stock:
		Class A common stock; 4,342,528 issued and outstanding at June 30, 2000 and 2001, respectively			43,425		43,425
		Class B common stock; 5,155,733 issued and outstanding at June 30, 2000 and 5,192,343 issued at June 30, 2001			51,558		51,924
	Additional paid-in capital				44,836,541		45,058,028
	Retained earnings				15,274,645		19,653,820

	Total common stock, paid-in capital and retained earnings				60,206,169		64,807,197
	Treasury stock (11,884 shares at June 30, 2001)				—		(81,662	)

			Total stockholders' equity		60,206,169		64,725,535

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY				$	116,742,805	$	131,180,857

See notes to consolidated financial statements.

GOLDEN STATE VINTNERS, INC.

CONSOLIDATED STATEMENTS OF INCOME

			Year Ended June 30,
			1999			2000			2001
REVENUES, net:
	Bulk wine		$	65,116,190		$	55,832,192		$	57,383,986
	Wine grapes			13,260,863			10,616,502			6,810,530
	Case goods			15,794,918			15,910,972			20,257,658
	Brandy and spirits			13,583,441			14,552,343			13,483,096

		Total revenues		107,755,412			96,912,009			97,935,270
COST OF SALES				83,397,861			81,075,295			77,489,301

GROSS PROFIT				24,357,551			15,836,714			20,445,969
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES				8,126,627			7,755,578			10,825,432

INCOME FROM OPERATIONS				16,230,924			8,081,136			9,620,537
INTEREST EXPENSE				(4,521,836	)		(3,827,121	)		(2,955,362	)

INCOME BEFORE INCOME TAXES				11,709,088			4,254,015			6,665,175
INCOME TAXES				3,448,000			1,531,000			2,286,000

NET INCOME				8,261,088			2,723,015			4,379,175
REDEEMABLE PREFERRED STOCK DIVIDENDS				(400,000	)		—			—
ACCRETION ON PREFERRED STOCK				(1,927,648	)		—			—

EARNINGS AVAILABLE TO COMMON STOCKHOLDERS			$	5,933,440		$	2,723,015			4,379,175

EARNINGS PER COMMON SHARE:
	BASIC		$	0.63		$	0.29		$	0.46

	DILUTED		$	0.62		$	0.28		$	0.45

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
	BASIC			9,348,628			9,498,261			9,506,583

	DILUTED			9,621,144			9,578,117			9,838,179

See notes to consolidated financial statements.

GOLDEN STATE VINTNERS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

		Common Stock
		Common Stock										Additional Paid-in Capital			Retained Earnings			Treasury Stock
		Class A		Class B		Class E			Class K			Additional Paid-in Capital			Retained Earnings			Treasury Stock			Total
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 exercises		—		—		—			—			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
	Treasury stock purchases		—		—		—			—			—			—			(81,662	)		(81,662	)
	Stock option exercises		—		339		—			—			161,906			—			—			162,245
	Tax benefit of stock option exercises		—		—		—			—			39,692			—			—			39,692
	Employee stock awards		—		27		—			—			19,889			—			—			19,916
	Net income		—		—		—			—			—			4,379,175			—			4,379,175

BALANCE, JUNE 30, 2001		$	43,425	$	51,924	$	—		$	—		$	45,058,028		$	19,653,820		$	(81,662	)	$	64,725,535

See notes to consolidated financial statements.

GOLDEN STATE VINTNERS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

				Year Ended June 30,
				1999			2000			2001
OPERATING ACTIVITIES:
	Net income			$	8,261,088		$	2,723,015		$	4,379,175
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization			4,453,503			6,211,116			7,066,845
		Provision for doubtful accounts			1,100,000			(200,000	)		50,000
		Loss on disposal of assets			61,392			1,836,167			948,842
		Employee stock award			—			—			19,916
		Change in cash surrender value of life insurance policies			—			—			5,509
		Deferred income taxes			3,384,182			419,337			1,713,046
		Change in deferred tax valuation allowance			(1,250,963	)		—			—
		Changes in operating assets and liabilities:
			Trade and other receivables		(3,453,324	)		2,697,731			(2,650,894	)
			Inventories		4,128,111			5,143,100			(471,543	)
			Prepaid expenses and other current assets		(495,439	)		(26,030	)		341,896
			Accounts payable		109,428			(1,065,663	)		2,720,982
			Grower payable		(263,848	)		(299,553	)		(165,470	)
			Accrued interest		(240,845	)		(63,061	)		(435,584	)
			Payroll and related liabilities		(5,717,871	)		326,788			808,745
			Deferred compensation		—			—			149,255
			Other accrued liabilities		(1,212,524	)		425,511			297,975
			Income taxes refundable/payable		581,670			1,711,663			772,954

			Net cash provided by operating activities		9,444,560			19,840,121			15,551,649

INVESTING ACTIVITIES:
	Purchases of property, plant and equipment				(8,128,184	)		(7,614,425	)		(19,281,183	)
	Purchase of life insurance policies				—			—			(650,000	)
	Proceeds from note receivable				—			1,722,322			—
	Refund (payment) of deposits				(2,750	)		(18,890	)		7,551

		Net cash used in investing activities			(8,130,934	)		(5,910,993	)		(19,923,632	)

FINANCING ACTIVITIES:
	Borrowings on line of credit				56,350,000			25,900,000			38,200,000
	Payments on line of credit				(66,450,000	)		(34,000,000	)		(38,200,000	)
	Cash overdraft increase				162,972			(964,467	)		—
	Proceeds from lease financing				—			—			8,000,000
	Payments on long-term debt				(14,581,297	)		(4,855,011	)		(3,259,337	)
	Proceeds from stock option exercises				90,934			—			162,245
	Purchase of treasury stock				—			—			(81,662	)
	Payment of dividends on redeemable preferred stock				(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			(1,323,860	)		(13,919,478	)		4,821,246

INCREASE (DECREASE) IN CASH AND EQUIVALENTS					(10,234	)		9,650			449,263
CASH AND EQUIVALENTS, BEGINNING OF PERIOD					39,828			29,594			39,244

CASH AND EQUIVALENTS, END OF PERIOD				$	29,594		$	39,244		$	488,507

See notes to consolidated financial statements.

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 and its wholly-owned subsidiary, GSV. All significant intercompany transactions and accounts have been eliminated.

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, 2001 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, however, at June 30, 2001, a receivable balance of approximately $1.5 million was due from an international customer. 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, 2000 and 2001 are net of an allowance for doubtful accounts of approximately $957,000 and $502,000, respectively.

Inventories

The Company utilizes the last-in, first-out ("LIFO") method for costing its wine and brandy inventories. Inventories at June 30, 2000 and 2001 would have been higher by $3,905,405 (including

$513,875 for brandy inventories) and $1,248,028 (including $359,714 for brandy inventories), respectively, had the Company used FIFO cost rather than LIFO cost for valuation of its inventories. Such differences at June 30, 2000 and 2001 include a $359,415 and $727,833, respectively, year end adjustment decreasing cost of sales 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:

Land Improvements		30 years
Vineyards		20 years
Buildings		7 to 48 years
Cooperage		10 to 30 years
Equipment		7 to 20 years

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.

Company Owned Life Insurance

The Company has purchased life insurance policies to cover its obligations under deferred compensation plans for officers, key employees and directors. Cash surrender values, included in other assets, of these policies are adjusted for fluctuations in the market value of underlying instruments. The cash surrender value is adjusted each reporting period and any gain or loss is included with other 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, 2000 and 2001, such costs were $300,580 and $237,300, respectively, which were net of accumulated amortization of $332,220 and $395,500, respectively.

Treasury Stock

In November 2000, the board of directors authorized the repurchase of up to 1 million shares of the Company's outstanding Class B common stock. The timing of stock purchases are made at the discretion of management. For fiscal 2001, the Company repurchased 11,884 shares or 1% of the total shares authorized to be purchased. The Company's repurchases of shares are recorded at cost as "Treasury Stock" and result in a reduction of "Stockholders' Equity."

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 $24,000,000, $26,795,000 and $47,909,000 in the years ended June 30, 1999, 2000 and 2001, respectively. At June 30, 1999 and 2001, accounts receivable included approximately $4,900,000 and $1,300,000, respectively (none at June 30, 2000), pertaining to product sales in which the products were stored by the Company at such dates.

Major Customers

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 17%, 15% and 14% of total revenues in the years ended June 30, 1999, 2000 and 2001, respectively. In addition, a bulk wine customer accounted for approximately 12%, 8% and 13% of total revenues in the years ended June 30, 1999, 2000 and 2001, respectively.

Wine grape sales to a single customer accounted for approximately 9%, 4% and 2% of total revenues in the years ended June 30, 1999, 2000 and 2001, 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 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.

Basic and fully diluted earnings per share ("EPS") are determined as follows:

		Year Ended June 30,
		1999			2000		2001
Basic EPS Computation
Numerator:
	Net income	$	8,261,088		$	2,723,015	$	4,379,175
	Less: Redeemable preferred stock dividends		(400,000	)		—		—
	Accretion on preferred stock		(1,927,648	)		—		—

	Income available to common stockholders	$	5,933,440		$	2,723,015	$	4,379,175

Denominator:
	Weighted average common shares		9,348,628			9,498,261		9,506,583

Basic EPS		$	.63		$	.29	$	.46

Diluted EPS Computation
Numerator:
	Income available to common stockholders and assumed conversions	$	5,933,440		$	2,723,015	$	4,379,175

Denominator:
	Weighted average common shares outstanding		9,348,628			9,498,261		9,506,583
	Stock options		272,516			79,856		331,596

	Adjusted weighted average common shares		9,621,144			9,578,117		9,838,179

Diluted EPS		$	.62		$	.28	$	.45

Options to purchase approximately 866,000, 1,004,000 and 758,000 shares of common stock at various prices per share were outstanding at June 30, 1999, 2000 and 2001, 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 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 certain provisions of SFAS 133 to address several issues causing implementation difficulties for entities in the application of SFAS No. 133. The Company had adopted SFAS 133 and the corresponding amendments under SFAS 138 on July 1, 2000. Adoption of this standard did not 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. The Company adopted this standard effective July 1, 2000. Adoption of this standard did not have a material impact on the Company's consolidated financial position, results of operations or cash flows.

In June 2001, the FASB issued three statements: No. 141, Business Combinations, No. 142, Goodwill and Other Intangible Assets, and No. 143, Accounting for Assets Retirement Obligations. SFAS No. 141 requires the purchase method of accounting for business combinations initiated after June 30, 2001. SFAS No. 142 provides that goodwill and certain identifiable intangible assets will not be amortized and requires impairment tests for goodwill and certain identifiable intangible assets. SFAS No. 143 provides that asset retirement obligations be measured at fair value and be discounted. Dismantlement and restoration costs should be recognized as liabilities when incurred. SFAS No. 142 and 143 are effective for the Company July 1, 2001. Management expects that the adoption of SFAS No. 141 and 142 will have no material impact on the Company's consolidated financial position, results of operations or cash flows. Management has not completed the process of evaluating the impact of adopting SFAS No. 143. The Company is therefore unable to disclose the impact that adopting SFAS No. 143 will have on its financial position and results of operations when such statements are adopted.

Revision of Classification of Previously Reported Amounts

The accompanying consolidated statements of income have been revised to reflect the classification of certain items, previously reported as other income and expense, as components of operating income. Such amounts, which were principally losses on disposition of assets, were $956,000, $6,000 and $15,000 for the fiscal years ended June 30, 2001, 2000 and 1999, respectively.

3. INVENTORIES

Inventories consist of the following:

		June 30,
		2000		2001
Bulk wine		$	9,379,513	$	10,876,338
Cased and bottled wine			2,510,044		3,032,063
Brandy			1,275,576		844,286
Juice, supplies and other			1,354,764		979,100
Unharvested crop costs			7,549,881		7,194,901

	Total	$	22,069,778	$	22,926,688

4. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:

		June 30,
		2000		2001
Land and improvements		$	13,689,655	$	14,713,312
Vineyards			26,353,287		26,357,461
Buildings			12,397,231		12,726,460
Cooperage			23,129,374		24,766,768
Equipment			25,896,802		35,723,730
Construction in progress			4,043,455		8,609,770

	Total		105,509,804		122,897,501
Less accumulated depreciation and amortization			21,821,934		28,177,147

Property, plant and equipment—net		$	83,687,870	$	94,720,354

For the years ended June 30, 2000 and 2001, the Company capitalized approximately $300,000 and $512,000, respectively, of interest primarily related to software development, plant equipment and vineyards under development included in construction in progress. In the Company's 2000 and 2001 fiscal years, the Company removed approximately 700 and 150 acres of underperforming vineyards, respectively, from production (representing approximately eight and two percent of the Company's total vineyard assets, respectively), resulting in a $1.8 and $.3 million charge, respectively, 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 $16,000,000 with variable interest based on interest rate options elected by the Company. There were no borrowings on the line at June 30, 2000 and 2001. Unused availability under the line of credit was $16,000,000 at June 30, 2001.

Long-term debt is as follows:

		June 30,
		2000			2001
Insurance company Senior Secured First Mortgage Notes, principal and interest at 8.99% payable $370,000 monthly, balance of $19,843,000 due April 1, 2005		$	28,720,320		$	26,789,711
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			2,124,156			1,924,156
Unsecured loan due to related party, non-interest bearing, discounted (at 10%) to present value, payable based on excess cash flows (as defined)			796,738			860,986
Capital lease obligations and other loans, interest principally at 7.0% (See Note 9)			7,717,238			14,613,336

	Total		39,358,452			44,188,189
Less current portion			(3,256,001	)		(4,395,722	)

Long-term portion		$	36,102,451		$	39,792,467

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 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. The Company was not in compliance with the capital expenditure limitation of its bank credit agreement as of June 30, 2001, but a waiver was subsequently obtained on July 26, 2001.

In June, 2001, the Company entered into a master lease agreement with a bank to finance $8 million of bottling and processing equipment. 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 leases are collateralized by the property and require monthly principal and interest payments. As of June 30, 2001, the cumulative amount of property financed and capitalized totaled approximately $17 million.

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, 2001 are as follows:

2002		$	4,395,722
2003			6,268,734
2004			4,915,529
2005			22,181,319
2006			2,411,768
Thereafter			4,015,117

	Total	$	44,188,189

6. INCOME TAXES

The components of income tax expense are as follows:

		Year Ended June 30,
		1999			2000			2001
Current:
	Federal	$	871,717		$	961,995		$	442,160
	State		443,064			148,776			130,794

			1,314,781			1,110,771			572,954
Deferred:
	Federal		2,766,674			505,169			1,663,748
	State		617,508			(85,832	)		5,615

			3,384,182			419,337			1,669,363
Change in valuation allowance			(1,250,963	)		892			43,683

		$	3,448,000		$	1,531,000		$	2,286,000

The Company recognized certain tax benefits related to stock option exercises in the amount of $55,227 and $39,692, for the year ended June 30, 1999 and 2001, respectively. These benefits were both recorded as a decrease to income taxes payable and an increase in paid-in-capital. There were no stock option exercises in the year ended June 30, 2000.

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

	Year Ended June 30,
	1999		2000		2001
Federal statutory tax rate	35.00	%	35.00	%	35.00	%
Permanent items	.30		.80		(1.72	)
State income taxes, net of federal	5.98		.98		1.35
Change in valuation allowance	(10.68	)	.02		.66
Other	(1.15	)	(.80	)	(.99	)

	29.45	%	36.00	%	34.30	%

Deferred income tax assets and liabilities consist of the following:

			June 30,
			2000			2001
Current assets (liabilities):
	Inventory costing		$	(833,168	)	$	(1,767,346	)
	State franchise taxes			35,994			104,192
	Capitalized interest			207,774			122,094
	Reserves			263,771			343,030
	Allowance for doubtful accounts			409,821			214,884
	Property taxes			(370,377	)		(471,240	)
	Benefits			117,232			97,853
	Other			74,246			42,563

		Total	$	(94,707	)	$	(1,313,970	)

Long-term assets (liabilities):
	Purchase accounting		$	(4,259,366	)	$	(4,009,784	)
	Accelerated depreciation			(9,832,651	)		(10,769,036	)
	Deferred compensation			—			63,941
	State franchise taxes			—			142,911
	Operating loss carryforwards			439,480			—
	Tax credit carryforwards			2,387,639			3,072,163
	Other			257,018			41,825
	Valuation allowance			(350,800	)		(394,483	)

		Total	$	(11,358,680	)	$	(11,852,463	)

The Company has federal and state alternative minimum tax ("AMT") credit carryforwards of approximately $2,202,000 and $355,000, respectively, that may be used for an indefinite period. In addition, the Company has a state manufacturers tax credit of approximately $516,000 which expires as follows:

2008		$	309,000
2009			207,000

	Total	$	516,000

7. SHAREHOLDERS' EQUITY

Common Stock

The Company's authorized capital stock is as follows at June 30, 2001:

		Par Value			Authorized Shares
Class A		$	.01		6,000,000
Class B		$	.01		54,000,000

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 issued during the years ended June 30, 1999 and 2001 (no changes in fiscal 2000) are as follows:

	Class of Common Stock
	A	B		E		K
Shares issued and 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 (option exercise)	—	19,000		—		—

Shares issued and outstanding, June 30, 1999 and 2000	4,342,528	5,155,733		—		—
Issuance of stock (option exercises)	—	33,900		—		—
Issuance of stock (employee stock awards)	—	2,710		—		—

Shares issued, June 30, 2001	4,342,528	5,192,343		—		—

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 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 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. The options for 2001 have not yet been granted.

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

		Number of Stock Options		Weighted Average Exercise Price Per Right/Option
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
	Granted ($3.63 weighted average fair value per option)	111,800		$	5.90
	Exercised	(33,900	)	$	4.79
	Terminated	(177,650	)	$	10.12

Outstanding at June 30, 2001		1,571,021		$	7.90

Exercisable at June 30, 2001		1,285,479		$	8.66

Available for grant at June 30, 2001		459,752			—

The following table summarizes information about stock options outstanding at June 30, 2001.

Options Outstanding					Options Exercisable
Range of Exercise Prices	Number Outstanding at 6/30/01	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price		Number Exercisable at 6/30/01	Weighted Average Exercise Price
$3.47 to $7.63	866,539	7.1 years	$	4.51	582,447	$	4.55
$12.07 to $12.08	704,482	6.5	$	12.07	703,032	$	12.07

$3.47 to $12.08	1,571,021	6.9	$	7.90	1,285,479	$	8.66

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, 1999, 2000 and 2001, respectively; risk free interest rates, 6.0%, 6.2% and 5.5% as of June 30, 1999, 2000 and 2001, respectively; 79%, 77% and 70% expected volatility for the year ended June 30, 1999, 2000 and 2001, respectively 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, 1999, 2000 and 2001 would have been $404,837, $543,029 and $598,906, 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, 1999, 2000 and 2001 would have been as follows: basic—$0.59, $0.23 and $0.39 and diluted—$0.57, $0.23 and $0.38, 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 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 $101,220, $104,448 and $107,503 for the years ended June 30, 1999, 2000 and 2001, respectively.

The Company has a deferred compensation plan for officers, key employees and directors that enables participants to defer portions of their current compensation.

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, 2001:

	Capital Leases			Operating Leases
2002	$	3,034,319		$	391,810
2003		3,034,319			102,609
2004		3,034,319			14,563
2005		2,814,536			3,566
2006		2,721,155			1,783
Thereafter		3,343,995			—

Total minimum lease payments		17,982,643		$	514,331

Amount representing interest		(3,369,307	)

Net present value of minimum lease payments		14,613,336
Less current maturities		(2,084,240	)

	$	12,529,096

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

	June 30,
	2000			2001
Cooperage	$	7,586,711		$	8,453,990
Equipment		2,768,060			9,673,016
Less accumulated amortization		(1,303,406	)		(1,745,332	)

	$	9,051,365		$	16,381,674

Rent expense totaled $903,874, $890,310 and $1,024,198 for the years ended June 30, 1999, 2000 and 2001, respectively.

10. BUSINESS SEGMENT INFORMATION

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 production and sale of bulk wine, custom crushing services, storage of bulk wine in tanks and barrels and delivery of

bulk wine barreling services, such as racking and topping. The Company's wine grapes segment consists of farming and harvesting of Company owned vineyards and subsequent sales or internal use of produced grapes as well as grapes purchased by the Company for resale. The case goods segment includes production of proprietary and private label bottled wine, wine-related and malt-based alcoholic beverages and custom bottling and storage services. The Company's brandy segment includes production of brandy and spirits and brandy barrel storage and related barreling services. The Company also analyzes information on capital expenditures, depreciation and amortization and assets utilized by each of the four segments.

Segment information as of June 30, 2000 and 2001 and for the years ended June 30, 1999, 2000 and 2001 is as follows:

			Year Ended June 30,
			1999		2000			2001
Revenues, net:
	Bulk wine		$	65,116,190	$	55,832,192		$	57,383,986
	Wine grapes			13,260,863		10,616,502			6,810,530
	Case goods			15,794,918		15,910,972			20,257,658
	Brandy			13,583,441		14,552,343			13,483,096

		Total revenues, net		107,755,412		96,912,009			97,935,270
Cost of Sales:
	Bulk wine			51,981,838		44,563,126			40,964,223
	Wine grapes			9,232,514		10,809,404			6,163,036
	Case goods			12,343,359		14,603,389			20,023,816
	Brandy			9,840,150		11,099,376			10,338,226

		Total cost of sales		83,397,861		81,075,295			77,489,301
Gross Profit:
	Bulk wine			13,134,352		11,269,066			16,419,763
	Wine grapes			4,028,349		(192,902	)		647,494
	Case goods			3,451,559		1,307,583			233,842
	Brandy			3,743,291		3,452,967			3,144,870

		Total gross profit	$	24,357,551	$	15,836,714		$	20,445,969

Capital Expenditures:
	Bulk wine		$	7,381,021	$	4,359,304		$	2,432,810
	Wine grapes			1,620,255		413,380			104,188
	Case goods			742,397		2,019,138			10,325,086
	Brandy			808,403		721,432			323,312
	Corporate			987,015		101,171			6,120,612

		Total	$	11,539,061	$	7,614,425		$	19,306,008

Depreciation and amortization:
	Bulk wine		$	3,008,156	$	4,471,833	$	5,242,010
	Wine grapes			680,068		550,883		420,950
	Case goods			113,881		233,035		516,217
	Brandy			486,561		614,696		561,903
	Corporate			164,837		340,669		325,765

		Total	$	4,453,503	$	6,211,116	$	7,066,845

			June 30
			2000		2001
Total Assets:
	Bulk wine		$	58,459,525	$	56,846,347
	Wine grapes			35,948,798		33,484,548
	Case goods			9,950,461		23,520,208
	Brandy			8,554,474		6,773,055
	Corporate			3,829,547		10,556,699

		Total	$	116,742,805	$	131,180,857

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, 2001, the Company had entered into contracts aggregating approximately $1,737,000 for the purchase of processing equipment and cooperage.

12. SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental cash flow information is as follows:

	Year Ended June 30,
	1999		2000			2001
Interest paid	$	5,138,846	$	4,143,279		$	3,558,109
Income taxes paid/(refunded)		733,111		(600,000	)		(200,000	)
Property acquired under capital lease		3,410,877		—			24,825
Tax benefit of stock option exercises		55,227		—			39,692
Conversion of junior preferred stock to common stock		733,831		—			—

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.

		GOLDEN STATE VINTNERS, INC.
		By:	/s/ JOHN G. KELLEHER John G. Kelleher Chief Financial Officer May 2, 2002

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.

Name	Title	Date

* Jeffrey B. O'Neill	Chief Executive Officer and Director (Principal Executive Officer)	May 2, 2002
* Mark A. Larson	Chief Operating Officer and President	May 2, 2002
/s/ JOHN G. KELLEHER John G. Kelleher	Chief Financial Officer and Secretary (Principal Financial Officer and Accounting Officer)	May 2, 2002
* Jeffrey J. Brown	Chairman of the Board, Assistant Secretary and Director	May 2, 2002
* Nicholas B. Binkley	Director	May 2, 2002
* Lawrence R. Buchalter	Director	May 2, 2002
* Jean-Michel Valette	Director	May 2, 2002

* W. Scott Hedrick	Director	May 2, 2002
* Peter W. Mullin	Director	May 2, 2002
* Greg J. Forrest	Director	May 2, 2002

*By:

/s/ JOHN G. KELLEHER

John G. Kelleher
as attorney-in-fact pursuant to
a power of attorney previously
filed with the Registrant's Annual
Report on Form 10-K for the year
ended June 30, 2001

QuickLinks

Item 6. Selected Financial Data.

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

INDEPENDENT AUDITORS' REPORT
GOLDEN STATE VINTNERS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
GOLDEN STATE VINTNERS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
SIGNATURES