<PAGE>

                   UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                                Washington, D.C. 20549

                                      FORM 10-KSB
(Mark One)                                 
[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
     EXCHANGE ACT OF 1934

                    FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998

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

                          COMMISSION FILE NUMBER 000-22857

                               SCHEID VINEYARDS INC.
                   (Name of small business issuer in its charter)

                DELAWARE                                 77-0461833
     (State or other jurisdiction of          (I.R.S. Employer Identification
     incorporation or organization)                        Number)

         13470 WASHINGTON BLVD.
        MARINA DEL REY, CALIFORNIA                         90292
(Address of principal executive offices)                 (Zip Code)

                                    (310) 301-1555
                             (Issuer's telephone number)

Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Class A Common
Stock, $.001 Par Value

Check whether the issuer (1) filed all reports required to be filed by 
Section 13 or 15(d) of the Exchange Act during the past 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
    -----     -----

Check if there is no disclosure of delinquent filers in response to Item 405 
of Regulation S-B is not contained in this form, and no disclosure will be 
contained, to the best of the registrant's knowledge, in definitive proxy or 
information statements incorporated by reference in Part III of this Form 
10-KSB or any amendment to this Form 10-KSB.   [  ]

Issuer's revenues for its most recent fiscal year:      $17,473,000

Aggregate market value of the voting stock held by non-affiliates computed by 
reference to the closing price at which the Class A Common Stock was sold on 
the Nasdaq Stock Market National Market System on March 15, 1999: 
$15,243,000.  The voting stock held by non-affiliates on that date consisted 
of 2,740,250 shares of Class A Common Stock.

Number of shares outstanding of each of the issuer's classes of common stock at
March 15, 1999: 
                 Class A  2,740,250       Class B   3,374,100

Portions of the registrant's Proxy Statement for its May 13, 1999 Annual 
Stockholders Meeting, which has not been filed as of the date of this filing, 
are incorporated by reference into Part III of this Report.

Transitional Small Business Disclosure Format (check one)    Yes        No   X
                                                                 -----     -----

                                      1
<PAGE>

                               FORM 10-KSB INDEX


<TABLE>
<CAPTION>

                                                                         PAGE
                                                                        NUMBER
                                                                        ------
<S>                                                                  <C>
Note Concerning Forward-Looking Statements                                3

                            PART I 

Item 1.   Business.                                                       3

Item 2.   Description of Properties.                                     21

Item 3.   Legal Proceedings.                                             21

Item 4.   Submission of Matters to a Vote of Security Holders.           21


                            PART II

Item 5.   Market for Common Equity and Related Stockholder               22
          Matters.

Item 6.   Management's Discussion and Analysis or Plan of                22
          Operation.

Item 7.   Financial Statements.                                          29

Item 8.   Changes In and Disagreements With Accountants on               30
          Accounting and Financial Disclosures. 


                            PART III

Item 9.   Directors, Executive Officers, Promoters and Control           30
          Persons; Compliance With Section 16(a) of the
          Exchange Act.

Item 10.  Executive Compensation.                                        30

Item 11.  Security Ownership of Certain Beneficial Owners and            30
          Management.

Item 12.  Certain Relationships and Related Transactions.                30

Item 13.  Exhibits and Reports on Form 8-K.                              31

Signatures                                                               35

</TABLE>

                                      2
<PAGE>

                     NOTE CONCERNING FORWARD-LOOKING STATEMENTS

     This Report contains certain forward-looking statements, including the 
plans and objectives of management for the business, operations, and economic 
performance of the Company.  These forward-looking statements generally can 
be identified by the context of the statement or the use of words such as the 
Company or its management "believes," "anticipates," "intends," "expects," 
"plans" or words of similar meaning.  Similarly, statements that describe the 
Company's future operating performance, financial results, plans, objectives, 
strategies, or goals are forward-looking statements.  Although management 
believes that the assumptions underlying the forward-looking statements are 
reasonable, these assumptions and the forward-looking statements are subject 
to various factors, risks and uncertainties, many of which are beyond the 
control of the Company.  Accordingly, actual results could differ materially 
from those contemplated by the forward-looking statements.  In addition to 
the other cautionary statements relating to certain forward-looking 
statements throughout this Report, attention is directed to "Business - 
Cautionary Information Regarding Forward-Looking Statements" below for 
discussion of some of the factors, risks and uncertainties that could affect 
the outcome of future results contemplated by forward-looking statements.

                                       PART 1
ITEM 1.    BUSINESS

OVERVIEW

     Scheid Vineyards Inc., a Delaware corporation ("SVI" or the "Company"), 
is a leading independent (I.E., not winery controlled) producer of premium 
varietal wine grapes. The Company currently operates approximately 6,000 
acres of wine grape vineyards. Of this total, approximately 4,400 acres are 
operated for the Company's own account, and 1,600 acres are operated under 
management contracts for others. All of the properties currently operated by 
the Company are located in Monterey and San Benito Counties in California, 
both of which are generally recognized as excellent regions for growing high 
quality wine grape varieties. 

     The Company currently produces 13 varieties of premium wine grapes, 
primarily Chardonnay, Merlot, Cabernet Sauvignon and Sauvignon Blanc. The 
Company believes that its customers contract with SVI to assure a consistent, 
reliable source of high-quality premium grapes for their wines. The Company's 
two largest winery customers are Canandaigua Brands, Inc. ("Canandaigua") and 
United Distillers and Vintners North America, a subsidiary of Diageo plc 
("UDV"), the second and eighth largest U.S. wineries in terms of 1998 case 
shipments, respectively. These customers' labels include GLEN ELLEN, BEAULIEU 
VINEYARD, BV COASTAL, BLOSSOM HILL, PAUL MASSON, ALMADEN, DEER VALLEY, 
DUNNEWOOD, and MYSTIC CLIFFS. Grape purchase contracts with UDV cover 56% of 
the Company's acreage and accounted for approximately 74% and 81% of the 
Company's 1998 and 1997 total revenues, respectively. 

     The Company also has long-term grape purchase agreements with other 
well-known producers of ultra premium wines, including Beringer Wine Estates, 
Chalone Wine Group, The Hess Collection Winery, David Bruce Winery and 
Gundlach-Bundschu Winery. The terms of the Company's long-term grape purchase 
contracts extend to between 2001 and 2014, and have "evergreen" provisions 
requiring two or three years' prior written notice of termination. These 
contracts generally require the customers to purchase substantially all of 
the Company's production from specified vineyards at a formula price based 
upon the previous harvest year's sales prices in California's leading coastal 
regions, including Napa, Sonoma, Mendocino and Monterey Counties.

                                      3
<PAGE>

     The Company believes that selling its production through long-term 
contracts allows it to attain reliable sources of revenues and profits not 
available through sales on the yearly spot market or short-term contracts 
with wineries. This, in turn, has allowed the Company to implement long-term 
programs for upgrading vineyard productivity, increasing product quality and 
mechanizing its field operations. Because increased yields per acre do not 
significantly increase the Company's costs of operating vineyards, 
productivity improvements contribute substantially to gross profits. The 
Company has increased its yields of higher value and better quality wine 
grapes in recent years through a continuing redevelopment and improvement 
program begun in 1993, and anticipates continued increases in average yields 
until its redeveloped vineyards reach full maturity. Similar productivity 
improvements generally are anticipated in connection with vineyards that may 
be acquired in the future.

     The Company's executive offices are located at 13470 Washington Blvd., 
Marina del Rey, California 90292, telephone number (310) 301-1555, and its 
vineyard headquarters compound is located at 1972 Hobson Avenue, Greenfield, 
California 93927.

     The Company's business is conducted through a wholly owned subsidiary, 
Scheid Vineyards California Inc., a California corporation ("SVI-Cal"). 
References in this Report to "SVI-Del" refer only to Scheid Vineyards Inc., 
the parent holding company.  Unless otherwise required by the context, 
references in this Report to "SVI" and the "Company" include SVI-Del and 
SVI-Cal on a consolidated basis.

RECENT DEVELOPMENTS

     Fiscal 1998 was a difficult farming year for California wine grape 
growers, including SVI.  Unseasonably cool and cloudy weather from late May 
through July caused delayed vine growth and crop development industry-wide.  
These poor growing conditions resulted in reduced crop yields and a decrease 
in tons produced by SVI, from 15,600 tons in the record high crop year of 
1997 to 10,900 tons in 1998, a decrease of 30%.  As a result, total revenues 
decreased from $19,870,000 in 1997 to $17,473,000 in 1998, a decrease of 12%. 
The decrease in yields from 1997 to 1998 was partially offset by the sale in 
1998 of bulk wine and an approximately 12% increase in the average price per 
ton that the Company received for its grapes in 1998 over 1997 prices.  Based 
on the Final Grape Crush Report published by the California Department of 
Food and Agriculture covering the 1998 harvest (from which the Company's 1999 
grape prices are primarily determined), the Company anticipates that wine 
grape prices for the varieties it produces will be flat to moderately 
increased from prices received for the same varieties in 1998. 

     In December 1998, the Company signed a long-term lease for approximately 
740 acres of undeveloped land suitable for wine grape vineyards in 
Greenfield, a few miles from the Company's vineyard headquarters.  The lease 
is for a term of up to 34 years.  The Company is planting the entire acreage 
in 1999, with the first harvest expected in 2001. 

     In June 1998, the Company entered into a long-term grape purchase 
contract with UDV covering approximately 325 acres located on one of the 
Company's vineyards in Hames Valley.  The contract runs until 2014 with an 
"evergreen" renewal provision requiring two years' prior written notice of 
termination.  The Company will begin delivering grapes under the contract on 
approximately one-half of the acres in 1999 and the balance in 2000.

                                      4
<PAGE>

     In addition in 1998, the Company entered into several other long-term 
grape purchase contracts with winery clients, including Beringer Wine 
Estates, Chalone Wine Group and David Bruce Winery covering approximately 200 
acres of vineyards. These contracts, which began in 1998, run through at 
least 2004 and contain "evergreen" provisions which provide for automatic 
extensions beyond the initial terms under certain conditions.    

     In July 1998, the Company entered into a long-term line of credit 
agreement with its principal bank which expires in June 2008 and provides for 
maximum borrowings totaling $3,600,000, which diminish annually through the 
expiration date.  Borrowings on the facility bear interest at the bank's 
"reference" or "cost of funds" rate, and are collateralized by a first deed 
of trust on the Company's 370-acre Riverview Vineyard.  In addition, the 
Company renewed its "crop" line of credit with its bank in June 1998.  The 
current crop loan has maximum credit available of $10,500,000 and expires in 
June 2000.  There are currently no amounts outstanding under either of the 
above credit facilities.

     In October 1998, the Company instituted a new stock repurchase program 
in which the Company may spend up to $2.5 million in open market transactions 
to purchase outstanding shares of its Class A Common Stock at such times, in 
such amounts or blocks and at such prices as deemed appropriate.  This 
repurchase program will expire on September 30, 1999.  Through March 15, 
1999, the Company had repurchased 380,050 shares under this program for 
approximately $1,711,000. In connection with the adoption of the new stock 
repurchase program, the Company terminated a prior stock repurchase program 
that authorized the purchase of up to 200,000 shares of Class A Common Stock. 
 Under the prior repurchase program, the Company repurchased 102,600 shares 
of Class A Common Stock for an aggregate purchase price of $542,000 from July 
to October 1998.  The Company also made other repurchases earlier in 1998 of 
103,000 shares of Class A Common Stock at an aggregate purchase price of 
approximately $708,000.

     In May 1998, a principal stockholder of the Company sold 1,000,000 
shares of Class A Common Stock in an underwritten public offering, which 
shares were converted from an equal number of shares of Class B Common Stock 
in connection with the sale.  The Company received no proceeds from the sale 
of these shares.

COMPANY STRATEGY

     The Company's strategic objective is to become the leading independent 
producer of premium varietal wine grapes in California. The Company believes 
that its success to date has resulted from execution of a coherent strategy 
that includes the following elements: 

     PRODUCE HIGH VALUE PREMIUM WINE GRAPES.  The Company has consistently
     emphasized production of high value wine grapes that its customers can use
     to produce premium varietal wine. These varieties principally include
     Chardonnay, Cabernet Sauvignon and Merlot, in addition to other varieties
     that command premium prices. Throughout its history, SVI has consistently
     provided its customers with wine grapes that meet demanding specifications
     for quality, as measured by sugar content and other objective
     characteristics. The Company maintains an ongoing program of grafting,
     replanting and new vineyard development to conform its product mix to take
     advantage of trends in the wine industry. The Company believes it has
     developed an excellent reputation in the grape producing industry due to
     its emphasis on quality and performance. See "--The Company's Grape
     Production Operations--Grape Production." 

                                      5
<PAGE>

     CONTINUE LONG-TERM RELATIONSHIPS WITH LEADING WINE PRODUCERS.  The Company
     has had grape purchase contracts with UDV and its predecessors since 1972
     and with Canandaigua and its predecessors since 1979. More recently, SVI
     has been contracting for grape sales with additional wineries with
     reputations for producing excellent wines such as Beringer Wine Estates,
     Chalone Wine Group and The Hess Collection Winery. Substantially all of the
     Company's production is contracted at least through the harvest of 2001,
     and the majority is contracted at least through the harvest of 2006 with
     pricing arrangements the Company considers favorable. See "--The Company's
     Grape Production Operations--Grape Sales."  The Company believes that its
     utilization of long-term contracts allows it to build long-term and
     mutually beneficial relationships with its customers and attain reliable
     sources of revenues not readily available to producers relying on the
     yearly spot market or short-term contracts with wineries. 

     MAXIMIZE REVENUES AND PROFITABILITY PER ACRE.  The Company invests in new
     equipment and the development of new and improved viticultural practices in
     order to increase the productivity and efficiency of its vineyards. These
     practices include methods of interplanting grape vines to increase vine
     density, new trellising systems designed to support more grape production
     while maintaining quality, and other state-of-the-art vineyard practices
     that facilitate increased production and mechanization. Because increased
     yields per acre do not significantly increase fixed or variable costs of
     operating vineyards, productivity improvements contribute substantially to
     gross profits. Due to its continuing redevelopment and improvement program
     on approximately 2,500 acres since 1993, the Company believes that much of
     its acreage now produces significantly more higher value and better quality
     grapes. See "--The Company's Grape Production Operations--Viticultural
     Practices".

     ACQUIRE HIGH QUALITY VINEYARD PROPERTIES.  The Company has developed a
     disciplined property acquisition strategy in order to increase its
     productive capacity and leverage its available management and equipment
     resources. Due to the significant capital required to own, improve and
     operate vineyards, SVI believes that there may be significant opportunities
     to purchase or lease undeveloped land suitable for wine grape vineyards and
     acquire existing vineyards. The Company plans to capitalize on the
     experience and reputation of its senior management to pursue this strategy
     in Monterey County and other regions in California.   The Company's
     criteria for land and vineyard acquisitions emphasize value concepts
     intended to maintain long-term rates of return within certain ranges,
     although no assurances can be given regarding the profitability of any
     vineyard development or acquisition.  As a result, the Company continually
     evaluates growth opportunities, but it only pursues those selected
     transactions that satisfy the Company's investment criteria.  See "--New
     Vineyards and Redevelopment of Existing Vineyards".

CALIFORNIA WINE AND GRAPE INDUSTRY

     The market for California premium varietal table wines has grown 
significantly over the last 19 years.  Since 1980, California premium wine 
revenues have increased at an average 18% compound annual rate to 
approximately $3.8 billion, or approximately 79% of total California table 
wine revenues of approximately $4.9 billion in 1998, according to Gomberg, 
Fredrikson & Associates.  This growth in California premium wine revenue 
reflects, among other things, an increase in U.S. per capita spending on 
premium California table wines from $1.82 in 1980 to $28.29 in 1998, and an 
increase in U.S. per capita consumption of premium California table wines 
during the same time period, from 0.07 gallons in 1980 to 0.66 gallons in 
1998.  In addition, exports of California wine have grown 

                                      6
<PAGE>

significantly, increasing over 200% in the last 10 years, from 16 million 
gallons in 1989 to 49 million gallons in 1998.

     Notwithstanding the growth in table wine sales and per capita 
consumption, a 1996 report prepared by the Wine Market Council indicated that 
approximately 88% of all table wine sold in the U.S. is consumed by only 16% 
of the adult population between the ages of 21 and 59.  Accordingly, the 
Company perceives significant room for growth in sales of California table 
wines, particularly premium wines.

THE COMPANY'S GRAPE PRODUCTION OPERATIONS

  VINEYARD OPERATIONS

     SVI currently owns or manages approximately 6,000 acres of wine grape 
vineyards in Monterey and San Benito Counties. These properties consist of 
approximately 4,400 acres in Monterey County operated for the Company's own 
account and approximately 1,600 acres operated under management contracts for 
others. Of the Company's approximately 4,080 net vine acres of wine grapes, 
approximately 2,290 net vine acres, or 56%, have been contracted for sale to 
UDV under long-term grape purchase contracts, approximately 570 net vine 
acres have been contracted for sale to other winery clients, approximately 
230 net vine acres represent newly redeveloped acreage planted by the Company 
in 1997 and 1998 which is not subject to grape purchase contracts, and 
approximately 990 acres are newly leased land for which development began in 
1997, 1998 and 1999.  See "--New Vineyards and Redevelopment of Existing 
Vineyards".

  GRAPE PRODUCTION

     SVI's tons per acre and overall yields of higher value varieties (E.G., 
Chardonnay, Cabernet Sauvignon and Merlot) have increased in recent years due 
to, among other factors, changes in product mix through grafting, replanting, 
increased vine density and improvements in wine grape production technology 
and know-how. See "--Viticultural Practices."  In 1993, the Company began a 
major improvement and refurbishment program and took many acres out of 
production temporarily in order to graft or replant new rootstock. This 
planned decline in grape production, caused grape sales revenues for 1993 and 
1994 to be lower than they otherwise would have been and resulted in a 
significant decline in tonnage produced through 1996. In 1996, as replanted 
acreage started to mature, production of high value premium varieties 
increased. The Company believes that its production of high value wine grapes 
in these vineyards will continue to increase for the next few years as 
replanted and interplanted vines continue to mature. However, actual grape 
production varies according to the variety of grape produced, vine density, 
the quality and type of soil, water conditions, weather and other factors, 
and no assurances can be given that such production increases will occur with 
any predictability or at all. The following table shows SVI's net vine acres 
by variety from 1994 to 1999, total tons produced from 1994 to 1998, and tons 
produced by variety for 1998.

                                      7
<PAGE>

                    NET VINE ACRES OWNED BY SVI AND TONS PRODUCED

<TABLE>
<CAPTION>

                                          Net Vine Acres                     Tons
                                          --------------                     ----
VARIETY                      1994    1995    1996    1997    1998    1999    1998
-------                      ----    ----    ----    ----    ----    ----    ----
<S>                        <C>    <C>      <C>     <C>     <C>   <C>     <C>
Chardonnay  . . . . . . .     574     656     756     901     881   1,002   3,553
Merlot  . . . . . . . . .     150     307     454     506     555     555   2,807
Cabernet Sauvignon  . . .     286     286     274     296     297     441   1,533
Sauvignon Blanc . . . . .     133     133     133     133     122     238   1,005
Pinot Noir  . . . . . . .       -       -       -     102     104     133     321
Gewurztraminer  . . . . .     103     103     103     103      82      82     263
White Riesling  . . . . .     124     103      83      87      87      58     440
Chenin Blanc  . . . . . .     302     228     187      84      84       -     372
Zinfandel . . . . . . . .     107     107      83      83      83      86     256
Syrah . . . . . . . . . .       -       -       -       -      26      64      83
Napa Gamay  . . . . . . .      39      39      39      39      20      20     137
Grenache(1) . . . . . . .      49      28      28      28      28       2     136
Souzao  . . . . . . . . .       -       -       -      10      11      11      26
Semillon  . . . . . . . .       -       -       -      26       -       3       -
Others  . . . . . . . . .      13      13      --      --       -      31      --
Replants/Grafts(2)  . . .     436     313     164     255     328     294      --
New Acreage(3)  . . . . .      --      --      54     374     632   1,060       -
                           ------  ------  ------  ------  ------  ------
  Total Net Vine Acres. .   2,316   2,316   2,358   3,027   3,340   4,080
                           ======  ======  ======  ======  ======  ======  ------

  Total Tons Produced . .  11,177   8,390  11,241  15,610       -          10,932
                           ======  ======  ======  ======                  ======

-------
</TABLE>
    (1)  Includes 28 acres leased to Joseph Phelps Vineyards through December
         31, 1998 and operated by the Company for the account of Joseph Phelps
         Vineyards. 

    (2)  Replants/grafts are acres which are temporarily taken out of
         production due to grafting or replanting to change varieties. Acres
         are deemed to be back in production in the third crop year. 

    (3)  New acreage represents newly acquired bare ground which is in the
         development stage.  The development stage is the first three years of
         the vineyard's life, when the Company expects little or no production.


GRAPE SALES

          PRIMARY CUSTOMERS.  The wine grape tonnage harvested from the 
Company's approximately 2,726 net vine acres in production (I.E., excluding 
vineyards under development or redevelopment) is largely subject to grape 
purchase contracts with a small number of well-known wine producing 
companies. The largest set of these contracts, representing approximately 84% 
of the Company's 1998 grape sales revenues and 74% of the Company's 1998 
total revenues, is with UDV.  UDV is a unit of Diageo plc, one of the world's 
largest wine and spirits sales companies, which is headquartered in the 
United Kingdom. In 1998, UDV was California's eighth largest wine producing 
company with sales of approximately 5.8 million cases of wine. The Company's 
contractual relationship with UDV's predecessor began in 1972 and has been 
continuous since that time. The Company believes that it is currently the 
largest supplier of wine grapes to UDV. The Company has sales contracts for 
substantially all of the balance of its wine grape production with other wine 
producers, including Canandaigua, Beringer Wine Estates, Chalone Wine Group 
and The Hess Collection Winery. The Company also manages, as a contract 
vineyard operator, an aggregate of 

                                      8
<PAGE>

approximately 1,533 acres of wine grapes for UDV and Canandaigua, 
representing 95% of the total acres managed by the Company. See "--Vineyard 
Management Contracts."

     The terms of the Company's grape purchase contracts generally require 
the customers to purchase substantially all of the Company's production from 
specified vineyards at a formula price based upon the previous harvest year's 
sales prices for specified districts as reported in the Final Grape Crush 
Report published by the California Department of Food and Agriculture 
("CDFA").  See "--Pricing."  The contracts generally require the Company to 
deliver grapes meeting specified sugar levels and other quality measurements. 
Substantially all of the contracts call for payment in full within 30 days of 
delivery of the crop to the customer. 

     The terms of the Company's long-term grape purchase contracts extend to 
between 2001 and 2014. Contracts covering most of SVI's acreage extend to 
2006 and have "evergreen" renewal provisions whereby the contracts continue 
until either party gives a two or three years' prior written notice of 
termination. The Company believes that these evergreen provisions allow it 
time either to renegotiate the contract with its contracting customer or to 
find a new customer for the grape production before the contract terminates.  
See "-Cautionary Information Regarding Forward-Looking Statements - 
Dependence on Major Customers; Renewal of Grape Purchase Agreements."

     The Company has enjoyed excellent relationships with its customers that 
have been built over many years of satisfying their needs for quality, timely 
delivery and service. Long-term supply arrangements benefit customers by 
providing a significant, reliable supply of high-quality grapes at 
predictable prices, and the Company believes that in many respects UDV and 
Canandaigua prefer their supply arrangements with the Company to the purchase 
of comparable amounts of grapes on the open market from multiple producers. 
These contracts also benefit the Company by providing reliable sources of 
revenues. SVI believes that these contracts are one of the major reasons for 
its past success, and it plans to rely upon these and similar contracts in 
the future. While contract terms are typically a function of market factors 
and it is not possible to know what the terms of the Company's future grape 
purchase arrangements will be, it is probable that any renewal or replacement 
of the Company's UDV and Canandaigua contracts, the majority of which will 
expire in 2006, and any purchase agreements covering new vineyards will have 
different terms.  Among other potential contract terms, the Company intends 
to consider entering into long-term grape purchase contracts with generally 
fixed maximum and minimum prices per acre instead of prices per ton that are 
subject to annual variation.  It is anticipated that such acreage contracts 
would provide for the customer to bear more of the crop risk than is 
typically borne by the Company under a tonnage contract.

     PRICING.  Each year the CDFA publishes the Grape Crush Report on a 
preliminary basis on February 10, with a final report published on March 10. 
The Grape Crush Report discloses the prices, tons and certain quality 
standards of all grapes crushed for wine from each of California's 17 wine 
grape producing districts in the grape harvest of the previous autumn. The 
report is relied upon heavily by wineries and wine grape producers to 
negotiate contracts and establish grape prices, as well as by financial and 
other institutions who serve the wine industry. 

     SVI's contract grape prices are established each year by formulas which 
are different for each of its customers. However, substantially all of its 
contracts utilize a formula which is used to calculate a price for each wine 
grape variety based on the previous year's prices in several specified CDFA 
reporting districts. For example, grapes from the Company's 1999 harvest that 
are subject to these contracts will be sold at prices based on the actual 
prices for the 1998 harvest reported in the Final Grape Crush Report 
published March 10, 1999. This enables both the Company and its customers to 

                                      9
<PAGE>

know final grape prices (on a per ton basis by variety) approximately eight 
months in advance of each year's harvest. These multiple district formula 
prices, as opposed to sales on the short-term spot market, tend to moderate 
year-to-year swings in prices. The Company's grape purchase contracts 
typically utilize pricing based in part upon prices for Napa, Sonoma and 
Mendocino County grapes, which tend to be higher than prices for the same 
varieties produced in Monterey County. Some recent agreements use pricing 
formulas that are based more heavily on Monterey County data, which may also 
be the case for the renewal or replacement of the UDV and Canandaigua 
agreements and additional agreements covering new or replanted vineyards. The 
chart below shows the weighted average prices SVI has received, or expects to 
receive, per ton of grapes for the primary varieties it has produced since 
1995 based on the pricing formulas of its various contracts. 

                 WEIGHTED AVERAGE PRICES PER TON RECEIVED BY SVI (1)

<TABLE>
<CAPTION>

VARIETY                                 1995      1996      1997      1998     1999(2)
-------                                 ----      ----      ----      ----     -------
<S>                                 <C>       <C>       <C>       <C>       <C>
Chardonnay  . . . . . . . . . . . .    $1,060    $1,188    $1,444    $1,577    $1,587
Cabernet Sauvignon  . . . . . . . .     1,097     1,193     1,425     1,571     1,623
Pinot Noir  . . . . . . . . . . . .       --        --      1,371     1,555     1,695
Merlot  . . . . . . . . . . . . . .     1,098     1,184     1,432     1,532     1,539
Zinfandel . . . . . . . . . . . . .       623       790       971     1,096     1,217
Sauvignon Blanc . . . . . . . . . .       682       742       902     1,027     1,098
Gewurztraminer  . . . . . . . . . .       589       663       825       908       960
Napa Gamay  . . . . . . . . . . . .       555       603       717       885       859
White Riesling  . . . . . . . . . .       514       624       803       832       850

-----------
</TABLE>
    (1)  Prices for premium varieties have increased in recent years largely as
         a result of supply and demand conditions. Supply and demand factors
         will change over time and there can be no assurance that the prices
         received by the Company in the future will continue to increase or
         will match or exceed historical prices.

    (2)  Based upon existing contracts, Company production estimates, and the
         1998 Final Grape Crush Report released March 10, 1999.


  VITICULTURAL PRACTICES

     The Company continually investigates and experiments to develop enhanced 
viticultural practices in order to improve the yields of its vineyards and 
the quality of grapes it produces. Innovations developed or employed by SVI 
over the past ten years have included new grafting methods, interplanting, 
new trellis designs and improved machine harvesting technology and practices. 
In addition, the Company has experimented with increased vine densities in 
order to improve productivity. 

  VINEYARD PRODUCTION CYCLE

     The vineyard production cycle begins each year in December, after 
completion of harvest. From December through March vines are pruned and tied 
to trellises, and damaged stakes, trellises, irrigation systems and other 
vineyard components are repaired or refurbished. After winter rains end, 
irrigation and cultivation of the vineyards begin and continue through the 
harvest season. Herbicides are applied as needed through the summer. 
Necessary applications of pesticides and fertilizer begin in the spring and 
continue until harvest. Grafting and planting also take place in the first 
four or five months of the year. As growth of the vines accelerates beginning 
in late spring, they are trained and

                                      10
<PAGE>

tied, and excess leaves are sometimes pulled to promote more efficient growth 
of vines and fruit. Depending on the rate at which fruit ripens, harvest 
typically begins in late-August to mid-September and is completed by the end 
of October or early November. Direct farming costs currently range from 
$2,000 to $2,800 per acre over the course of the year for vineyards in full 
production, and revenues are realized at the time of harvest. Approximately 
one-half of annual production costs are incurred by June 30. 

  CAPITAL INVESTMENT REQUIREMENT FOR ACQUISITION, DEVELOPMENT AND IMPROVEMENT OF
  VINEYARDS

     Because of the increasing demand for premium wine, the Company's customers
as well as other wineries have been seeking additional long-term sources of
premium wine grapes.  Accordingly, the Company's strategy is to expand its
operations and grape production through the development of bare land into
vineyards, the acquisition of existing vineyards, and the redevelopment of the
Company's older vineyards.  As discussed below, the Company has implemented this
strategy through the lease in 1998 of approximately 740 acres of bare land it is
developing into vineyards near the Company's vineyard headquarters, the 1997
acquisition of the 370-acre Riverview Vineyard, the lease in 1997 of
approximately 520 acres of bare land in Hames Valley it is developing into
vineyards and the redevelopment of the Company's existing vineyards begun in
1993.  The Company plans to expand its operations further, subject to the
availability of capital and additional suitable properties on terms acceptable
to the Company.

     Generally, significant amounts of fruit are not produced for three years
from newly planted vines and for two years from vines which are grafted to a new
variety.  During this time, the Company incurs significant development and
production costs that are not offset by revenues from these vineyards and must
be financed from other sources.  Newly planted vines that are four to five years
of age and grafted vines that are three to four years of age generally begin to
produce grapes in sufficient quantities to cover production costs and contribute
to gross profit, subject to some variation due to the effects of factors such as
geographic location, variety of grape grown, vine density, quality and type of
soil, water quality and weather conditions.

     It has been the Company's experience that it currently costs approximately
$15,000 to $18,000 per acre over a three-year period to develop open land into a
producing premium wine grape vineyard, before taking into account the cost of
land.  Accordingly, the Company estimates that the current replacement value of
its existing 4,400 acres is approximately $47 to $56 million, before cost of
land and ignoring the amount of time necessary to produce grapes economically. 
The costs of redeveloping existing vineyards vary depending upon the condition
of the vineyard and the scope of the redevelopment plan.

     Due to the acquisition and development of new vineyards and the
redevelopment of existing vineyards, much of the Company's vineyard acreage has
not yet reached full productive capacity.  While there can be no assurance that
the Company's properties will achieve their full productive capacity at the rate
indicated, if at all, the Company believes that its existing acreage under
development or redevelopment represents significant potential for revenue
growth.  The following table shows recent and anticipated maturity of the
Company's vineyards. 


                                      11

<PAGE>

                  MATURITY LEVELS OF SVI'S NET VINE ACRES (1)

<TABLE>
<CAPTION>
                                                                CROP YEAR
                                            ------------------------------------------------
                                             1998    1999     2000    2001    2002    2003
                                             ----    ----     ----    ----    ----    ----
<S>                                         <C>     <C>      <C>     <C>     <C>     <C>
Acres five or more years old (at or
   near full production)  . . . . . . . .    2,093    2,100   2,260   2,755   3,225   4,080
Acres three and four years old
   (partial production) . . . . . . . . .      287      655     965   1,325     855   -- 
Acres one and two years old (not in
   production)  . . . . . . . . . . . . .      960    1,325     855     --      --      -- 
                                             -----    -----   -----   -----   -----   -----
      Total Acres . . . . . . . . . . . .    3,340    4,080   4,080   4,080   4,080   4,080
                                             -----    -----   -----   -----   -----   -----
                                             -----    -----   -----   -----   -----   -----
</TABLE>
--------------
     (1)  The net vine acreage shown above is SVI's planted acreage only. It
          does not include acreage devoted to roads, storage areas, equipment
          yards or uses other than vineyards. 

     If the Company's vineyards under development mature consistently with
historical experience and no significant problems are encountered, they should
be at or near their full productive capacity in or about 2003.  Therefore,
acquisitions of producing vineyards will be required prior to 2003 to achieve
production increases in excess of those anticipated from the Company's existing
vineyards.  In addition, acquisitions of producing vineyards or open land
suitable for vineyard development will be required to sustain productivity
increases after 2003 and moderate any productivity losses from the Company's
existing vineyards due to grafting to new varieties and various other factors
that take vineyards out of production from time to time.  See "-Uncertainty of
Revenue Growth," "-Capital Requirements," and "-Risks Associated with Business
Expansion and Acquisition Strategy" under "-Cautionary Information Regarding
Forward-Looking Statements" below.

NEW VINEYARDS AND REDEVELOPMENT OF EXISTING VINEYARDS

     GREENFIELD.  In December 1998, the Company entered into a lease for a 
term of 24 years of approximately 740 acres of undeveloped land suitable for 
wine grape vineyards located near the Company's vineyard headquarters.  The 
Company has two options to extend the term of the lease for successive 
five-year terms (for a total of ten years).  The Company is planting the 
entire 740 acres in 1999, with the first harvest expected in 2001.  The 
Company intends to seek long-term grape purchase contracts for the grape 
production from this new vineyard.

     HAMES VALLEY.  In 1997, the Company acquired an option to lease, for a 
term of up to 50 years, approximately 520 acres of undeveloped land suitable 
for wine grape vineyards in Hames Valley, which is located approximately 45 
miles south of the Company's vineyard headquarters. The Company exercised its 
option and began development on approximately 200 acres in 1997 and, in the 
first quarter of 1998, exercised its option and began development on the 
remaining approximately 320 acres.  This acquisition has allowed the Company 
to leverage its existing resources, and it establishes SVI in a region where 
it believes additional property suitable for premium wine grape production is 
available. The Company is currently in the process of seeking long-term grape 
purchase contracts for the grape production from these new vineyards.  There 
can be no assurance, however, that the Company will be successful in finding 
a winery or wineries which will agree to such long-term grape purchase 
contracts for newly developed or acquired vineyards, including those under 
development in Greenfield and Hames Valley.

                                      12

<PAGE>

     After negotiating its own Hames Valley lease, SVI arranged for Canandaigua
to lease an additional approximately 445 acres in Hames Valley. Pursuant to a
long-term management contract with Canandaigua, in 1997 SVI began to manage and
develop this acreage into vineyards. Under the contract, SVI receives monthly
fees, equipment rental income and, when the vineyard begins to produce wine
grapes, harvest fees. The Company has no investment in the vineyard because
development money and working capital are provided by Canandaigua. 

     RIVERVIEW VINEYARD.  In June 1997, the Company acquired the 370-acre
Riverview Vineyard located approximately 12 miles north of SVI's vineyard
headquarters. The purchase price was approximately $5.5 million. The vineyard is
planted with several varieties, including approximately 175 acres of Chardonnay
and 130 acres of Pinot Noir. In 1998, the Company secured long-term grape
purchase contracts for the majority of the grape production from this vineyard.

     REDEVELOPMENT OF EXISTING VINEYARDS.  In 1993, SVI began a major
improvement and refurbishment program at its vineyards in order to increase
production and to upgrade its variety mix to those grapes that were expected to
be in greater demand and sell at higher prices.  From 1993 through 1998, the
Company made capital expenditures on its vineyards of over $20 million, and the
improvement and refurbishment program is continuing.  From 1993 through 1998,
the Company replanted or regrafted approximately 1,190 acres to higher value
varieties and interplanted an additional 1,200 acres.  In 1999, the Company is
replanting approximately 120 acres.  See "-Net Vine Acres Owned by SVI and Tons
Produced."

  WATER SUPPLY  
     
     The Company's vineyards are located in the Salinas Valley through which
flows the Salinas River. The watershed of the Salinas Valley is from the Ventana
Wilderness in the Los Padres National Forest and Santa Lucia range of coastal
mountains. The Salinas River supplies a large aquifer which is tapped by
agricultural users. In addition, the Salinas River is fed by two large
reservoirs, Lake Nacimiento and Lake San Antonio, which were built primarily for
agricultural water supply purposes to serve the Salinas Valley. These reservoirs
are maintained by the Monterey County Water Resource Agency.  The Company drip
irrigates all of its vineyards from wells located on or near its vineyards. The
quality of the water obtained from the wells is good, and the wells have proven
to be a plentiful and reliable source of water for the Company's operations,
even during the drought years of the late 1980's.  See "-Cautionary Information
Regarding Forward-Looking Statements - Water."

VINEYARD MANAGEMENT CONTRACTS

     The Company manages, as a contract vineyard operator, approximately
1,600 acres in Monterey and San Benito Counties for four vineyard owners,
including approximately 1,533 acres managed for UDV and Canandaigua. Pursuant to
its management and harvest contracts, budgeted costs of labor and equipment are
advanced to the Company on a monthly basis and the Company receives management
fees based on the acreage managed and harvested. The Company's vineyard
management contracts generally expire no earlier than the completion of harvest
in years ranging from 2004 to 2012, and otherwise may be terminated by either
party with one or two years' advance notice. In certain cases the Company has
also received fees for financing vineyard improvements, securing property and
designing vineyards. The Company may enter into similar arrangements for other
vineyard properties in the future. 


                                      13

<PAGE>

WINE PRODUCTION AND SALES

     SVI began limited production of its own ultra premium varietal wines under
the SCHEID VINEYARDS and SAN LUCAS VINEYARD labels in 1991. The Company has
contracted for its wine production with Storrs Winery, a small producer of award
winning wines located in Santa Cruz, California, approximately 50 miles from the
Company's vineyard headquarters compound. The Company currently subleases space
in a 1,600 square foot building from Storrs Winery, including certain space
dedicated for the Company's exclusive use in connection with its winemaking
activities. In 1996, the Company obtained a winery license, and a tasting room
was opened in April 1997 at the Company's vineyard headquarters compound located
on U.S. Highway 101 (a major north-south thoroughfare between San Francisco and
Los Angeles) just south of Greenfield and north of King City in Monterey County.

     Production and sales have been limited to date.  SVI produced approximately
4,000 cases in each of 1997 and 1998 of ultra premium varietal wines, including
Chardonnay, Cabernet Sauvignon, Merlot, Pinot Noir and White Riesling, using
Company-grown grapes. While its actual wine production will depend on various
factors, the Company currently plans to increase its annual production to
approximately 5,000 cases by late 1999. As it increases wine production, the
Company intends to distribute directly through its tasting room, restaurants,
clubs and a few selected retailers.  In 1997 and 1998, the Company offered a
"wine dividend" to holders of at least 100 shares of its Class A Common Stock,
whereby such shareholders were entitled to a $0.50 per share credit for use in
making purchases of the Company's wine at up to a 50% discount from the retail
price.  The Company intends to offer another "wine dividend" in 1999. SVI has
not yet earned a profit on its wine business and cannot predict when, or if,
these operations will become profitable. Further, SVI does not expect its wine
business to have a material impact on sales or earnings in the foreseeable
future. No assurances can be given that wine production and sales ever will be a
major source of profit for the Company. 

COMPETITION

     Wine grape growing and wine production are extremely competitive. There are
an estimated 800 commercial wineries which produce and market California table
wine, approximately half of which produce fewer than 5,000 cases per year. The
top eight wineries account for approximately 78% of sales based on total
California wine shipments in 1998. In addition, there are many sources of supply
of wine grapes in California and in countries outside the United States. At the
end of 1997, approximately 407,000 acres were planted to wine grapes in
California according to the California Agricultural Statistics Service, and the
number of planted acres is growing. Most wine grape producers have small,
privately owned operations and sell their production to wineries, often at spot
market prices from year to year. Quality of production and yields can vary
widely from vineyard to vineyard in the same geographic area. To supplement the
grapes they buy from independent producers, many wineries also own or lease
vineyards to supply some of their grape needs. Certain major wineries, such as
Kendall-Jackson and Robert Mondavi, are large wine grape producers and produce a
significant proportion of the grapes they need to make wine. Substantial
vineyard acreage is also owned by other wineries and more is being developed.
There are no published data regarding the size of the wine grape production
industry in California, and holdings of properties are not publicly reported.
However, the Company believes it is one of the largest independent producers of
premium wine grapes in California, and that there are approximately four or five
independent producers of comparable size in terms of acreage. 

     In addition, there are numerous wine producers in Europe, South America,
South Africa, Australia and New Zealand. All of these regions export wine into
the United States. California grape and wine supply shortages, especially in red
wines, have prompted some domestic national brand 


                                      14

<PAGE>

marketers to purchase wine from foreign sources. Most imports are bottled 
wines; however, some wineries have imported bulk table wine in large tanks 
for bottling and sale in the United States. Imports to California for these 
purposes decreased from approximately 20.3 million gallons in 1997 to 
approximately 8 million gallons in 1998.

ENVIRONMENTAL ISSUES

     SVI currently maintains 23 above-ground fuel storage tanks on its own
vineyard properties to provide fuel to its various vehicles and machinery. These
tanks have capacities ranging from approximately 500 to 10,000 gallons and are
installed on concrete slabs with catch basins to protect the ground surface from
any inadvertent release. No underground storage tanks are located on the
Company's properties. 

     The Company's current 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. To the extent that the Company
stores such chemicals, they are contained in a secured storage facility at the
Company's vineyard headquarters compound. The most toxic pesticide used by the
Company, Furadan-TM-, is not stored on-site, but is delivered as needed by an
unaffiliated company and applied to the vineyard under the supervision of a
state-licensed applicator. The Company also maintains a comprehensive safety
program supervised by the Company's human resources safety director and a
licensed pest control advisor. 

TRADEMARKS AND LABELS

     The Company has registered a trademark relating to a specific slogan which
the Company uses on souvenirs and paraphernalia sold at the Company's
wine-tasting room. The Company also has wine labels approved by the Bureau of
Alcohol, Tobacco and Firearms ("BATF"), including the SCHEID VINEYARDS and SAN
LUCAS VINEYARD brand names.

EMPLOYEES AND LABOR RELATIONS

     The Company has approximately 75 full-time employees and employs seasonal
and contract labor for vineyard development, pruning, harvesting and other
related tasks during peak seasons. Field labor needs are seasonal, normally
peaking at approximately 400 field workers at harvest, and dropping to a low of
approximately 50 immediately after harvest. The Company also uses contracted
labor for specialized work, such as grafting, and otherwise when necessary.

     The United Farm Workers, AFL-CIO ("UFW") has represented the Company's farm
workers since 1993.  In 1998, the Company completed the negotiation of a new
four-year contract with the UFW that will expire at the end of 2001.  The
Company believes its labor relations are satisfactory.  The Company has never
had a walk-out, sit-down, slow-down or strike, and the existing contract has a
"no strike" clause.  The Company has, however, been picketed, particularly
during the organizing effort by the UFW and during negotiation of the first
contract in 1995.  See "Cautionary Information Regarding Forward-Looking
Statements - Labor Regulations and Union Contract."


                                      15

<PAGE>

CAUTIONARY INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

  AGRICULTURAL RISKS

     Wine 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.
These weather conditions can materially and adversely affect the quality and
quantity of grapes produced by the Company and its profitability.  To the extent
a grape producer's properties are geographically concentrated, the effects of
local weather can be material. The vineyards owned by SVI are spread over a
distance of approximately 70 miles, north to south, close to Highway 101 in
Monterey County.  Accordingly, adverse weather in the future could 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 or kill vines. In recent years
phylloxera, a louse that feeds on the roots of 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. Phylloxera infestation can be reduced through use of
the chemical pesticides Furadan-TM- and Enzone-TM-. While Furadan-TM- is still
approved for use in Monterey County, its use is no longer legal in certain other
viticultural regions of California, including Napa, Sonoma and Mendocino
Counties.  Furadan-TM- is currently under investigation by the Environmental
Protection Agency which may result in the prohibition of its use. There can be
no assurance that Furadan-TM- will continue to be available as a method of
controlling phylloxera for the Company and, if its use is prohibited in Monterey
County, the Company will rely more on the use of Enzone-TM-.  If the use of
Enzone-TM- is prohibited in Monterey County, however, there can be no assurance
that the Company will be able to find a safe, cost-effective alternative. 

     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. It takes approximately 
four to five years for a replanted vineyard to bear grapes in quantities 
sufficient for profitable operations. The Company estimates that it currently 
costs approximately $15,000 per acre to replant vineyards. Of the Company's 
approximately 4,080 net vine acres (I.E., excluding acreage devoted to roads, 
storage areas, equipment yards or uses other than vineyards) of wine grapes, 
approximately 3,940 net vine acres, or 97%, are planted or interplanted with 
phylloxera-resistant rootstock. The remaining approximately 140 acres are 
planted on non-resistant rootstock and are, therefore, potentially 
susceptible to phylloxera infestation. The Company is managing the 
non-resistant acres through application of Furadan-TM- and a program of 
selective replantings.

     Other pests that may infest vineyards include leafhoppers, thrips,
nematodes, mites, insects, orange tortrix, twigbore, microflora and various
grapevine diseases. Pesticides and the selection of resistant rootstocks reduce
losses from these pests, but do not eliminate the risk of such loss. Gophers,
rabbits, deer, wild hogs and birds can also pose a problem for vineyards, and
wine grape vines are also susceptible to certain virus infections which may
cause reduction of yields. None of these currently poses a major threat to the
Company's vineyards, although they could do so in the future and, at that 


                                      16

<PAGE>

time, will have the potential to subject the vineyards to severe damage. 

  DEPENDENCE ON MAJOR CUSTOMERS; RENEWAL OF GRAPE PURCHASE AGREEMENTS

     The majority of SVI's current grape production is contracted for sale to
UDV which accounted for approximately 74% of the Company's total revenues in
1998.  The terms of the long-term grape purchase contracts with UDV extend to
between 2001 and 2014.  The majority of the contracts extend to 2006 and have an
"evergreen" renewal provision whereby the contract continues unless either party
gives a three-year advance written notice of termination.  Although these
contracts do not specifically provide for termination prior to expiration of
their stated terms, it is possible that they could be terminated under various
circumstances, including material breach.  If these contracts are terminated,
there can be no assurance that the Company will be able to replace UDV as
significant a purchaser of its grape production or that the Company will be able
to enter into agreements with other purchasers on similar terms.  Termination of
these contracts with UDV could have a material adverse effect on the Company's
business, financial condition and results of operations.

  UNCERTAINTY OF REVENUE GROWTH

     Approximately 51% of the Company's net vine acres are at or near full
production, and a certain portion of the Company's vineyards will always be out
of production or below maximum production due to initial development,
replanting, regrafting and various other factors.  While some productivity
increases may be expected from further development of vineyard acreage not yet
in full production or from enhancements of fully productive vineyards, the
growth potential of the Company's existing properties is limited and the
Company's ability to increase revenue depends ultimately upon its ability to
acquire, develop and operate more vineyard properties.  There can be no
assurance that suitable properties will be available to the Company at prices
that would make the Company's growth plans viable.  Revenues are also
substantially dependent on grape yields and prices, both of which are subject to
variation as discussed elsewhere in this section and can have an effect on
revenue growth unrelated to the number of acres in full production.

  FIXED COSTS AND REVENUE FLUCTUATIONS; UNCERTAINTY OF PROFITABILITY

     The Company incurs annual farming costs currently averaging approximately
$2,000 to $2,800 per acre in production.  These costs are incurred throughout
the year preceding harvest and are relatively fixed.  Revenues from grape sales
are not realized until harvest and vary depending upon yields and prices. 
Vineyard productivity varies from year to year depending upon a number of
factors, and significant variations in annual yields should be expected from
time to time.  Furthermore, grape prices have fluctuated significantly in the
past and should be expected to continue to fluctuate from year to year and to
decrease at times in the future.  Because production costs are not significantly
adjustable in light of productivity or revenue levels, weak harvests or lower
grape prices cannot be mitigated by cost reductions and should be expected to
have significant adverse effects upon profitability.

  CAPITAL REQUIREMENTS

     The farming of vineyards in production requires substantial amounts of
working capital.  Historically, the Company has relied heavily on short-term
credit to finance its working capital requirements.  Working capital
requirements are expected to increase to support the expansion anticipated by
the Company.  There can be no assurance that the Company will be able to obtain
financing when required or that such financing will be available on reasonable
terms, and lack of access 


                                      17

<PAGE>

to adequate lines of credit or other capital sources could impair the 
Company's ability to grow and adversely affect the Company's business, 
financial condition and results of operations.

     Substantial capital expenditures are required to develop and acquire new
vineyards and improve existing vineyards.  The Company has made and intends to
continue to make such expenditures to finance its expansion, and has incurred
and plans to continue to incur indebtedness.  As a consequence, (i) the Company
has and will continue to have significant interest and principal repayment
obligations, (ii) the Company's earnings and cash flows will be adversely
affected by increases in interest rates, and (iii) the presence of this debt
will limit the Company's ability to pay dividends on its common stock.

  RISKS ASSOCIATED WITH BUSINESS EXPANSION AND ACQUISITION STRATEGY; LONG-TERM
  STRATEGIES

     SVI intends to expand its business through (i) new development of
undeveloped properties suitable for premium varietal vineyards and (ii)
acquisitions of developed vineyard properties.  There can be no assurance that
the Company will be able to locate suitable properties to buy or lease at viable
prices, and any undeveloped properties acquired by the Company will require
significant capital investment and several years of development before becoming
productive.  The Company does not expect to receive the full benefit from any
newly planted vineyards for at least four to five years after planting due to
the time required for the vines to mature and produce economic yields.  In
addition, the Company's ability to increase profits through acquisitions depends
to a significant degree upon the prices at which properties can be purchased or
leased.  Furthermore, increased acreage under management will create additional
demands on Company management and may require the Company to hire and integrate
more employees.  Accordingly, the Company's strategies are long-term strategies
designed to increase the Company's production capacity and expand the Company's
business.  As a result, the full economic impact in terms of projected earnings
and other beneficial effects of the Company's expansion program will not be
fully realized for several years, if at all.

  WINE GRAPE SUPPLY AND DEMAND; PRICING

     Prices for premium California wine grapes are at historically high levels
due to (i) a shortage of grapes due to a variety of factors and (ii) an increase
in demand.  Recent plantings of new vineyards, yield enhancements through
technological advances, foreign competition and other factors are expected to
increase supply.  Furthermore, there can be no assurance that demand will not
decline.  Increases in supply or reductions in demand may cause California
premium wine grape prices to decline significantly, and there can be no
assurance that the prices received by the Company will continue to increase. 
Some declines in prices received by the Company should be expected, and these
declines may be significant. 

  COMPETITION; INDUSTRY FRAGMENTATION

     The wine grape industry is extremely competitive.  Many of the Company's
current and prospective competitors have substantially greater financial,
production, personnel and other resources than the Company.  The Company
competes with many other producers of premium wine grapes in California,
including a few thousand small independent (I.E., not winery controlled) wine
grape producers who sell their production to wineries.  Moreover, to a
significant extent, wine grapes of a particular variety are fungible, and the
ability of foreign producers to compete with the Company on the basis of price
due to their lower production costs may have a negative impact upon the
Company's profitability.  In addition, the Company's principal winery customers
compete with each other and with other wineries located in the United States and
abroad.


                                      18

<PAGE>

  POSSIBLE TERMINATION OF VINEYARD MANAGEMENT AGREEMENTS

     Substantially all of the Company's vineyard management agreements may be
terminated in the event that Alfred G. Scheid, Kurt J. Gollnick and certain
members of their families cease to maintain specified shareholdings in the
Company.  Sales to the public by members of the Scheid or Gollnick families or
further public offerings by the Company may result in a change of control of the
Company, which could result in termination of these agreements. 

  LABOR REGULATIONS AND UNION CONTRACT

     California has many laws and regulations concerning labor in general and
farm labor in particular.  The Agricultural Labor Relations Board has
promulgated many regulations concerning farm labor and a body of court decisions
has developed.  SVI is subject to many of these regulations, laws and
precedents.

     The UFW is the major union representing farm labor and has represented
SVI's farm workers since 1993.  In 1998, the Company completed the negotiation
of a new four-year contract with the UFW that will expire at the end of 2001. 
Although the Company historically has had satisfactory labor relations, it has
been picketed from time to time during the initial organization of its employees
and during contract negotiations.  No assurance can be given that the Company's
satisfactory labor relations will continue or that the UFW will not engage in,
picketing, walk-outs, sit-downs, slow-downs or strikes or the threat of these
actions.  The Company's business is heavily dependent upon farm labor, and the
failure of the Company to maintain adequate labor relations on terms acceptable
to the Company could have a material adverse effect upon the Company's business,
financial condition and results of operations.

  DEPENDENCE ON CONSUMER DEMAND

     Trends in consumer spending and changes in consumer tastes have a
substantial impact on the wine industry and the Company's business.  To the
extent that wine purchases are negatively impacted by economic and other
factors, or wine consumers reduce consumption of wine in favor of other
beverages, demand for wine grapes could decrease.

  GOVERNMENT REGULATION; TAXES

     SVI is subject to a broad range of federal and state regulatory
requirements regarding its operations and practices. The Company's current
operations and future expansion are subject to regulations governing the storage
and use of fertilizers, fungicides, herbicides, pesticides, fuels, solvents and
other chemicals. 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. 

     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 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. 
Increases in excise taxes on wine, if enacted, could reduce demand for wine and
wine grapes, which could materially and adversely effect the Company's business,
financial condition and results of 


                                      19

<PAGE>

operations.

  RELIANCE ON KEY PERSONNEL

     The Company believes its continued success depends to a significant extent
on the active involvement of certain members of the Scheid family and the
retention of its senior non-family executives.  There can be no assurance that
the key persons will remain in their management positions with the Company, and
the loss of the services of any of the key persons could have a material adverse
effect on the Company's business, financial condition and results of operations.

  ENVIRONMENTAL RISKS

     Ownership of real property creates a potential for environmental liability
on the part of the Company.  If hazardous substances are discovered on or
emanating from any of the Company's vineyards and the release of hazardous
substances (including fuels and chemicals kept by the Company on its properties
for use in its business) presents a threat of harm to public health or the
environment, the Company may be held strictly liable for the cost of remediation
of these hazardous substances.  See "-Enviromental Issues."

  WATER

     The Company is dependent upon wells located on or near its vineyards for
water to irrigate the vineyards, which wells are supplied by aquifers fed by the
Salinas River and reservoirs operated by Monterey County.  Although historically
the quality of water from these wells has been good and the wells have
consistently supplied a plentiful and reliable source of water, even during the
drought years of the late 1980's, and the Company believes its sources of water
will be available for the foreseeable future, it is possible that the Company's
water supplies could be impaired in the future due to drought, contamination or
other circumstances.  An impairment in the Company's water supplies could
adversely affect the business, financial condition and results of operations of
the Company.

  YEAR 2000 

     The Year 2000 issue is the result of computer systems, including
information technology ("IT") and non-IT systems, which have the inability to
process date sensitive information with respect to the Year 2000 and thereafter.
Computers or other equipment with date-sensitive software may recognize "00" as
1900 rather than 2000.  If not corrected, many computer systems could fail or
produce erroneous results.  If the Company, or its significant customers,
suppliers, lenders, or other third parties fail to correct Year 2000 issues, the
Company's ability to operate its business could be materially affected.

     The Company is currently in the process of upgrading its accounting and 
financial software, and, in conjunction with the upgrade, any known Year 2000 
issues will be corrected.  This upgrade is anticipated to be completed by 
mid-1999.  In the event that this upgrade is not completed by December 31, 
1999, the most likely worst-case scenario would be that the majority of the 
Company's accounting functions would have to be performed manually.  

     The Company is also evaluating its non-IT systems with respect to the Year
2000 issue.  These non-IT systems include phones and security systems.  The cost
to the Company of evaluating its own systems is not expected to be material. 


                                      20


<PAGE>

     In addition, there are also risks associated with key suppliers, 
including utility companies and financial institutions, and customers over 
which the Company has little or no control.  The Company has begun making 
inquiries of certain of its principal suppliers and customers with respect to 
their Year 2000 readiness and its potential effects on the Company.  However, 
the Company does not yet know the status of Year 2000 compliance of major 
vendors that are integral to the Company's business and the Company is 
therefore not able to currently assess the risk to the Company of third party 
failures.   

     Although no assurances can be given, the Company currently believes that 
through its ongoing upgrade of its accounting and financial systems and its 
evaluation of non-IT systems, as well as ongoing correspondence with 
suppliers and customers, the Year 2000 issue will not materially impair the 
Company's ability to conduct business.  In addition, in addressing the Year 
2000 issue, the Company has thus far not expended a material amount, and does 
not anticipate future expenditures regarding this issue to be material.  To 
the extent the Company is not able to address any of its Year 2000 issues, 
the Company believes that it could revert to manual processes previously 
employed with minimal costs.  

ITEM 2.   DESCRIPTION OF PROPERTIES

     CORPORATE HEADQUARTERS.  The Company's executive corporate office occupies
approximately 5,685 square feet in Marina del Rey, California under a five-year
lease with Tesh Partners, L.P., a limited partnership of which SVI is the
general partner and four members of the Scheid family are limited partners. Each
of these members of the Scheid family is a principal stockholder of the Company.
See the information incorporated by reference under "Item 12 - Certain
Relationships and Related Transactions."  The lease expires in June 1999. The
Company believes that its existing facilities will be adequate to meet the
Company's needs for the foreseeable future. Should the Company need additional
space, management believes it will be able to secure additional space at
commercially reasonable rates. 

     VINEYARDS.  The Company currently owns approximately 1,800 acres of land
and leases approximately 2,600 acres of land underlying its vineyards, all of
which are located in Monterey County, California.  The five leases to which the
Company is a party were entered into in 1973, 1979, 1996, 1997 and 1998,
respectively, and each of the land leases has an initial term of 24 to 30 years
and options to extend for up to an additional 10 to 20 years.  Substantially all
of the Company's property, plant and equipment serves as collateral for 
long-term debt.


ITEM 3.   LEGAL PROCEEDINGS

     The Company is not a party to any material legal proceedings. 


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

     There were no matters submitted to a vote of security holders during the
Company's fourth quarter ended December 31, 1998. 


                                      21

<PAGE>

                                   PART II

ITEM 5.   MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET FOR CLASS A COMMON STOCK; RELATED INFORMATION

     The Company's Class A Common Stock is traded on the Nasdaq National Market
System under the symbol "SVIN".  The following table sets forth, for the fiscal
quarter indicated, the high and low per share sales prices for the Class A
Common Stock, as reported by Nasdaq:

<TABLE>
<CAPTION>
                                                          HIGH          LOW
                                                          ----          ---
   <S>                                                  <C>           <C>
   1997

      Third quarter (commencing July 25, 1997) . . .    $11.875       $10.000

      Fourth quarter . . . . . . . . . . . . . . . .    $11.500       $ 8.125

   1998

      First quarter  . . . . . . . . . . . . . . . .    $11.500       $ 6.750

      Second quarter . . . . . . . . . . . . . . . .    $12.000       $ 6.750

      Third quarter  . . . . . . . . . . . . . . . .    $ 7.438       $ 3.938

      Fourth quarter . . . . . . . . . . . . . . . .    $ 5.938       $ 3.938
</TABLE>

     On March 15, 1999, there were 52 holders of record of the Company's 
Class A Common Stock and 14 holders of record of the Company's Class B Common 
Stock.  On that date, the Company believes that the number of beneficial 
owners of its Class A Common Stock was 1,130.  For information concerning 
historical dividends and the Company's dividend policy, see "Item 6 - 
Management's Discussion and Analysis or Plan of Operation - Dividends and 
Distributions."

ITEM  6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

     THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S
FINANCIAL STATEMENTS, INCLUDING THE RELATED NOTES THERETO, AND OTHER FINANCIAL
INFORMATION INCLUDED HEREIN.  THE INFORMATION IN THIS REPORT INCLUDES
FORWARD-LOOKING STATEMENTS.  IN ADDITION, PAST OPERATING RESULTS ARE NOT
NECESSARILY INDICATIVE OF THE RESULTS TO BE EXPECTED FOR FUTURE PERIODS.  SEE
"NOTE CONCERNING FORWARD-LOOKING STATEMENTS" AND "ITEM 1 - BUSINESS - CAUTIONARY
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS".


                                      22

<PAGE>

OVERVIEW

     Scheid Vineyards Inc. is a leading independent (I.E., not winery
controlled) producer of premium varietal wine grapes.  The Company currently
operates approximately 6,000 acres of wine grape vineyards.  Of this total,
approximately 4,400 acres are operated for the Company's own account, and 1,600
acres are operated under management contracts for others.  All of the properties
currently operated by the Company are located in Monterey and San Benito
Counties in California, both of which are generally recognized as excellent
regions for growing high quality wine grape varieties.

     The Company currently produces 13 varieties of premium wine grapes,
primarily Chardonnay, Merlot, Cabernet Sauvignon and Sauvignon Blanc. 
Substantially all of the Company's current wine grape production is contracted
at least through the harvest of 2001, and the majority is contracted at least
through the harvest of 2006.  The Company's two largest winery customers are
United Distillers and Vintners North America ("UDV"), a subsidiary of Diageo plc
and the eighth largest U.S. winery in terms of 1998 case shipments, and
Canandaigua Brands, Inc. ("Canandaigua"), the second largest U.S. winery.  Grape
purchase contracts with UDV covered 56% of the Company's acreage as of December
31, 1998 and accounted for approximately 74% and 81% of the Company's 1998 and
1997 total revenues, respectively.  Thus, the Company is substantially dependent
on UDV, and termination of these contracts could have a material adverse effect
on the Company's business, financial condition and results of operations.  The
Company has had grape purchase contracts with UDV and its predecessors since
1972.

     Fiscal 1998 was a difficult farming year for California wine grape 
growers, including SVI.  Unseasonably cool and cloudy weather from late May 
through July caused delayed vine growth and crop development industry-wide.  
These poor growing conditions resulted in reduced crop yields and a decrease 
in tons produced by SVI, from 15,600 tons in the record high crop year of 
1997 to 10,900 tons in 1998, a decrease of 30%.  In 1998, the Company 
completed its planting of 965 acres of wine grape vineyards in Hames Valley, 
which is located approximately 45 miles south of the Company's vineyard 
headquarters.  Approximately 445 acres of the Hames Valley development is 
farmed under a vineyard management contract for a winery client.  The first 
harvest from a portion of this vineyard is expected in 1999, and the first 
harvest from the remainder of this vineyard is expected in 2000.  In 
addition, the Company entered into several long-term grape purchase contracts 
in 1998 with winery clients, including UDV, Beringer Wine Estates, Chalone 
Wine Group and David Bruce Winery, covering approximately 525 acres, or 13% 
of the Company's net vine acreage.  In December 1998, the Company signed a 
long-term lease for approximately 740 acres of undeveloped land suitable for 
wine grape vineyards in Greenfield, a few miles from the Company's vineyard 
headquarters.  The lease is for a term of up to 34 years.  The Company 
is planting the entire acreage in 1999, with the first harvest expected 
in 2001.

SEASONALITY

     The wine grape business is extremely seasonal.  Similar to most
nondiversified agricultural crop producers, the Company recognizes substantially
all of its crop sales revenues at the time of its annual harvest in September
and October.  Because success of the Company's operations is dependent upon the
results of the Company's annual harvest, the first two quarters have
historically resulted in a loss and quarterly results are not considered
indicative of those to be expected for a full year.  Profits, if any, are
recognized in the last two fiscal quarters of the year when revenues from grape
sales are recognized.  In addition, the timing of the annual harvest varies each
year based primarily on seasonal growing conditions, resulting in timing
differences in the portion of grape revenues recognized in the 


                                      23

<PAGE>

third and fourth quarters of any one year.  This is a significant factor in 
comparing quarterly operating results for 1997 and 1998.  From time to time, 
the Company has in the past, and may in the future, convert grapes into bulk 
wine for sale in years subsequent to the harvest year, which may impact 
quarterly results.

RESULTS OF OPERATIONS - YEARS ENDED DECEMBER 31, 1998 AND 1997

     The following table sets forth certain statement of operations data for the
years ended December 31, 1998 and 1997:

<TABLE>
<CAPTION>
                                                                 YEAR ENDED
                                                                DECEMBER 31,
                                                                ------------
                                                              1998        1997
                                                              ----        ----
                                                               (IN THOUSANDS)
   <S>                                                       <C>       <C>
   Revenues:
                                                            
     Sales . . . . . . . . . . . . . . . . . . . . . . . .    $16,436   $18,683 
     Vineyard management, services and other fees  . . . .      1,037     1,187 
                                                              -------   -------
                                                               17,473    19,870 
   Cost of sales . . . . . . . . . . . . . . . . . . . . .      7,911     6,222 
                                                              -------   -------
   Gross profit  . . . . . . . . . . . . . . . . . . . . .      9,562    13,648 
   General and administrative expenses . . . . . . . . . .      4,274     4,215 
                                                              -------   -------
   Operating income  . . . . . . . . . . . . . . . . . . .      5,288     9,433 
   Reversal of deferred compensation . . . . . . . . . . .       (706)      --  
   Interest expense (income), net  . . . . . . . . . . . .        (46)      700 
                                                              -------   -------
   Income before provision for income taxes  . . . . . . .      6,040     8,733 
   Provision for income taxes  . . . . . . . . . . . . . .      2,421     3,887 
                                                              -------   -------
   Income before deferred tax adjustment   . . . . . . . .      3,619     4,846 
   Deferred income taxes from reorganization to C
    Corporation  . . . . . . . . . . . . . . . . . . . . .        --      1,390 
                                                              -------   -------
   Net income  . . . . . . . . . . . . . . . . . . . . . .     $3,619    $3,456 
                                                              -------   -------
                                                              -------   -------

   Pro Forma Amounts:
       Income before income taxes as reported                            $8,733
       Pro forma income tax provision                                     3,493
                                                                        -------
       Pro forma net income                                              $5,240
                                                                        -------
                                                                        -------
</TABLE>

     REVENUES.  SVI derives its revenues from four sources:  (i)  sales of wine
grapes; (ii) sales of bulk wine; (iii)  vineyard management and services
revenues consisting primarily of management and harvest fees and equipment
rentals for services provided to owners of vineyards; and (iv) sales of wine
and wine-related merchandise sold primarily through the Company's tasting room
which opened in April 1997.  Sales (which is comprised of revenue from sales of
wine grapes, bulk wine, and wine and wine-related merchandise) decreased to
$16,436,000 in the year ended December 31, 1998 from $18,683,000 in the 1997
period, a decrease of $2,247,000 or 12%.  

     Revenue from grape sales decreased by 18% to $15,260,000 for the year ended
December 31, 1998 from  $18,585,000 in 1997, a decrease of $3,325,000.  The
decrease was primarily due to unseasonably cool and cloudy weather in 1998,
resulting in delayed vine growth and crop development industry-wide.  These poor
growing conditions caused reduced crop yields and an approximately 30% 


                                      24

<PAGE>

decrease in tons produced for the year ended December 31, 1998 as compared to 
the 1997 period.  This decrease in tonnage is partially offset by an 
approximately 12% increase in the average price paid by the Company's 
customers.  

     Revenue from sales of bulk wine totaled $982,000 for the year ended
December 31, 1998.  There were no sales of bulk wine in 1997. 

     Revenue from the sale of wine and wine-related merchandise increased by 98%
to $194,000 for the year ended December 31, 1998 from $98,000 in the 1997
period, an increase of $96,000.  The tasting room opened in April 1997. 

     Revenue from vineyard management, services and other fees decreased by 13%
to $1,037,000 for the year ended December 31, 1998 from $1,187,000 in the 1997
period, a decrease of $150,000.  The decrease was primarily due to a one-time
development fee received under a new management agreement entered into in the
first quarter of 1997. 

     GROSS PROFIT.  Gross profit for the year ended December 31, 1998 was
$9,562,000 compared to $13,648,000 for the year ended December 31, 1997, a
decrease of $4,086,000 or 30%. This decrease resulted primarily from the
decrease in grape sales and vineyard management, services and other fees
discussed above, as well as an increase in farming expenses, and is partially
offset by the sale of bulk wine in 1998.  

     Gross margin on grape sales decreased to 52% in 1998 as compared to 67% in
1997.  The decrease in gross margin on grape sales is primarily the result of
lower yields per acre in 1998 than in 1997 and increased farming expenses,
partially offset by an increase in the prices received by the Company from 1997
to 1998.  The increase in farming expenses was due to the unfavorable weather
conditions which caused mildew and other problems, delaying vine growth and crop
development industry-wide.  Controlling these problems in the Company's
vineyards necessitated leaf removal, thinning, spraying and other activities
which resulted in higher than expected farming expenses. 

     Costs associated with the provision of management services are reimbursed
by the Company's clients, therefore, no cost of sales is deducted in determining
gross profit on these services. 

     GENERAL AND ADMINISTRATIVE EXPENSES.   General and administrative expenses
increased by 1% to $4,274,000 for the year ended December 31, 1998 from
$4,215,000 in the 1997 period, an increase of $59,000. Vineyard write-downs
increased to $555,000 in 1998 from $328,000 in 1997, an increase of $227,000. 
The increases in general and administrative expenses were partially offset by
reductions in management bonuses in the amount of $164,000 and reductions in
other general corporate expenses.
     
     REVERSAL OF DEFERRED COMPENSATION.  During the year ended December 31,
1998, the Company reversed an accrual of deferred compensation in the amount of
$706,000.  The deferred compensation liability was due to an arrangement whereby
the Company would make annual payments to a certain employee commencing upon his
retirement.  The employee passed away in August 1998 negating the need for the
provision.


                                      25

<PAGE>

     INTEREST EXPENSE (INCOME), NET.   Net interest expense (income) was
($46,000) for the year ended December 31, 1998 and $700,000 in the 1997 period,
a decrease of $746,000, and is comprised of the following:

<TABLE>
<CAPTION>
                                                           1998         1997
                                                           ----         ----
 <S>                                                   <C>          <C>
 Interest expense  . . . . . . . . . . . . . . . . .     $ 977,000  $1,277,000
 Less capitalized interest . . . . . . . . . . . . .      (641,000)   (294,000)
                                                         ---------  ----------
    Interest expense, net of amount capitalized  . .       336,000     983,000 
 Interest income . . . . . . . . . . . . . . . . . .      (382,000)   (283,000)
                                                         ---------  ----------
    Interest expense (income), net . . . . . . . . .     $ (46,000) $  700,000 
                                                         ---------  ----------
                                                         ---------  ----------
</TABLE>

     Total interest expense decreased primarily as a result of lower interest
rates in the 1998 period and the absence of borrowings in 1998 under the
Company's crop line of credit. Capitalized interest increased in the 1998 period
due to increased expenditures for vineyard acreage being improved or developed. 
The increase in interest income in 1998 was due to the increase in cash holdings
of the Company from 1997 to 1998, primarily as the result of funds received in
the Company's initial public offering in July 1997, and cash received from an
above-average harvest in 1997.

     PROVISION FOR INCOME TAXES.  The provision for income taxes decreased to
$2,421,000 for the year ended December 31, 1998 from $3,887,000 in 1997.  The
Company was an S Corporation for income tax purposes prior to the initial public
offering in July 1997.  The S Corporation election was terminated in connection
with the public offering, upon which the Company became taxable as a C
Corporation.  As a result of the Company's prior S Corporation status, the
Company's losses for the first seven months of 1997 were allocated to the
Company's sole stockholder and were not available to offset the Company's income
for the last five months of the year.  This resulted in an effective tax rate
for 1997 of 44.5%.  The effective tax rate for 1998 was 40.1%.

     INCOME BEFORE DEFERRED TAX ADJUSTMENT. Due to the above factors, the
Company had income before deferred tax adjustment for the year ended December
31, 1998 of $3,619,000 as compared to $4,846,000 in the 1997 period.

     DEFERRED TAXES FROM REORGANIZATION TO C CORPORATION.  In July 1997, the
Company incurred a one-time noncash charge to earnings in the amount of
$1,390,000 to record the deferred tax liability arising from the reorganization
of the Company's business from an S Corporation and partnerships to a taxable C
Corporation in connection with the Company's initial public offering.       

     NET INCOME.   The Company had net income for the year ended December 31,
1998 of $3,619,000 as compared to $3,456,000 in the 1997 period.  On a pro forma
basis, net income for the year ended December 31, 1997 was $5,240,000.  Pro
forma net income is derived by providing an income tax provision as if the
Company had been a C Corporation for the year ended December 31, 1997.

LIQUIDITY AND CAPITAL RESOURCES

     SVI's primary sources of cash have historically been funds provided by
internally generated cash flow and bank borrowings.  The Company has made
substantial capital expenditures to redevelop its existing vineyard properties
and acquire and develop new acreage, and the Company intends to 


                                      26

<PAGE>

continue these types of expenditures.  Cash generated from operations has not 
been sufficient to satisfy all of the Company's working capital and capital 
expenditure needs. As a consequence, the Company has depended upon and 
continues to rely upon, both short and long-term bank borrowings.  Working 
capital at December 31, 1998 was $3,883,000 as compared to $15,665,000 at 
December 31, 1997, a decrease of $11,782,000.  The reduction in working 
capital from 1997 to 1998 was primarily due to the expenditures of current 
working capital to fund vineyard development, repay balances of certain 
long-term revolving credit facilities and repurchase shares of the Company's 
Class A Common Stock.

     Under the Company's historical working capital cycle, working capital is
required primarily to finance the costs of growing and harvesting its wine grape
crop.  The Company normally delivers substantially all of its crop in September
and October, and receives the majority of its cash from grape sales in early
November.  Due to the three to four week delay in the start of the 1998 harvest,
the crop was delivered in October and November, and the majority of cash from
grape sales was received in late November.  In order to bridge the gap between
incurrence of expenditures and receipt of cash from grape sales, large working
capital outlays are required for approximately eleven months each year. 
Historically, SVI has obtained these funds pursuant to credit lines with banks. 

     The Company currently has credit lines that provide both short-term and
long-term funds.  The short-term "crop" line has maximum credit available of
$10,500,000 and is intended to finance the Company's anticipated working capital
needs.  This crop line was renewed in June 1998 and expires June 5, 2000. There
were no amounts outstanding under this line at December 31, 1998. The crop line
of credit is secured by crops and other assets of the Company.

     SVI also has long-term credit facilities which expire through July 2008 and
provide for maximum borrowings totaling $10,885,000, which diminish annually
through the expiration dates to a maximum allowable commitment of $5,412,000. 
At December 31, 1998, there were no amounts outstanding under these facilities. 
The interest rate on each of these lines is based on the bank's "reference" or
"cost of funds" rate which at December 31, 1998 was 7.37%. These credit lines
are secured by deeds of trust on underlying vineyard properties.

     The Company also has other long-term notes payable which, as of December
31, 1998, totaled approximately $6,265,000. The interest rate on these notes is
based on the bank's "reference" or "cost of funds" rate.  At December 31, 1998,
the weighted average per annum interest rate was 7.37%.  These notes are secured
by deeds of trust on underlying vineyard properties.

     The Company also has a $7,500,000 bank line of credit, the proceeds of
which are being used to develop a vineyard owned by a major client and managed
under a long-term contract by the Company.  At December 31, 1998, the
outstanding balance on this line of credit was $5,572,000.  This line bears
interest at the bank's reference rate (6.06% at December 31, 1998) and is
repayable in six annual installments beginning January 2000.  The note is
secured by a letter of credit provided by the client and by the Company's
management contract.  The management contract provides for the Company's client
to make payment of the annual principal installments under this line as and when
they become due.

     The Company's principal credit facilities and notes payable bind the
Company to a number of affirmative and negative covenants, including
requirements to maintain certain financial ratios within certain parameters and
to satisfy certain other financial tests.  At December 31, 1998, the Company was
in compliance with these covenants.


                                      27

<PAGE>

     Although no assurances can be given, management believes that the 
Company's anticipated working capital levels and short-term and long-term 
borrowing capabilities will be adequate to meet the Company's currently 
anticipated liquidity needs during the fiscal year ending December 31, 1999.  
At December 31, 1998, the Company had $20,571,000 in borrowing availability 
under its long-term revolving credit facilities and crop line.

     Management expects that capital requirements will expand significantly to
support expected future growth and that this will result in the expenditure of
the Company's available cash and additional borrowing under credit lines and/or
new arrangements for term debt.  The Company's planned new vineyard developments
are expected to require approximately $16 million in capital investment over the
next three years, and continued improvements and redevelopments of existing
vineyards are expected to require approximately $7 million.  In addition, the
Company expects to invest approximately $3 million in equipment purchases. 
Management believes it should be able to obtain long-term funds from its present
principal lender, but there can be no assurance that the Company will be able to
obtain financing when required or that such financings will be available on
reasonable terms. 

     Cash provided by operating activities was $8,021,000 for the year ended
December 31, 1998, compared to $4,685,000 for the same period in 1997, an
increase of $3,336,000. The increase was primarily due to a $2,480,000 increase
in income taxes payable due to the timing of current year estimated tax payments
and a net decrease in the amount of $1,509,000 for expenditures for inventories
and supplies.

     Cash used in investing activities was $8,419,000 for the year ended
December 31, 1998, compared to $15,400,000 for the same period in 1997, a
decrease of $6,981,000.  The decrease was principally the result of reductions
in additions to property, plant and equipment, and reductions in the additions
to a long-term receivable. The additions to property and equipment in 1998 were
primarily due to the improvements of the Company's existing vineyards, and
ongoing development of approximately 330 acres of new vineyards.  In 1997, the
additions were due to the acquisition of the Company's Riverview Vineyard in
June 1997, the improvement of existing vineyards, and the development of new
vineyards.  The decrease in the additions to long-term receivables was due to
the repayment of a portion of the costs incurred for the development of certain
vineyards owned by a major client of the Company who has provided a letter of
credit to secure repayment.

     Cash used in financing activities was $9,054,000 for the year ended
December 31, 1998, compared to cash provided by financing activities of
$21,174,000 for the same period in 1997.  During the year ended December 31,
1998, the credit line and related receivable from a major client were reduced by
$997,000, as described above.  There were no such repayments for the same period
in 1997.  In addition, in 1998, the Company repurchased 452,950 shares of its
Common Stock for $2,380,000.   In July 1997,  the Company received proceeds from
its initial public offering in the amount of $20,700,000 and made distributions
to partners and shareholders in connection with the offering in the amount of
$3,582,000. 

YEAR 2000 

     The Year 2000 issue is the result of computer systems, including
information technology ("IT") and non-IT systems, which have the inability to
process date sensitive information with respect to the Year 2000 and thereafter.
Computers or other equipment with date-sensitive software may recognize "00" as
1900 rather than 2000.  If not corrected, many computer systems could fail or
produce erroneous results.  If the Company, or its significant customers,
suppliers, lenders, or other third 


                                      28

<PAGE>

parties fail to correct Year 2000 issues, the Company's ability to operate 
its business could be materially affected.

     The Company is currently in the process of upgrading its accounting and 
financial software, and, in conjunction with the upgrade, any known Year 2000 
issues will be corrected.  This upgrade is anticipated to be completed by 
mid-1999.  In the event that this upgrade is not completed by December 31, 
1999, the most likely worst-case scenario would be that the majority of the 
Company's accounting functions would have to be performed manually.  

     The Company is also evaluating its non-IT systems with respect to the Year
2000 issue.  These non-IT systems include phones and security systems.  The cost
to the Company of evaluating its own systems is not expected to be material. 

     In addition, there are also risks associated with key suppliers, 
including utility companies and financial institutions, and customers over 
which the Company has little or no control.  The Company has begun making 
inquiries of certain of its principal suppliers and customers with respect to 
their Year 2000 readiness and its potential effects on the Company.  However, 
the Company does not yet know the status of Year 2000 compliance of major 
vendors that are integral to the Company's business and the Company is 
therefore not able to currently assess the risk to the Company of third party 
failures.   

     Although no assurances can be given, the Company currently believes that 
through its ongoing upgrade of its accounting and financial systems and its 
evaluation of non-IT systems, as well as ongoing correspondence with 
suppliers and customers, the Year 2000 issue will not materially impair the 
Company's ability to conduct business.  In addition, in addressing the Year 
2000 issue, the Company has thus far not expended a material amount, and does 
not anticipate future expenditures regarding this issue to be material.  To 
the extent the Company is not able to address any of its Year 2000 issues, 
the Company believes that it could revert to manual processes previously 
employed with minimal costs.  

DIVIDENDS AND DISTRIBUTIONS

     The Company intends to retain its future earnings, if any, to fund the
development and growth of its business and does not anticipate paying cash
dividends on either class of its Common Stock in the foreseeable future.  In
addition, the Company's principal bank credit facilities prohibit the payment of
cash dividends without the consent of the lender.

     In connection with the Company's initial public offering, the Company was
reorganized from an S Corporation and partnerships to a C Corporation.  During
the fiscal year ended December 31, 1997 (prior to the reorganization), the
Company and these partnerships made cash stockholder and partner distributions
totaling $3,582,000.  The distributions were made at the time of the
reorganization in respect of cumulative S Corporation earnings and income tax
liabilities on partnership income.  No distributions were made in 1998.

ITEM 7.   FINANCIAL STATEMENTS

     The audited financial statements of the Company are set forth in this
Report beginning on page F-1.


                                      29

<PAGE>

ITEM 8.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURES

     Not applicable.


                                    PART III

ITEM  9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
          COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.

     The information required by this Item is set forth under the captions
"Proposal No. 1 - Election of Directors - Information Concerning the Nominees"
and " - Directors and Executive Officers" in the Company's definitive Proxy
Statement to be filed with the Securities and Exchange Commission and is
incorporated herein by this reference as if set forth in full.


ITEM 10.  EXECUTIVE COMPENSATION

     The information required by this Item is set forth under the caption
"Executive Compensation" in the Company's definitive Proxy Statement to be filed
with the Securities and Exchange Commission and is incorporated herein by this
reference as if set forth in full.


ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     The information required by this Item is set forth under the caption
"Security Ownership of Certain Beneficial Owners and Management" in the
Company's definitive Proxy Statement to be filed with the Securities and
Exchange Commission and is incorporated herein by this reference as if set forth
in full.


ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     The information required by this Item is set forth under the caption
"Certain Transactions" in the Company's definitive Proxy Statement to be filed
with the Securities and Exchange Commission and is incorporated herein by this
reference as if set forth in full.


                                      30


<PAGE>

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K.

(a)  Exhibits

<TABLE>
<CAPTION>
 EXHIBIT
 NUMBER
 ------
<S>       <C>
 2.1      Exchange and Contribution Agreement, dated as of July 29, 1997, among
          Registrant and certain affiliated entities and stockholders of
          Registrant (incorporated by reference to Exhibit number 2.1 to
          Registrant's Report on Form 10-KSB for the fiscal year ended December
          31, 1997 filed March 30, 1998).
 3.1a*    Certificate of Incorporation.
 3.1b*    Certificate of Amendment of Certificate of Incorporation.
 3.2*     Amended and Restated Bylaws.
 4.1      Warrant Agreement, dated as of July 30, 1997, by and among the
          Company, Cruttenden Roth Incorporated, Laidlaw Equities, Inc. and
          Rodman & Renshaw, Inc (incorporated by reference to Exhibit number 4.1
          to Registrant's Report on Form 10-KSB for the fiscal year ended
          December 31, 1997 filed March 30, 1998).
 4.2      Form of Certificate Evidencing Ownership of Class A Common Stock of
          Scheid Vineyards Inc (incorporated by reference to Exhibit number 4.2
          to Registrant's Report on Form 10-KSB for the fiscal year ended
          December 31, 1997 filed March 30, 1998).
 4.3      Form of Certificate Evidencing Ownership of Class B Common Stock of
          Scheid Vineyards Inc.  (incorporated by reference to Exhibit number
          4.3 to Amendment No. 1 to Registrant's Registration Statement on Form
          SB-2 filed July 3, 1997).
10.1      1997 Stock Option/Stock Issuance Plan, as amended and restated through
          March 10, 1998 (incorporated by reference to Exhibit number 10.1 to
          Registrant's Report on Form 10-KSB for the fiscal year ended December
          31, 1997 filed March 30, 1998).(2)
10.2      Lease, dated as of January 1, 1997, by and among Sam Avila and
          Margaret J. Avila, as trustees under declaration of trust dated
          August 16, 1989, and Margaret J. Avila and Valarie Bassetti successor
          co-trustees of the testamentary trust of Joseph Laberere, and Sam
          Avila, and Margaret J. Avila, and Scheid Vineyards and Management Co.
          (incorporated by reference to Exhibit number 10.3 to Registrant's
          Registration Statement on Form SB-2 filed May 28, 1997).(1)
10.3      Lease, dated as of January 1, 1996, by and between Echenique Ranch and
          Scheid Vineyards and Management Co., as amended by a Letter Agreement
          dated March 27, 1996 (incorporated by reference to Exhibit number 10.4
          to Registrant's Registration Statement on Form SB-2 filed May 28,
          1997).(1)
10.4      Land Lease by and between William McHenry Bland and Monterey Farming
          Corporation and Addendum to Land Lease, dated September 26, 1973, by
          and between William McHenry Bland and Monterey Farming Corporation
          (incorporated by reference to Exhibit number 10.5 to Registrant's
          Registration Statement on Form SB-2 filed May 28, 1997).(1)
10.5      Lease, dated September 27, 1979, by and among Luis Echenique, Francis
          D. Echenique, Ricardo Echenique and Monterey Farming Corporation, as
          amended by (i) a Memorandum of Lease, dated September 27, 1979, (ii)
          an Amendment to Memorandum of Lease, dated September 4, 1987, (iii) a
          First Amendment to Lease, dated September 4, 1987, and (iv) a Second
          Amendment of Lease, dated September 4, 1987 (incorporated by reference
          to Exhibit number 10.6 to Registrant's Registration Statement on Form
          SB-2 filed May 28, 1997).(1)
</TABLE>


                                      31

<PAGE>
<TABLE>

<S>       <C>
10.6 +    Vineyard Management Agreement, dated as of January 1, 1997, by and
          among Scheid Vineyards and Management Co., Canandaigua West, Inc. and
          Canandaigua Wine Company, Inc. (incorporated by reference to Exhibit
          number 10.7 to Registrant's Registration Statement on Form SB-2 filed
          May 28, 1997).(1)
10.7 +    Vineyard Management Agreement, dated as of January 1, 1996, by and
          among Scheid Vineyards and Management Co., Canandaigua West, Inc. and
          Canandaigua Wine Company, Inc. (incorporated by reference to Exhibit
          number 10.8 to Registrant's Registration Statement on Form SB-2 filed
          May 28, 1997).(1)
10.8+     Grape Purchase Agreement, dated April 15, 1998, between Scheid
          Vineyards California Inc. and International Distillers and Vintners
          North America, Inc. (incorporated by reference to Exhibit numbers 10.1
          and 99 to Registrant's Report on Form 10-QSB for the quarterly period
          ended June 30, 1998 filed August 13, 1998).
10.9      Collective Bargaining Agreement, for the period April 9, 1998 to
          December 31, 2001, between Scheid Vineyards Inc. and The United Farm
          Workers of America, AFL-CIO.  (incorporated by reference to Exhibit
          number 10.23a to Amendment No. 1 to Registrant's Registration
          Statement on Form SB-2 (File No. 333-51055) filed May 8, 1998).
10.10a+   Vineyard Development and Management Agreement, dated as of December 1,
          1995, by and between Heublein, Inc. and Scheid Vineyards and
          Management Co. (incorporated by reference to Exhibit number 10.12 to
          Registrant's Registration Statement on Form SB-2 filed May 28,
          1997).(1)
10.10b    Amendment No. 1 to Vineyard Development and Management Agreement,
          dated as of March 28, 1997, by and between Heublein, Inc. and Scheid
          Vineyards and Management Co. (incorporated by reference to Exhibit
          number 10.11b to Registrant's Report on Form 10-KSB for the fiscal
          year ended December 31, 1997 filed March 30, 1998).(1)
10.11     Agricultural Credit Agreement (General Term Loan), dated October 6,
          1994, between Vineyard Investors 1972 and Sanwa Bank California
          (incorporated by reference to Exhibit number 10.15 to Registrant's
          Registration Statement on Form SB-2 filed May 28, 1997).(1)
10.12     Business Loan Agreement, dated as of March 28, 1997, between Scheid
          Vineyards and Management Co. and Bank of America National Trust and
          Savings Association (incorporated by reference to Exhibit number 10.20
          to Registrant's Registration Statement on Form SB-2 filed May 28,
          1997).(1)
10.13+    Long Term Grape Purchase Contract, dated February 12, 1973, between
          Monterey Farming Corporation and Almaden Vineyards, Inc., as amended
          by (i) a Memorandum of Understanding, dated August 6, 1987, (ii) a
          Letter Agreement, dated May 14, 1990, and (iii) an Amendment to Long
          Term Grape Purchase Contract, dated as of March 12, 1993, between
          Scheid Vineyards and Management Co. and Heublein, Inc. (incorporated
          by reference to Exhibit number 10.21 to Registrant's Registration
          Statement on Form SB-2 filed May 28, 1997).(1)
10.14+    Long Term Grape Purchase Contract, dated December 21, 1972, between
          Vineyard Investors 1972 and Almaden Vineyards, Inc., as amended by
          (i) a Memorandum of Understanding, dated August 6, 1987, (ii) an
          Amendment to Long Term Grape Purchase Contract, dated April 19, 1988,
          between Vineyard Investors 1972 and Heublein, Inc., (iii) a Second
          Amendment to Long Term Grape Purchase Contract, dated June 2, 1988,
          (iv) a Third Amendment to Long Term Grape Purchase Contract, dated as
          of March 12, 1993 and (v) a letter agreement, dated April 6, 1990
          (incorporated by reference to Exhibit number 10.22 to Registrant's
          Registration Statement on Form SB-2 filed May 28, 1997).(1)
</TABLE>


                                      32

<PAGE>
<TABLE>

<S>       <C>
10.15+    Long Term Grape Purchase Contract, dated February 12, 1973, between
          Monterey Farming Corporation, as General Partner on behalf of Vineyard
          405, and Almaden Vineyards, Inc., as amended by (i) a certain
          Memorandum of Understanding, dated August 6, 1987, and (ii)
          an Amendment to Long Term Grape Purchase Contract, dated as of
          March 12, 1993, between Vineyard 405 and Heublein, Inc. (incorporated
          by reference to Exhibit number 10.23 to Registrant's Registration
          Statement on Form SB-2 filed May 28, 1997).(1)
10.16+    Long Term Wine Grape Purchase Agreement, dated as of March 12, 1993,
          by and between Scheid Vineyards and Management Co. and Heublein, Inc.
          (incorporated by reference to Exhibit number 10.24 to Registrant's
          Registration Statement on Form SB-2 filed May 28, 1997).(1)
10.17+    Grape Purchase Agreement, dated as of April 1, 1996, by and between
          Scheid Vineyards and Management Co. and The Hess Collection Winery
          (incorporated by reference to Exhibit number 10.25 to Registrant's
          Registration Statement on Form SB-2 filed May 28, 1997).(1)
10.18+    Grape Purchase Agreement, dated July 1, 1996, by and among Scheid
          Vineyards and Management Co., Stephen Dooley Wine Co., Inc. and The
          Chalone Wine Group, Ltd. (incorporated by reference to Exhibit number
          10.26 to Registrant's Registration Statement on Form SB-2 filed May
          28, 1997).(1)
10.19     Alternating Winery Agreement, dated November 30, 1995, by and between
          Scheid Vineyards and Management Co. and Storrs Winery (incorporated by
          reference to Exhibit number 10.27 to Registrant's Registration
          Statement on Form SB-2 filed May 28, 1997).(1)
10.20     Winery Services Agreement, dated January 1, 1996, by and between
          Scheid Vineyards and Management Co. and Storrs Winery (incorporated by
          reference to Exhibit number 10.28 to Registrant's Registration
          Statement on Form SB-2 filed May 28, 1997).(1)
10.21     Standard Office Lease, dated July 1, 1994, by and between Scheid
          Vineyards and Management Co. and Tesh Partners, L.P. (incorporated by
          reference to Exhibit number 10.29 to Registrant's Registration
          Statement on Form SB-2 filed May 28, 1997).(1)
10.22+*   Lease, dated as of October 18, 1998 between Scheid Vineyards
          California Inc. and California Orchard Company.
10.23     Amended and Restated Buy-Sell Agreement, dated as of December 31,
          1997, by and among Scheid Vineyards Inc. and holders of Class B Common
          Stock (incorporated by reference to Exhibit number 10.24 to
          Registrant's Report on Form 10-KSB for the fiscal year ended December
          31, 1997 filed March 30, 1998).
10.24     Joint Agreement, dated as of November 7, 1997, by and among Samuel R.
          Avila (also known as Sam Avila) and Margaret J. Avila, individually
          and as trustees under declaration of trust dated August 19, 1989, and
          Margaret J. Avila and Valarie Bassetti (also known as Valerie
          Bassetti), as successor co-trustees of the testamentary trust of
          Joseph Labarere, deceased, Central Coast Federal Land Bank
          Association, FLCA, Scheid Vineyards and Management Co., Canandaigua
          Wine Company, a New York corporation, successor by merger to
          Canandaigua Wine Company, Inc., a Delaware corporation, and
          Canandaigua West, Inc. (incorporated by reference to Exhibit numbers
          10.27a and 99.1 to Amendment No. 1 to Registrant's Registration
          Statement on Form SB-2 (File No. 333-51055) filed May 8, 1998).(1)
10.25     Water Supply Agreement, dated as of January 1, 1997, by Scheid
          Vineyards and Management Co. and Canandaigua West, Inc. (incorporated
          by reference to Exhibit number 10.36 to Registrant's Registration
          Statement on Form SB-2 filed May 28, 1997).(1)
10.26     Agreement Regarding Water, dated as of January 1, 1996, by Luis
          Echenique, Ricardo Echenique and Margaret Echenique, Executrix of the
          Estate of Francis D. Echenique, in favor of each of Scheid Vineyards
          and Management Co. and Canandaigua West, Inc. (incorporated by
          reference to Exhibit number 10.37 to Registrant's Registration
          Statement on Form SB-2 filed May 28, 1997).(1)
</TABLE>


                                      33

<PAGE>
<TABLE>

<S>       <C>
10.27     Easement Agreement, dated January 1, 1997, by Sam Avila and Margaret
          J. Avila, as trustees under declaration of trust dated August 16,
          1989, and Margaret J. Avila and Valarie Bassetti successor co-trustees
          of the testamentary trust of Joseph Labarere and Sam Avila and
          Margaret J. Avila and Scheid Vineyards and Management Co., in favor of
          Canandaigua West, Inc. (incorporated by reference to Exhibit number
          10.38 to Registrant's Registration Statement on Form SB-2 filed May
          28, 1997).(1)
10.28a    Agricultural Credit Agreement, dated June 4, 1997, between Scheid
          Vineyards Inc. and Sanwa Bank (incorporated by reference to Exhibit 
          number 10.31 to the Registrant's Report on Form 10-KSB for the 
          fiscal year ended December 31, 1997 filed March 31, 1998).(1)
10.28b*   Amendment to Agricultural Credit Agreement, dated June 25, 1997 by 
          and between Sanwa Bank California and Scheid Vineyards Inc.(1)
10.28c*   Amendment to Agricultural Credit Agreement, dated August 22, 1997 
          by and between Sanwa Bank California and Scheid Vineyards 
          California Inc. FKA Scheid Vineyards Inc.
10.28d    Third Amendment to Agricultural Credit Agreement, dated June 5, 1998,
          between Sanwa Bank California and Scheid Vineyards California Inc.
          (incorporated by reference to Exhibit number 10.2 to Registrant's
          Report on Form 10-QSB for the quarterly period ended June 30, 1998
          filed August 13, 1998).
10.29+    Grape Purchase Agreement, dated as of May 9, 1997, by and between
          Scheid Vineyards Inc. and The Hess Collection Winery (incorporated by
          reference to Exhibit number 10.42 to Registrant's Registration
          Statement on Form SB-2 filed May 28, 1997).(1)
10.30+    Grape Purchase Agreement, dated as of April 1, 1997, by and between
          Vineyard Investors 1972 and Stephen Dooley Wine Co., Inc.
          (incorporated by reference to Exhibit number 10.43 to Registrant's
          Registration Statement on Form SB-2 filed May 28, 1997).(1)
10.31     Employment Agreement, dated as of July 19, 1997, by and between Scheid
          Vineyards Inc. and Alfred G. Scheid (incorporated by reference to
          Exhibit number 10.44 to Amendment No. 2 to Registrant's Registration
          Statement on Form SB-2 filed July 21, 1997).(2)
10.32     Employment Agreement, dated as of July 19, 1997, by and between Scheid
          Vineyards Inc. and Scott D. Scheid (incorporated by reference to
          Exhibit number 10.45 to Amendment No. 2 to Registrant's Registration
          Statement on Form SB-2 filed July 21, 1997).(2)
10.33     Employment Agreement, dated as of July 19, 1997, by and between Scheid
          Vineyards Inc. and Heidi M. Scheid (incorporated by reference to
          Exhibit number 10.46 to Amendment No. 2 to Registrant's Registration
          Statement on Form SB-2 filed July 21, 1997).(2)
10.34     Employment Agreement, dated as of July 19, 1997, by and between Scheid
          Vineyards Inc. and Kurt J. Gollnick (incorporated by reference to
          Exhibit number 10.47 to Amendment No. 2 to Registrant's Registration
          Statement on Form SB-2 filed July 21, 1997).(2)
10.35     Form of Indemnification Agreement (incorporated by reference to
          Exhibit number 10.48 to Amendment No. 1 to Registrant's Registration
          Statement on Form SB-2 filed July 3, 1997).(2)
21.1      List of Subsidiaries (incorporated by reference to Exhibit number 21.1
          to Amendment No. 1 to Registrant's Registration Statement on Form SB-2
          filed July 3, 1997).
23.1*     Independent Auditors' Consent.
27*       Financial Data Schedule.
</TABLE>
     --------------
     *    Electronically filed herewith.

     +    Portions of this Exhibit have been deleted pursuant to the
          Registrant's requests for confidential treatment pursuant to Rule 406
          promulgated under the Securities Act or Rule 24b-2 promulgated under
          the Securities Exchange Act. 

     (1)  The contracting party is a predecessor in interest to Scheid Vineyards
          California Inc., Registrant's wholly owned subsidiary.

     (2)  Indicates a management contract or compensating plan or arrangement
          required to be filed as an exhibit to this Form 10-KSB.


                                      34

<PAGE>

(b)  Current Reports on Form 8-K

     None.


                                  SIGNATURES

     In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.



                            Scheid Vineyards Inc.


                        By:   /s/ ALFRED G. SCHEID
                            ------------------------
                                Alfred G. Scheid
                            CHIEF EXECUTIVE OFFICER
                         (PRINCIPAL EXECUTIVE OFFICER)



     In accordance with 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>
         SIGNATURE                        TITLE                      DATE
         ---------                        -----                      ----

 <S>                       <C>                                  <C>
  /s/ ALFRED G. SCHEID     Chairman of the Board and Chief
 -----------------------   Executive Officer (Principal
      Alfred G. Scheid     Executive Officer)                   March 22, 1999
                           

  /s/ HEIDI M. SCHEID      Vice President Finance, Chief        March 22, 1999
 -----------------------   Financial Officer, Secretary,     
      Heidi M. Scheid      Treasurer and Director (Principal 
                           Financial Officer)                

  /s/ SCOTT D. SCHEID      Vice President, Chief Operating      March 22, 1999 
 -----------------------   Officer and Director           
      Scott D. Scheid      

  /s/ JOHN L. CRARY        Director                             March 22, 1999
 -----------------------   
      John L. Crary

  /s/ ROBERT P. HARTZELL   Director                             March 22, 1999
 -----------------------   
      Robert P. Hartzell
</TABLE>


                                      35


<PAGE>

                         INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>

                                                                         Page
                                                                         ----
<S>                                                                      <C>
Independent Auditors' Report...........................................  F-2

Balance Sheets.........................................................  F-3

Statements of Operations...............................................  F-4

Statements of Cash Flows...............................................  F-5

Statements of Stockholders' Equity.....................................  F-6

Notes to Financial Statements..........................................  F-7

</TABLE>


                                      F-1

<PAGE>

                         INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Stockholders of
 Scheid Vineyards Inc.:

         We have audited the accompanying balance sheets of Scheid 
Vineyards Inc. and subsidiary (the "Company") as of December 31, 1998 and 
1997, and the related statements of operations, cash flows, and stockholders' 
equity for the years then ended. These financial statements are the 
responsibility of the Company's management. Our responsibility is to express 
an opinion on these financial statements based on our audits.

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

         In our opinion, such financial statements present fairly, in all 
material respects, the financial position of the Company as of December 31, 
1998 and 1997, and the results of its operations and its cash flows for the 
years then ended in conformity with generally accepted accounting principles.



Deloitte & Touche LLP
Los Angeles, California
February 19, 1999


                                      F-2

<PAGE>

                      SCHEID VINEYARDS INC. AND SUBSIDIARY

                                 BALANCE SHEETS
             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>

                                                                                   Notes         1998             1997
                                                                                   -----         ----             ----
<S>                                                                             <C>     <C>                <C>
                                                            ASSETS
CURRENT ASSETS:
   Cash and cash equivalents...................................................      2       $        5,031    $      14,483
   Accounts receivable, trade..................................................                         728              349
   Accounts receivable, other..................................................                         398              412
   Inventories.................................................................      3                  742            1,102
   Supplies, prepaid expenses and other current assets.........................                         614              813
   Deferred income taxes.......................................................      8                   38               --
                                                                                            ---------------- ----------------
        Total current assets...................................................                       7,551           17,159
PROPERTY, PLANT AND EQUIPMENT, NET.............................................     4,7              32,937           27,795
LONG-TERM RECEIVABLE...........................................................      5                5,572            4,679
OTHER ASSETS, NET..............................................................                         472              236
                                                                                            ---------------- ---------------
                                                                                              $      46,532    $      49,869
                                                                                            ================ ===============
                                             LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
   Current portion of long-term debt...........................................      7      $           275  $           660
   Accounts payable and accrued liabilities....................................                         716              519
   Accrued interest payable....................................................                         197              315
   Income taxes payable........................................................      8                2,480               --
                                                                                            ---------------- ---------------
        Total current liabilities..............................................                       3,668            1,494
LONG-TERM DEBT, NET OF CURRENT PORTION.........................................      7               11,562           17,851
DEFERRED COMPENSATION..........................................................      9                   --              662
DEFERRED INCOME TAXES..........................................................      8                  867              741
                                                                                            ---------------- ---------------
         Total liabilities.....................................................                      16,097           20,748
                                                                                            ---------------- ---------------
COMMITMENTS AND CONTINGENCIES .................................................     10
STOCKHOLDERS' EQUITY:..........................................................   6,11,12

   Preferred stock, $.001 par value; 2,000,000 shares authorized; no                                                        
     shares issued and outstanding.............................................                          --               --
   Common stock,                                                                                                             
     Class A, $.001 par value; 20,000,000 shares authorized;                                                                 
       3,325,000 and 2,300,000 shares issued in 1998 and 1997, respectively;
       2,872,950 and 2,300,000 shares outstanding in 1998 and 1997, respectively
     Class B, $.001 par value; 10,000,000 shares authorized;                                                                 
       3,374,100 and 4,400,000 shares issued and outstanding in 1998                                                         
       and 1997, respectively.................................................                            7                7
   Additional paid-in capital..................................................                      21,868           21,797
   Retained earnings...........................................................                      10,936            7,317
   Less: treasury stock; 452,050 Class A Common Stock at cost in                                                             
      1998, none in 1997.......................................................                      (2,376)              --
                                                                                            ---------------- ---------------
         Total stockholders' equity............................................                      30,435           29,121
                                                                                            ---------------- ---------------
                                                                                              $      46,532    $      49,869
                                                                                            ================ ================

</TABLE>

                                 See accompanying Notes to Financial Statements.

                                                      F-3

<PAGE>

                      SCHEID VINEYARDS INC. AND SUBSIDIARY

                            STATEMENTS OF OPERATIONS
              (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>

                                                                                                  YEAR ENDED DECEMBER 31,
                                                                                                  -----------------------
                                                                                      NOTES        1998           1997
                                                                                      -----        ----           ----
<S>                                                                                <C>      <C>              <C>
REVENUES:
   Sales...........................................................................             $     16,436    $     18,683
   Vineyard management, services and other fees....................................                    1,037           1,187
                                                                                                ------------    ------------
         Total revenues............................................................                   17,473          19,870
COST OF SALES......................................................................                    7,911           6,222
                                                                                                ------------    ------------
GROSS PROFIT.......................................................................                    9,562          13,648
   General and administrative expenses.............................................                    4,274           4,215
   Reversal of deferred compensation...............................................     9               (706)             --
   Interest expense (income) (net of interest income of $382 in 1998                                                     
      and $283 in 1997)............................................................                      (46)            700
                                                                                                ------------    ------------
INCOME BEFORE PROVISION FOR INCOME TAXES...........................................                    6,040           8,733
PROVISION FOR INCOME TAXES ........................................................     8              2,421           3,887
                                                                                                ------------    ------------
INCOME BEFORE DEFERRED TAX ADJUSTMENT..............................................                    3,619           4,846
DEFERRED INCOME TAXES FROM                                                                                                   
  REORGANIZATION TO C CORPORATION..................................................     2                 --           1,390
                                                                                                ------------    ------------
NET INCOME.........................................................................             $      3,619    $      3,456
                                                                                                ============    ============


BASIC AND DILUTED EARNINGS PER SHARE ..............................................     2       $       0.55    $       0.65
                                                                                                ============    ============


PRO FORMA AMOUNTS:                                                                      2                                    
INCOME BEFORE INCOME TAXES AS REPORTED.............................................                             $      8,733
PRO FORMA INCOME TAX PROVISION.....................................................                                    3,493
                                                                                                                ------------
PRO FORMA NET INCOME...............................................................                             $      5,240
                                                                                                                ============

PRO FORMA NET INCOME PER SHARE.....................................................                             $       0.98
                                                                                                                ============

WEIGHTED AVERAGE SHARES OUTSTANDING................................................     2          6,611,000       5,344,000
                                                                                                ============    ============

</TABLE>

                                 See accompanying Notes to Financial Statements.

                                                      F-4

<PAGE>

                      SCHEID VINEYARDS INC. AND SUBSIDIARY

                            STATEMENTS OF CASH FLOWS
                             (AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>

                                                                                                YEARS ENDED DECEMBER 31,
                                                                                                ------------------------
                                                                                                   1998           1997
                                                                                                   ----           ----
<S>                                                                                          <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income................................................................................   $      3,619   $      3,456
   Adjustments to reconcile net income to net cash provided by operating                                                   
      activities:                                                                                                          
          Depreciation, amortization and abandonments........................................          2,148          1,711
          Deferred compensation..............................................................           (662)            78
          Noncash compensation...............................................................             75
          Deferred income taxes..............................................................             88           (649)
          Deferred taxes arising from reorganization.........................................             --          1,390
    Changes in operating assets and liabilities:
      Accounts receivable, trade.............................................................           (379)           (75)
      Accounts receivable, other.............................................................             14           (409)
      Inventories............................................................................            360           (956)
      Supplies, prepaid expenses and other current assets....................................            199              6
      Accounts payable and accrued liabilities...............................................             79            133
       Income taxes payable..................................................................          2,480             --
                                                                                                ------------   ------------
        Net cash provided by operating activities............................................          8,021          4,685
                                                                                                ------------   ------------
CASH FLOWS FROM INVESTING ACTIVITIES:

   Long-term receivable......................................................................           (893)        (2,446)
   Proceeds from sale of property, plant and equipment.......................................            710             --
   Additions to property, plant and equipment................................................         (8,000)       (12,994)
   Other assets..............................................................................           (236)            40
                                                                                                ------------   ------------
        Net cash used in investing activities................................................         (8,419)       (15,400)
                                                                                                ------------   ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Increase in long-term debt................................................................          4,440         22,589
   Repayment of long-term debt...............................................................        (11,114)       (15,994)
   Repayment of notes payable, affiliates....................................................             --           (807)
   Repayment of note payable, stockholder....................................................             --         (1,000)
   Proceeds from issuance of common stock....................................................             --         20,700
   Stock offering costs......................................................................             --           (732)
   Repurchase of common stock................................................................         (2,380)            --
   Subchapter S distributions................................................................             --         (3,102)
   Partnership distributions.................................................................             --           (480)
                                                                                                ------------   ------------
        Net cash (used in) provided by financing activities..................................         (9,054)        21,174
                                                                                                ------------   ------------

        (Decrease) increase in cash and cash equivalents.....................................         (9,452)        10,459
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR.................................................         14,483          4,024
                                                                                                ------------   ------------
CASH AND CASH EQUIVALENTS, END OF YEAR.......................................................   $      5,031   $     14,483
                                                                                                ============   ============

</TABLE>

                                See accompanying Notes to Financial Statements.

                                                     F-5

<PAGE>

                      SCHEID VINEYARDS INC. AND SUBSIDIARY

                       STATEMENTS OF STOCKHOLDERS' EQUITY
                    (AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                          COMMON STOCK ISSUED                           RETAINED
                                                    -------------------------------                     EARNINGS
                                                  NUMBER OF      NUMBER OF               ADDITIONAL       AND
                                                   CLASS A        CLASS B                  PAID-IN      PARTNERS'    TREASURY
                                                   SHARES         SHARES       AMOUNT      CAPITAL       CAPITAL      SHARES 
                                                 ----------      ---------     ------    ----------     ---------    --------
<S>                                           <C>            <C>            <C>        <C>           <C>          <C>
BALANCE, JANUARY 1, 1997.....................             --          97,413    $    2     $     124   $    8,935           --
   Recapitalization as Delaware
     corporation and contribution of
     partnership interests...................             --       4,302,587         3         1,707       (1,492)          --
   Subchapter S distribution.................             --              --        --            --       (3,102)          --
   Partnership distributions.................             --              --        --            --         (480)          --
   Issuance of common stock, net of
     costs...................................      2,300,000              --         2        19,966           --           --
   Net income................................             --              --        --            --        3,456           --
                                                  ----------     -----------    ------      --------  -----------
BALANCE, DECEMBER 31, 1997 ..................      2,300,000       4,400,000         7        21,797        7,317           --
    Conversion of Class B shares to
      Class A shares (Note 11)...............      1,025,000      (1,025,000)       --            --           --           --
    Repurchase of common stock
      (Note 11)..............................             --              --        --            --           --    $  (2,380)
    Shares canceled .........................             --            (900)       --            (4)          --            4
    Stock issued for compensation............             --              --        --            75           --           --
    Net income...............................             --              --        --            --        3,619           --
                                                  ----------     -----------    ------      --------  -----------    ----------
BALANCE, DECEMBER 31, 1998 ..................      3,325,000       3,374,100    $    7      $ 21,868  $    10,936    $  (2,376)
                                                  ==========     ===========    ======      ========  ===========    ==========

</TABLE>

                                See accompanying Notes to Financial Statements.

                                                     F-6

<PAGE>

                     SCHEID VINEYARDS INC. AND SUBSIDIARY

                         NOTES TO FINANCIAL STATEMENTS

                    YEARS ENDED DECEMBER 31, 1998 AND 1997

1. ORGANIZATION AND BASIS OF PRESENTATION

         ORGANIZATION - The principal business of the Company is the 
production of premium varietal wine grapes. The Company currently operates 
approximately 6,000 acres of premium wine grape vineyards in Monterey and 
San Benito Counties, California.

         The Company has long-term grape purchase agreements with several 
wineries whereby the wineries agree to purchase substantially all of the 
Company's current grape production. These contracts generally expire no 
earlier than the completion of harvest in years ranging from 2001 to 2014 and 
are extended if neither party cancels two or three years before the 
expiration date. The largest set of these winery contracts with a single 
customer covers approximately 56% of the Company's acreage at December 31, 
1998 and accounted for approximately 74% and 81% of the Company's total 
revenues in 1998 and 1997, respectively.

         BASIS OF PRESENTATION - In connection with the Company's initial 
public stock offering as described below, the Company formed Scheid 
Vineyards Inc., a Delaware corporation ("SVI-Del"). SVI-Del conducts all of 
its business through its wholly owned subsidiary, Scheid Vineyards 
California Inc., a California corporation ("SVI-Cal").

         In July 1997, SVI-Del completed its initial public offering of 
2,000,000 shares of Class A Common Stock, par value $.001 per share. In 
September 1997, the underwriters of the Company's public offering exercised 
their over-allotment option to purchase 300,000 additional shares of Class A 
Common Stock. The increase in stockholders' equity due to the public offering 
totaled approximately $19,968,000, after deduction of offering-related 
expenses.

         The Company reported its operations through the date of the Exchange 
Transaction described below on a combined basis. Since the date of the 
Exchange Transaction, the Company reports its operations on a consolidated 
basis. All significant intercompany balances have been eliminated in the 
combination and consolidation.

         EXCHANGE OF PARTNERSHIP UNITS AND LIMITED LIABILITY COMPANY 
INTERESTS FOR CLASS B COMMON STOCK Immediately prior to the date of the 
Company's initial public stock offering, SVI-Cal was the general partner of 
two California limited partnerships, Vineyard Investors 1972 ("VI-1972") and 
Vineyard 405 ("V-405") and a member of a California limited liability 
company, Quadra Partners LLC ("Quadra Partners"). SVI-Cal and VI-1972 were 
the only limited partners of V-405. In connection with the Company's public 
offering, SVI- Del was formed to act as a holding company for SVI-Cal. The 
capital stock of SVI-Cal held by its sole stockholder, the membership 
interests held by all members (other than SVI-Cal) of Quadra Partners, and 
the limited partnership units held by all limited partners (other than SVI-Cal) 
in VI-1972 were contributed to SVI- Del in exchange for (i) 4,400,000 shares 
of Class B Common Stock of SVI-Del (the "Exchange Transaction") and (ii) a 
commitment by SVI-Cal to make the distributions described below. SVI-Del, as 
part of the Exchange Transaction, simultaneously contributed such limited 
partnership units in VI-1972 and such membership interests in Quadra Partners 
to SVI-Cal. As a result, each of VI-1972, V-405 and Quadra Partners was 
terminated and dissolved, and SVI-Cal succeeded to their respective assets 
and liabilities.


                                      F-7

<PAGE>

1. ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)

         For periods prior to the Exchange Transaction, the term "Company" 
refers collectively to SVI-Cal, VI-1972, V-405 and Quadra Partners on a 
combined basis, and for periods following the Exchange Transaction, the term 
"Company" refers collectively to SVI-Del and SVI-Cal on a consolidated basis.

         Prior to the Exchange Transaction, the financial statements were 
based upon the historical cost of assets and liabilities except that assets 
related to limited partnership interests purchased from unrelated partners 
were recorded at the cost of acquisition.

         DISTRIBUTIONS - Immediately prior to the offering, SVI-Cal's 
cumulative S Corporation earnings in the amount of $3,102,000 were distributed 
to its stockholder. In addition, a distribution of approximately $480,000 was 
made to the limited partners of VI-1972 (immediately prior to the Exchange 
Transaction) to pay income taxes on income from the partnership.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         CASH AND CASH EQUIVALENTS - The Company considers all highly liquid 
investments purchased with an original maturity of three months or less to be 
cash equivalents. At December 31, 1998 and 1997, substantially all cash 
balances were on deposit with the Company's major bank. At December 31, 1997, 
cash invested in short-term commercial paper with one large corporation 
totaled $12,000,000.

         INVENTORIES - Inventories are stated at the lower of FIFO (first-in, 
first-out) cost or market. Cost includes the cost of grown grapes, harvesting, 
production, aging and bottling, and tasting room merchandise. Wine inventories 
are classified as current assets in accordance with recognized trade practice 
although certain inventories will be aged for periods longer than one year. 
Crop costs associated with farming vineyards prior to the harvest are deferred 
and recognized in the year the grapes are harvested. On a quarterly basis, 
the Company evaluates the cost of its inventories and reduces such inventories 
to market if required.

         PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are 
stated at cost and are depreciated using straight-line and accelerated 
methods over the estimated useful lives of the assets. Vineyards generally 
have estimated depreciable lives of 25 to 30 years, buildings 30 years, and 
furniture and equipment 5 to 7 years. Development costs incurred during the 
development period of a vineyard including related interest are capitalized. 
Depreciation commences in the initial year the vineyard becomes commercially 
productive, generally in the fourth year. The Company capitalized interest 
totaling $641,000 and $294,000 in 1998 and 1997, respectively.

         REVENUE RECOGNITION - The Company recognizes revenue from grape 
sales when the grapes are delivered to the winery. The Company does not have 
any allowance for returns because grapes are tested and accepted upon 
delivery. Vineyard management and other services are recognized as provided. 
All revenues of the Company are derived from customers within the United 
States.

         FAIR VALUE OF FINANCIAL INSTRUMENTS - The fair values of accounts 
receivable and accounts payable approximate book value because of their short 
duration. Long-term receivables and long-term debt approximate book value 
because such financial instruments have variable, market driven, interest 
rates.


                                      F-8

<PAGE>

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE 
DISPOSED OF - Statement of Financial Accounting Standards ("SFAS") No. 121, 
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets 
to be Disposed of" requires that long-lived assets and certain identifiable 
intangibles to be held and used by the Company be reviewed for impairment 
whenever events or changes in circumstances indicate that the carrying amount 
of an asset may not be recoverable. This statement also requires that 
long-lived assets and certain identifiable intangibles to be disposed of be 
reported at the lower of carrying amount or fair value, less cost to sell. 
For the years ended December 31, 1998 and 1997, the Company has written down 
vineyard acres it intends to remove and redevelop by $555,000 and $328,000, 
respectively. The write-downs of the acres being redeveloped were based upon 
a comparison of net book values to total estimated revenues less estimated 
operating costs of the acres prior to removal.

         INCOME TAXES - Prior to the date of the Exchange Transaction, 
SVI-Cal elected to be treated as an S Corporation for federal income tax and 
California franchise tax purposes. Pursuant to this election, net income or 
loss of SVI-Cal was included in the income tax returns of the stockholder. 
Consequently, no federal income tax provision has been recorded in the 
accompanying financial statements through the date of the Exchange Transaction. 
However, under California state law, a franchise tax equal to 11/2% of 
taxable income is imposed upon S Corporations and is provided for in the 
accompanying financial statements through the date of the Exchange Transaction. 
VI-1972, V-405 and Quadra Partners were treated as partnerships for federal 
and state income tax purposes such that their income or loss was included in 
the taxable income of the partners.

         The Exchange Transaction resulted in the termination of SVI-Cal's 
S Corporation status. As a result, the Company currently pays income taxes at 
the corporate level. The pro forma income tax provision in the statement of 
operations for the year ended December 31, 1997 is based upon an assumed 40% 
federal and state income tax rate.

         In connection with the conversion of SVI-Cal's S Corporation status 
to C Corporation status, the Company was required by SFAS No. 109, "Accounting 
for Income Taxes" to record deferred tax liabilities and deferred tax assets. 
Such change resulted in a net charge to earnings of $1,390,000 upon the 
conversion to C Corporation status. This one-time charge is a result of 
differences in the accounting and tax treatment of certain of the Company's 
assets and liabilities and is reflected through (i) an increase in deferred 
income tax liabilities, partially offset by (ii) an increase in the Company's 
deferred tax assets.

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

         EARNINGS PER SHARE AND CLASSES OF COMMON STOCK - The weighted 
average shares outstanding in the statements of operations through the 
effective date of the Exchange Transaction are based upon the 4,400,000 
shares of Class B Common Stock outstanding after giving pro forma effect to 
the Exchange Transaction. The weighted average shares outstanding since the 
date of the Exchange Transaction are based on the actual weighted average 
shares of Class A and Class B Common Stock outstanding since the date of the 
Exchange Transaction. The effect of outstanding stock options and warrants on 
the weighted average shares was immaterial for the periods presented.


                                      F-9

<PAGE>

3. INVENTORIES

         Inventories consist of the following:

<TABLE>
<CAPTION>

                                                                               1998          1997
                                                                               ----          ----
<S>                                                                           <C>         <C>
Bulk and bottled wine....................................................    $339,000     $  612,000
Deferred crop costs......................................................     376,000        458,000
Tasting room merchandise.................................................      27,000         32,000
                                                                             --------     ----------
      Total..............................................................    $742,000     $1,102,000
                                                                             --------     ----------
                                                                             --------     ----------

</TABLE>

4. PROPERTY, PLANT AND EQUIPMENT

         Property, plant and equipment consists of the following:

<TABLE>
<CAPTION>

                                                                                1998            1997
                                                                                ----            ----
<S>                                                                         <C>             <C>
Land and buildings......................................................    $ 5,843,000     $ 6,515,000
Vineyard improvements...................................................     15,452,000      16,972,000
Vineyard improvements under development.................................     16,201,000       8,396,000
Machinery and equipment.................................................      4,030,000       3,598,000
                                                                            -----------     -----------
      Total.............................................................     41,526,000      35,481,000
Less accumulated depreciation and amortization..........................      8,589,000       7,686,000
                                                                            -----------     -----------
Property, plant and equipment - net.....................................    $32,937,000     $27,795,000
                                                                            -----------     -----------
                                                                            -----------     -----------

</TABLE>

5. LONG-TERM RECEIVABLE

         The Company has a contract to redevelop certain vineyards owned or 
controlled by a major client. The current contract calls for the expenditure 
of approximately $7,500,000 over a three-year period. The funds for this 
project are being borrowed, as an accommodation to the client, by the Company 
under a line of credit (see Note 7). The interest rate and payment terms of 
this receivable are the same as the related note payable. The note payable to 
the bank is secured by a letter of credit provided by the client and by the 
management contract. The contract calls for the payment of this receivable by 
the client's payment of the six annual principal installments under the line, 
beginning January 5, 2000. Under the contract, the client is responsible on 
an annual basis for determining the nature and amount of budgeted expenditures 
for the year. The client is obligated to advance the budgeted costs to the 
Company on a monthly basis, which are funded out of draws under the line of 
credit.

6. CROP LINE OF CREDIT

         The Company has a crop line of credit with a bank which currently 
provides for maximum borrowings of $10,500,000 through June 5, 2000. Borrowings 
are secured by crops and other assets with interest due quarterly at the 
bank's reference rate. No amounts were outstanding under this agreement at 
December 31, 1998 and 1997.


                                      F-10

<PAGE>

6. CROP LINE OF CREDIT (CONTINUED)

         The crop line prohibits the payment of dividends without the consent 
of the lender and contains various financial covenants, including minimum 
tangible net worth amounts, and current and total debt to net worth ratios. 
The Company was in compliance with all financial provisions of the agreement 
at December 31, 1998 and 1997.

7. LONG-TERM DEBT

         Long-term debt consists of the following:

<TABLE>
<CAPTION>

                                                                                         1998                   1997
                                                                                         ----                   ----
<S>                                                                                   <C>                    <C>
Revolving/Declining Line of Credit Agreement with a bank which
   provides for a maximum borrowing of $3,000,000 diminishing
   annually to a maximum allowable commitment of $1,071,000,
   which is due on June 5, 2005. The line of credit is secured by a
   leasehold interest in 707 vineyard acres. Interest is payable
   quarterly at the lower of a bank-quoted fixed rate or  3/4% over
   the bank's reference rate (7.34% at December 31, 1998)...................          $       --             $2,572,000
Revolving/Declining Line of Credit Agreement with a bank which
   provides for a maximum borrowing of $2,835,000 diminishing
   annually to a maximum allowable commitment of $1,775,000,
   which is due on June 5, 2007. The line of credit is secured by a
   deed of trust on 405 vineyard acres. Interest is payable quarterly
   at  the lower of a bank-quoted fixed rate or  1/4% over the bank's
   reference rate (7.34% at December 31, 1998)..............................                  --              2,835,000
Revolving/Declining Line of Credit Agreement with a bank which
   provides for a maximum borrowing of $1,450,000 diminishing
   annually to a maximum allowable commitment of $586,000,
   which is due on June 5, 2007. The line of credit is secured by a
   leasehold interest in 352 vineyard acres. Interest is payable
   quarterly at  the lower of a bank-quoted fixed rate or  1/4% over
   the bank's reference rate (7.37% at December 31, 1998)...................                  --              1,450,000
Revolving/Declining Line of Credit Agreement with a bank which
   provides for a maximum borrowing of $3,600,000 diminishing
   annually to a maximum allowable commitment of $1,980,000,
   which is due on June 5, 2008. The line of credit is secured by a
   deed of trust on 370 vineyard acres. Interest is payable
   quarterly at  the lower of a bank-quoted fixed rate or the bank's
   reference rate (7.37% at December 31, 1998)..............................                  --                     --
Note payable to bank, with interest at the lower of a bank-quoted
   fixed rate or the bank's reference rate plus  3/4% (7.37% at
   December 31, 1998), principal due in annual installments
   through July 5, 2005, secured by trust deed on 707 vineyard
   acres....................................................................           1,275,000              1,350,000
Note payable to bank, with interest at the lower of a bank-quoted
   fixed rate or the bank's reference rate plus  3/4% (7.37% at
   December 31, 1998), principal due in annual installments
   through October 5, 2004, secured by first deed of trust on 1,063
   acres of real property...................................................           4,850,000              5,050,000


                                     F-11

<PAGE>

7. LONG-TERM DEBT (CONTINUED)

Note secured by business residential real property .........................                  --                435,000
Note payable, with interest at 1 % over a bank's reference rate,
   secured by deeds of trust................................................             140,000                140,000
Note payable to bank represents borrowings on a $7,500,000 line
   of credit, which bears interest at the bank's reference rate
   (6.06% at December 31, 1998). The note is secured by a letter
   of credit provided by a major client, and is used for costs
   incurred for the development of certain vineyards owned by the
   client (see Note 5). Principal due in six annual installments
   beginning January 5, 2000................................................           5,572,000              4,679,000
                                                                                     -----------            -----------
      Total.................................................................          11,837,000             18,511,000
Less current maturities.....................................................             275,000                660,000
                                                                                     -----------            -----------
Long-term portion...........................................................         $11,562,000            $17,851,000
                                                                                     -----------            -----------
                                                                                     -----------            -----------

</TABLE>

         Principal payments required on long-term debt for each of the next 
five years ending December 31 are as follows:

<TABLE>
              <S>                                                <C>
              1999...........................................    $   275,000
              2000...........................................        972,000
              2001...........................................        920,000
              2002...........................................        920,000
              2003...........................................        920,000
              Thereafter.....................................      7,830,000
                                                                 -----------
              Total..........................................    $11,837,000
                                                                 -----------
                                                                 -----------

</TABLE>

         Substantially all of the Company's property, plant and equipment 
serves as collateral for long-term debt. In addition, the credit facilities 
and notes contain various financial covenants, including minimum tangible net 
worth amounts, and current and total debt to net worth ratios. The Company was 
in compliance with all financial provisions of the agreements at December 31, 
1998 and 1997.

8. INCOME TAXES

         Significant components of the Company's net deferred income tax 
assets and liabilities at December 31, 1998 and 1997 are as follows:

<TABLE>
<CAPTION>

                                                                                  1998         1997
                                                                                  ----         ----
              <S>                                                              <C>          <C>
              Current deferred income tax assets:
                State income taxes........................................     $ 169,000    $     --
                Miscellaneous reserves....................................        86,000          --
              Current deferred income tax liabilities:
                Prepaid expenses..........................................      (217,000)         --
                                                                               ---------    ----------
              Net current deferred income tax asset........................    $  38,000    $     --
                                                                               ---------    ----------
                                                                               ---------    ----------

</TABLE>


                                     F-12

<PAGE>

8. INCOME TAXES (CONTINUED)

<TABLE>
<CAPTION>
                                                                                 1998          1997
                                                                                 ----          ----
              <S>                                                             <C>          <C>
              Long-term deferred income tax assets:
                Deferred compensation......................................   $     --     $   284,000
                State income taxes.........................................      73,000        403,000
                Other......................................................         --          86,000
              Long-term deferred income tax liabilities:
                Depreciation...............................................    (940,000)    (1,514,000)
                                                                              ---------    -----------
              Net long-term deferred income tax liability..................   $(867,000)   $  (741,000)
                                                                              ---------    -----------
                                                                              ---------    -----------
</TABLE>

         The provision for income taxes is as follows:

<TABLE>
<CAPTION>
                                                                                 1998           1997
                                                                                 ----           ----
              <S>                                                             <C>            <C>
              Current:
                Federal....................................................   $1,797,000     $3,600,000
                State......................................................      536,000        936,000
                                                                              ----------     ----------
              Total........................................................    2,333,000      4,536,000
                                                                              ----------     ----------
              Deferred:
                Federal....................................................       87,000       (576,000)
                State......................................................        1,000        (73,000)
                                                                              ----------     ----------
              Total........................................................       88,000       (649,000)
                                                                              ----------     ----------
              Total provision for income taxes.............................   $2,421,000     $3,887,000
                                                                              ----------     ----------
                                                                              ----------     ----------
</TABLE>

         The Company's effective income tax rate differs from the federal 
statutory income tax rate due to the following:

<TABLE>
<CAPTION>
                                                                               1998          1997
                                                                               ----          ----
              <S>                                                             <C>           <C>
              Federal statutory rate................................          34.0 %        34.0 %
              Losses allocated to Subchapter                                                                 
                S Corporation shareholder...........................           --            4.0
              State taxes, net of federal benefit...................           5.9           6.5
              Other.................................................           0.2           --
                                                                              ------        ------
              Total.................................................          40.1 %        44.5 %
                                                                              ------        ------
                                                                              ------        ------
</TABLE>

9. DEFERRED COMPENSATION

         The Company had a non-qualified deferred compensation arrangement 
with an employee. The arrangement provided for annual payments of $100,000 
commencing upon the employee's retirement. The deferred compensation 
liability included in the accompanying balance sheet at December 31, 1997 
represented the net present value at 7% of the expected future payments. The 
employee passed away in August 1998 negating the need for the accrued 
liability of $706,000. Compensation expense related to the arrangement was 
$44,000 and $78,000 for the years ended December 31, 1998 and 1997, 
respectively.


                                      F-13

<PAGE>

10. COMMITMENTS AND CONTINGENCIES

         LEASE OBLIGATIONS - The Company has various operating lease 
agreements for office space and farm land. The lease for office space is with 
a related partnership and runs until June 1999. The rent is currently 
$102,000 annually.

         Farm land leases cover approximately 2,133 acres with initial terms 
ranging from 7 to 30 years. The land leases provide for options to renew 
ranging from 10 to 20 years and contain provisions for rent adjustments based 
upon the prevailing market rate, Consumer Price Index, or revenue generated 
by the property, and also provide for payments of taxes, insurance and 
maintenance costs.

         Aggregate minimum rental payments for each of the next five years 
ending December 31 are as follows:

<TABLE>

  <S>                                              <C>
    1999............................................  $     771,000
    2000............................................        752,000
    2001............................................        765,000
    2002............................................        765,000
    2003............................................        652,000
    Thereafter......................................     10,527,000

</TABLE>

         Rent charged to operations was $569,000 and $485,000 for the years 
ended December 31, 1998 and 1997, respectively.

         PENSION PLANS - The Company has two 401(k) Profit Sharing Plans. The 
first plan is for the benefit of the Company's employees who are covered by 
the United Farm Workers of America Collective Bargaining Agreement. All union 
employees of the Company are eligible to participate after having worked 500 
hours within a one-year period. The Company contributes 15 cents for each 
hour worked by eligible employees, subject to the limitations imposed by the 
Internal Revenue Code. The Company's contribution to the union employees' 
plan amounted to $62,000 and $50,000 for the years ended December 31, 1998 
and 1997, respectively.

         The second plan covers the Company's non-union employees. All 
non-union employees of the Company are eligible to participate in the plan 
after one year of employment. Employees may contribute between 1% and 15% of 
their annual compensation. The Company matches 50 cents for every dollar of 
employee contributions up to 6% of their annual salaries, subject to the 
limitations imposed by the Internal Revenue Code. The Company's contribution 
to this plan amounted to $36,000 and $31,000 for the years ended December 31, 
1998 and 1997, respectively.

         OTHER - The Company was committed to the purchase of vineyard 
materials at December 31, 1998 in the amount of $1,316,000.

                                      F-14
<PAGE>

11. COMMON STOCK

         In connection with the stock offering (see Note 1), the Company sold 
2,300,000 shares of Class A Common Stock. Each share of Class A Common Stock 
is entitled to one vote and each share of Class B Common Stock is entitled to 
five votes on all matters submitted to a vote of the stockholders. The 
holders of the Class A Common Stock, voting as a separate class, elect 25% of 
the total Board of Directors, rounded up to the nearest whole number, of the 
Company and the holders of the Class B Common Stock, voting as a separate 
class, elect the remaining directors. Each share of Class B Common Stock is 
convertible into one share of Class A Common Stock at the option of the 
holder or automatically upon transfer to a person other than certain 
specified persons. Except for the differing voting rights, the shares of 
Class A and Class B common stock have substantially identical rights, 
preferences and privileges. In 1998, the Company's Chairman/Chief Executive 
Officer and his wife sold and gifted a total of 1,025,000 shares of Class B 
Common Stock which were automatically converted to an equal number of shares 
of Class A Common Stock at the time of gift or transfer.

         The Company granted the representative of the underwriters of the 
offering warrants to purchase 200,000 shares of common stock. The warrants 
are exercisable at $14.00 per share any time between July 24, 1998 and July 
24, 2002.

         On October 27, 1998, the Company announced that it had instituted a 
stock repurchase program in which the Company may spend up to $2.5 million in 
open market transactions to purchase outstanding shares of its Class A Common 
Stock at such times, in such amounts or blocks and at such prices as deemed 
appropriate. This repurchase program will expire on September 30, 1999. 
Through December 31, 1998, the Company had repurchased 247,350 shares under 
this program for approximately $1,130,000.

         In connection with the adoption of the new stock repurchase program, 
the Company terminated its prior stock repurchase program adopted in July 
1998. This program would have expired on January 31, 1999 and authorized the 
purchase of up to 200,000 shares of Class A Common Stock. Under the prior 
repurchase program, the Company repurchased 102,600 shares of Class A Common 
Stock. The Company also made other repurchases earlier in 1998 of 103,000 
shares of Class A Common Stock. The aggregate purchase price for these 
205,600 shares was approximately $1,250,000.


12. STOCK OPTION PLAN

          In 1997, the Board of Directors of the Company adopted the 1997 
Stock Option/Stock Issuance Plan authorizing the issuance of qualified or 
non-qualified stock options to directors, officers, employees, consultants 
and others to purchase up to 200,000 shares of the Company's Class A Common 
Stock at prices equal to the fair value of the Company's stock at the date of 
grant. In July and November 1997, options to purchase a total of 162,000 
shares were granted at an exercise price of $10.00 per share. Such options 
vest one-quarter each year, beginning one year after the grant date or a 
specified vesting commencement date and expire ten years after the earlier of 
the grant date and the vesting commencement date.

         On October 8, 1998, the Board of Directors approved the cancellation 
of 71,000 options, and regranted such options at $4.00 per share, the then 
fair market value of the Class A Common Stock of the Company. All other terms 
of the options remained identical.

                                      F-15
<PAGE>

12. STOCK OPTION PLAN (CONTINUED)

         In May 1998, the Company granted options to purchase a total of 
5,000 shares to non-employee members of the Company's Board of Directors. 
These options vest one year from grant date.

         The following summarizes stock option activity for the periods 
presented:

<TABLE>
<CAPTION>

                                                                     WEIGHTED AVERAGE
                                                     SHARES          EXERCISE PRICES
                                                     ------          ---------------
<S>                                               <C>               <C>
Outstanding, January 1, 1997.....................            --                  --
 Granted ........................................       162,000              $10.00
                                                   -------------     ---------------
Outstanding, December 31, 1997...................       162,000              $10.00
 Granted.........................................        76,000               $4.29
 Canceled........................................      (102,000)             $10.00
                                                   -------------     ---------------
Outstanding, December 31, 1998...................       136,000               $6.81
                                                   =============     ===============

<CAPTION>

                                                      1998                1997
                                                      ----                ----
<S>                                             <C>                 <C>
Range of exercise prices.........................   $4.00-$10.00           $10.00
Options exercisable..............................      46,000               None
Weighted average exercise price of options                                          
    exercisable..................................       $6.53                --
Weighted average fair value of options granted...       $4.89               $3.69
Weighted average remaining contractual life......     8.6 years           9.6 years

</TABLE>

           The Company accounts for its stock-based awards using the 
intrinsic value method in accordance with Accounting Principles Board Opinion 
No. 25, "Accounting for Stock Issued to Employees" and its related 
interpretations. Accordingly, no compensation expense has been recognized in 
the financial statements for employee stock arrangements.

           SFAS No. 123, "Accounting for Stock-Based Compensation", requires 
the disclosure of pro forma net income and net income per share. Under SFAS 
No. 123, the fair value of stock-based awards to employees is calculated 
through the use of options 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 also require subjective 
assumptions, including future stock price volatility and expected time to 
exercise, 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 years following 
vesting; 62% and 29% stock price volatility in 1998 and 1997, respectively; 
weighted average risk free rate of return of 6.0%; and no dividends during 
the expected term. Forfeitures are recognized as they occur. If the computed 
fair values of the Company's stock option awards had been amortized to 
expense over the vesting period of the awards, net income for the years ended 
December 31, 1998 and 1997 would have been reduced to the pro forma amounts 
indicated below. There were no grants prior to 1997.

                                      F-16
<PAGE>

12. STOCK OPTION PLAN (CONTINUED)

<TABLE>
<CAPTION>

                                                     1998               1997
                                                     ----               ----
<S>                                         <C>                   <C>
Net income:

  As reported................................ $    3,619,000         $    3,456,000
  Pro forma.................................. $    3,466,000         $    3,394,000

Net income per share:

  As reported................................ $         0.55         $         0.65
  Pro forma.................................. $         0.52         $         0.64

</TABLE>

13. SUPPLEMENTAL CASH FLOW INFORMATION

         Supplemental disclosures to the statements of cash flows are as 
follows:

<TABLE>
<CAPTION>

                                                     1998              1997
                                                     ----              ----
<S>                                         <C>               <C>
Interest paid (net of amount capitalized).... $      454,000     $     872,000
Income taxes paid............................ $          --      $   4,550,000

</TABLE>

                                               F-17