================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-Q

    (MARK ONE)

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

                  For the quarterly period ended June 30, 2004

                                       OR

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

             For the transition period from __________ to __________


                         Commission file number: 0-13406


                          THE CHALONE WINE GROUP, LTD.
             ______________________________________________________
             (Exact Name of Registrant as Specified in Its Charter)


          California                                             94-1696731
_______________________________                              ___________________
(State or Other Jurisdiction of                               (I.R.S. Employer
Incorporation or Organization)                               Identification No.)


            621 Airpark Road
            Napa, California                                            94558
________________________________________                              __________
(Address of Principal Executive Offices)                              (Zip Code)


        Registrant's Telephone Number, Including Area Code: 707-254-4200


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                              Yes [X]      No [ ]


Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Act).

                              Yes [ ]      No [X]


The number of shares  outstanding of Registrant's  Common Stock as of August 13,
2004 was 12,097,360.

================================================================================

<PAGE>

                         PART I - FINANCIAL INFORMATION


                                                                            PAGE


ITEM 1. FINANCIAL STATEMENTS.


        Consolidated Balance Sheets as of June 30, 2004, and
        December 31, 2003.                                                    3

        Consolidated Statements of Income for the three-month
        and six-month periods ended June 30, 2004 and 2003.                   4

        Consolidated Statements of Cash Flows for the six-month
        periods ended June 30, 2004 and 2003.                                 5

        Notes to Consolidated Financial Statements.                           6

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
        CONDITION AND RESULTS OF OPERATIONS.                                  8

ITEM 3. DISCLOSURE ABOUT MARKET RISK.                                        12

ITEM 4. CONTROLS AND PROCEDURES.                                             15


                           PART II - OTHER INFORMATION


ITEM 5. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.                 16

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.                                    16


                                       2

<PAGE>

<TABLE>
<CAPTION>

                          THE CHALONE WINE GROUP, LTD.
                           CONSOLIDATED BALANCE SHEETS
                (All amounts in thousands, except per share data)

                                     ASSETS

                                                              June 30,     December 31,
                                                              ________     ____________
                                                                2004           2003
                                                              ________       ________
                                                                    (UNAUDITED)
<S>                                                           <C>            <C>

Current assets:
  Accounts receivable, net                                    $ 17,558       $ 19,753

  Note receivable
                                                                   224            210
  Income tax receivable
                                                                     0            232
  Inventory
                                                                78,584         84,840
  Prepaid expenses and other current assets
                                                                   486            405
                                                              ________       ________
    Total current assets                                        96,852        105,440

Investment in Chateau Duhart-Milon                              11,165         11,278

Non-current note receivable                                         97            218

Property, plant and equipment, net                              70,442         72,494

Goodwill and trademarks                                         11,440         11,446

Other assets                                                     2,064          1,719
                                                              ________       ________
    Total assets                                              $192,060       $202,595
                                                              ========       ========

            LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
  Current maturities of long-term obligations                 $  4,353       $  7,154

  Current portion of obligation under capital lease                822            791

  Revolving bank loan                                           18,125         13,800

  Accounts payable and accrued liabilities                      12,840         25,805
                                                              ________       ________
    Total current liabilities                                   36,140         47,550

Long-term obligations, less current maturities                  41,125         39,759

Long-term obligations, convertible subordinated debt            11,000         11,000

Obligation under capital lease, less current maturities            435            859

Liability on interest rate swap contract                           557          1,084

Deferred income taxes                                            1,396          1,180
                                                              ________       ________
    Total liabilities                                           90,653        101,432


Minority interest                                                3,343          3,165

Shareholders' equity:
  Common stock - authorized 25,000,000 shares no par
    value; issued and outstanding: 12,096,871 and
    12,075,101 shares                                           76,598         76,472

  Retained earnings                                             23,221         23,164

  Accumulated other comprehensive loss                          (1,755)        (1,638)
                                                              ________       ________
    Total shareholders' equity                                  98,064         97,998
                                                              ________       ________
    Total liabilities and shareholders' equity                $192,060       $202,595
                                                              ========       ========


           SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

</TABLE>


                                       3

<PAGE>

<TABLE>
<CAPTION>

                          THE CHALONE WINE GROUP, LTD.
                        CONSOLIDATED STATEMENTS OF INCOME
                (All amounts in thousands, except per share data)


                                                     Three months ended             Six months ended
                                                   _______________________       _______________________
                                                   June 30,       June 30,       June 30,       June 30,
                                                     2004           2003           2004           2003
                                                   ________       ________       ________       ________
                                                 (UNAUDITED)    (UNAUDITED)    (UNAUDITED)    (UNAUDITED)
<S>                                                <C>            <C>            <C>            <C>

Gross revenues                                     $ 18,755       $ 15,989       $ 31,470       $ 29,914
Excise Taxes                                           (533)          (485)          (897)          (902)
                                                   ________       ________       ________       ________
Net revenues                                         18,222         15,504         30,573         29,012
Cost of wines sold                                  (12,401)       (10,478)       (20,812)       (19,391)
                                                   ________       ________       ________       ________
Gross profit                                          5,821          5,026          9,761          9,621
Other operating income (expense), net                   (19)            26              -             21
Costs associated with proposed acquisition             (312)             -           (312)             -
Depreciation and Amortization                          (133)          (268)          (421)          (447)
Selling, general and administrative expenses         (3,492)        (3,360)        (6,712)        (6,301)
                                                   ________       ________       ________       ________
   Operating income                                   1,865          1,424          2,316          2,894
Interest expense, net                                (1,355)        (1,129)        (2,835)        (2,504)
Other income (expense)                                  140             45            202             98
Equity in net income of Chateau Duhart-Milon            594            453            594            453
Minority interests                                     (117)           (48)          (179)           (87)
                                                   ________       ________       ________       ________
Income before income taxes                            1,127            745             98            854
Income taxes                                           (462)          (305)           (40)          (350)
                                                   ________       ________       ________       ________
Net income                                         $    665       $    440       $     58       $    504
                                                   ========       ========       ========       ========

Earnings per share - basic                         $   0.06       $   0.03       $      -       $   0.04

Earnings per share - diluted                       $   0.05       $   0.03       $      -       $   0.04

Weighted average number of shares outstanding:

Basic                                                12,086         12,075         12,084         12,075
Diluted                                              12,144         12,079         12,122         12,079


           SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

</TABLE>


                                       4


<PAGE>

<TABLE>
<CAPTION>

                          THE CHALONE WINE GROUP, LTD.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                           (All amounts in thousands)

                                                                     Six months ended
                                                                 ________________________
                                                                 June 30,        June 30,
                                                                   2004            2003
                                                                 ________        ________
<S>                                                              <C>             <C>

(UNAUDITED) (UNAUDITED)
Cash flows from operating activities:
  Net income                                                     $     58        $    504
  Adjustments to reconcile net income to net cash provided
    by operating activities:
      Depreciation and amortization                                 3,046           2,925
      Gain on disposal of property                                    (76)            (14)
      Equity in net income of Chateau Duhart-Milon                   (594)           (453)
      Increase in minority interests                                  178              87
    Changes in:
      Accounts and other receivables                                2,427           2,210
      Inventories                                                   6,256           6,111
      Prepaid expenses and other assets                              (426)            287
      Deferred income taxes                                             0               -
      Accounts payable and accrued liabilities                    (12,966)         (7,862)
                                                                 ________        ________
    Net cash provided by (used in) operating activities            (2,097)          3,795
                                                                 ________        ________
Cash flows from investing activities:
  Capital expenditures                                               (998)         (3,685)
  Proceeds from disposal of property and equipment                     86              14
  Net change of note receivable                                       107             103
  Distribution from Chateau Duhart-Milon                              279             870
                                                                 ________        ________
    Net cash used in investing activities:                           (526)         (2,698)
                                                                 ________        ________
Cash flows from financing activities
  Borrowings on revolving bank loan, net                            4,325             675
  Distributions to minority partner                                     -            (650)
  Net change in capital lease obligation                             (393)           (393)
  Repayment of long-term debt                                      (1,435)           (731)
  Proceeds (re-purchase of) from issuance of common stock             126               2
                                                                 ________        ________
    Net cash (used in) provided by financing activities             2,623          (1,097)
                                                                 ________        ________
Net increase (decrease) in cash and equivalents                         -               -
Cash and equivalents at beginning of year                               -               -
                                                                 ________        ________
Cash and equivalents at end of year                              $      -        $      -
                                                                 ========        ========

Other cash flow information:
  Interest paid                                                  $  2,544        $  2,604
  Income taxes paid                                                    43             219
Non-cash investing and financing activities:
  Unrealized foreign currency gain                               $   (428)       $    866
  Interest swap fluctuation, net                                      311              36

                               SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

</TABLE>


                                       5


<PAGE>


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

      The unaudited consolidated financial statements of the Chalone Wine Group,
Ltd.  ("the  Company") are prepared in  conformity  with  accounting  principles
generally  accepted  in the  United  States of  America  for  reporting  interim
financial  information,  and the rules and  regulations  of the  Securities  and
Exchange Commission. In the opinion of management, all adjustments necessary for
a fair presentation of the financial  position and results of operations for the
periods  presented  have been  included.  All such  adjustments  are of a normal
recurring nature.  These unaudited  consolidated  financial statements should be
read in conjunction with the audited consolidated  financial statements included
in the  Company's  Form 10-K for the year ended  December 31,  2003.  Results of
operations for the three and six months ended June 30, 2004 are not  necessarily
indicative of the operating  results for the full  accounting year or any future
period.

      The consolidated balance sheet at December 31, 2003, presented herein, has
been derived from the audited  consolidated  financial statements of the Company
for the year then ended, included in the Company's annual report on Form 10-K.


USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS

     The  preparation of the financial  statements in conformity with accounting
principles   generally  accepted  in  the  United  States  of  America  requires
management to make estimates and assumptions that affect the reported  financial
statement  amounts  and  related  disclosures  at  the  date  of  the  financial
statements. Actual results could differ from these estimates.


EARNINGS PER SHARE

     Basic  earnings  per share  ("EPS")  excludes  dilution  and is computed by
dividing net income  available to common  stockholders  by the weighted  average
number of common  shares  outstanding  for the period.  Diluted EPS reflects the
potential  dilution that could occur if  securities or other  contracts to issue
common stock (e.g.  stock options) were exercised and converted into stock.  For
all periods  presented,  the  difference  between  basic and diluted EPS for the
Company reflects the inclusion of dilutive stock options, the effect of which is
calculated using the treasury stock method.


DERIVATIVE FINANCIAL INSTRUMENTS

     The Company uses  derivative  instruments  to manage  exposures to interest
rate  risks in  accordance  with  its  risk  management  policy.  The  Company's
objectives  for holding  derivatives  are to  minimize  the risks using the most
effective  methods  to  eliminate  or  reduce  the  exposure  to  interest  rate
fluctuations.  The Company formally  documents the relationship  between hedging
instruments  and  hedged  items as well as its  risk  management  objective  and
strategy for undertaking its hedging activities. The Company formally designates
derivatives  as  hedging  instruments  on the date the  derivative  contract  is
entered  into.  The Company  assesses,  both at inception of the hedge and on an
ongoing  basis,  whether  derivatives  used as  hedging  instruments  are highly
effective  in  offsetting  the changes in the fair value or cash flows of hedged
items. If it is determined that a derivative is not highly  effective as a hedge
or ceases to be highly  effective,  the Company  discontinues  hedge  accounting
prospectively.

     Changes in the fair value of derivative instruments designated as cash flow
hedges,  to the extent the hedges are highly  effective,  are  recorded in other
comprehensive income, net of related tax effects. The ineffective portion of the
cash flow  hedge,  if any,  is  recognized  in  current-period  earnings.  Other
comprehensive  income is relieved  when  current  earnings  are  affected by the
variability of cash flows relating to the derivative  hedged.  During the period
ended June 30, 2004,  the Company's  derivative  contracts  consisted only of an
interest rate swap used by the Company to convert a portion of its variable rate
long-term debt to fixed rate.

      The  Company  does not enter into  financial  instruments  for  trading or
speculative purposes.  Payments or receipts on interest rate swap agreements are
recorded in interest  expense.  Forward  exchange  contracts  are used to manage
exchange  rate  risks on  certain  purchase  commitments,  generally  French oak
barrels,  denominated in foreign  currencies.  Gains and losses relating to firm
purchase  commitments are deferred and are recognized as adjustments of carrying
amounts of assets acquired or in income when the hedged transaction  occurs. The
nominal amounts and related foreign currency  transaction gains and losses,  net
of the impact of hedging, were not significant for the six months ended June 30,
2004 and 2003.


                                       6



<PAGE>


STOCK BASED COMPENSATION

      The  Company  accounts  for  stock-based  awards  to  employees  using the
intrinsic value based method in accordance with APB No. 25, ACCOUNTING FOR STOCK
ISSUED TO EMPLOYEES and provides the pro forma disclosures  required by SFAS No.
123, ACCOUNTING FOR STOCK-BASED  COMPENSATION.  No compensation expense has been
recognized in the financial statements for employee stock arrangements.

      As of January 1, 2003 the Company  adopted the disclosure  requirements of
SFAS 148,  ACCOUNTING  FOR STOCK BASED  COMPENSATION,  which  amends  Accounting
Principals  Board ("APB") No. 28 by adding to the list of disclosures to be made
for interim reporting periods.

      SFAS 123 requires the  disclosure of pro forma net income and earnings per
share had the  Company  adopted  the fair value  method as of the  beginning  of
fiscal  year 1995.  Under  SFAS 123,  the fair  value of  stock-based  awards to
employees is calculated  through the use of option pricing  models,  even though
such models were developed to estimate the fair value of freely tradable,  fully
transferable  options without vesting  restrictions,  which significantly differ
from the Company's  stock option  awards.  These models also require  subjective
assumptions,  including  future stock  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, 116 months following  vesting;  stock volatility of
34.7% to 35.5% for the six months ended June 30, 2004 and 32.7% to 33.5% for the
six months end June 30, 2003, risk-free interest rates of 4.27% to 4.59% for the
six months  ended June 30, 2004 and 3.43% to 3.83% for the six months ended June
30, 2003, and no dividends during the expected term. The Company's  calculations
are based on a multiple option valuation approach and forfeitures are recognized
as they occur.

      For purposes of pro forma  disclosures,  the  estimated  fair value of the
options is amortized over the options'  vesting period.  Had the Company's stock
option and stock purchase plan been accounted for under SFAS No. 123, net income
and  earnings  per share  would  have been  reduced to the  following  pro forma
amounts (IN THOUSANDS, EXCEPT PER SHARE DATA).

                                  Three months ended        Six months ended
                                 ____________________     _____________________
                                 June 30,    June 30,     June 30,     June 30,
                                   2004        2003         2004         2003
                                 ________    ________     ________     ________
Net income:
       As reported               $    665    $    440     $     58     $    504
       Compensation Expense,
          net of tax             $   (365)   $   (167)    $   (394)    $   (190)
                                 ________    ________     ________     ________
       Pro forma                 $    300    $    273     $   (336)    $    314
Earnings per share:
       Basic                     $   0.06    $   0.04     $      -     $   0.04
       Diluted                   $   0.05    $   0.04     $      -     $   0.04
       Pro forma basic           $   0.02    $   0.02     $  (0.04)    $   0.03
       Pro forma diluted         $   0.02    $   0.02     $  (0.04)    $   0.03


NOTE 2 - COMPREHENSIVE INCOME

     Comprehensive  income includes unrealized foreign currency gains and losses
related to the Company's  investment in Chateau Duhart-Milon and gains or losses
relating to derivative  instruments.  The following is a  reconciliation  of net
income and comprehensive income (IN THOUSANDS):


                                        Three months ended    Six months ended
                                             June 30,             June 30,
                                        __________________    _________________
                                          2004      2003      2004      2003
                                          _____     _____     _____     _______

Net income                                $ 665     $ 440     $  58     $   504
Changes in fair value of derivatives;
   net of tax effect                        107      (206)      129        (178)
Reclassification adjustment; net of
   tax effect                                90       149       182         199
Foreign currency translation gain           (88)      562      (428)        866
                                          _____     _____     _____     _______
Comprehensive income                      $ 774     $ 945     $ (59)    $ 1,391
                                          =====     =====     =====     =======


                                       7


<PAGE>


NOTE 3 - INVENTORIES

Inventories  are  stated at lower of cost  (first-in,  first-out)  or market and
consist of the following (IN THOUSANDS):


                              June 30,      December 31,
                                2004            2003
                              ________      ____________
                              (Unaudited)

Bulk wine                     $36,556         $50,502
Bottled wine                   41,589          33,955
Wine packaging supplies           165             165
Other                             274             218
                              _______         _______
Total                         $78,584         $84,840
                              =======         =======


NOTE 4 - COMMITMENTS AND CONTINGENCIES

      Future minimum lease payments (excluding the effect of future increases in
payments  based on  indices  which  cannot be  estimated  at the  present  time)
required under non-cancelable  operating leases with terms in excess of one year
are as follows: (IN THOUSANDS)

        Calendar year:
    (six months remaining)
             2004                    $   585
             2005                        999
             2006                      1,026
             2007                        958
             2008                        731
          Thereafter                   3,150
                                     _______
            Total                    $ 7,449
                                     =======

           The Company  contracts with various  growers and certain  wineries to
supply a large portion of its future grape requirements and a smaller portion of
its future bulk wine requirements.  The Company estimates that it has contracted
to purchase  approximately 9,000 to 13,000 tons of grapes per year over the next
ten  years.  While  most  of  these  contracts  stipulate  that  prices  will be
determined  by  current  market  conditions  at the  time of  purchase,  several
long-term  contracts  provide for minimum  grape or bulk wine prices.  Purchases
under these contracts were $18,994,000 for the year ended December 31, 2003.

NOTE 5 - COST ASSOCIATED WITH THE PROPOSED ACQUISITION

     The Chalone Wine Group's board of directors has formed a special committee,
consisting  solely of independent  directors,  to review and evaluate a proposed
acquisition of all of Chalone's outstanding publicly held shares of common stock
at $9.25 per share in cash by an  affiliate  of  Domaines  Barons de  Rothschild
(Lafite)  SCA  (DBR).  DBR  currently  owns   approximately   46%  of  Chalone's
outstanding  common stock.  The costs  associated with the proposed  acquisition
represent the legal and financial  consulting  fees incurred by the committee to
review and evaluate the DBR proposal.


<PAGE>


ITEM 2. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

INTRODUCTION

      In the  ordinary  course of  business,  the  Company  has made a number of
estimates and assumptions relating to the reporting of results of operations and
financial condition in the preparation of its financial statements in conformity
with accounting  principles  generally accepted in the United States of America.
Actual results could differ  significantly  from those estimates under different
assumptions and conditions.  The Company believes that the following  discussion
addresses the Company's most critical accounting policies,  which are those that
are most  important to the  portrayal of the Company's  financial  condition and
results. The Company constantly re-evaluates these significant factors and makes
adjustments where facts and circumstances dictate. Historically,  actual results
have not  significantly  deviated  from  those  determined  using the  necessary
estimates  inherent in the  preparation of financial  statements.  Estimates and
assumptions include, but are not limited to, customer receivables,  inventories,
assets held for sale,  fixed asset  lives,  contingencies  and  litigation.  The
Company has also chosen certain accounting policies when options were available,
including:

     o The first-in, first-out (FIFO) method to value a majority of our
       inventories;

     o The intrinsic value method, or APB Opinion No. 25, to account for our
       common stock incentive awards; and

     o We record an allowance for credit losses based on estimates of customers'
       ability to pay. If the financial condition of our customers were to
       deteriorate, additional allowances may be required.

      These  accounting  policies  are  applied  consistently  for  all  periods
presented.  Our operating  results would be affected if other  alternatives were
used.


FORWARD LOOKING STATEMENTS

     From time to time, information provided by the Company,  statements made by
its employees,  or  information  included in its filings with the Securities and
Exchange Commission  (including this Form 10-Q) may contain statements which are
not historical facts, so called "forward looking  statements" that involve risks
and  uncertainties.  Forward-looking  statements  are made  pursuant to the safe
harbor provisions of the Private Securities  Litigation Reform Act of 1995. When
used in  this  Form  10-Q,  the  terms  "anticipates,"  "expects,"  "estimates,"
"intends,"  "believes," and other similar terms as they relate to the Company or
its management  are intended to identify such forward  looking  statements.  The
Company's  actual future results may differ  significantly  from those stated in
any forward-looking statements. Factors that may cause such differences include,
but are not  limited to (i)  reduced  consumer  spending or a change in consumer
preferences, which could reduce demand for the Company's wines; (ii) competition
from  numerous  domestic  and foreign  wine  producers  which  could  affect the
Company's ability to sustain volume and revenue growth; (iii) interest rates and
other business and economic  conditions which could increase  significantly  the
cost and risks of  borrowings  associated  with  present and  projected  capital
projects;  (iv) the price and  availability in the marketplace of grapes meeting
the  Company's  quality  standards  and other  requirements;  (v) the  effect of
weather,  agricultural  pests and  disease and other  natural  forces on growing
conditions  and, in turn,  the quality  and  quantity of grapes  produced by the
Company;  and (vi)  regulatory  changes which might  restrict or hinder the sale
and/or  distribution of alcoholic  beverages.  Each of these factors,  and other
risks pertaining to the Company,  the premium wine industry and general business
and economic  conditions,  are more fully discussed herein and from time to time
in other  filings with the  Securities  and Exchange  Commission,  including the
Company's annual report on Form 10-K for the year ended December 31, 2003


DESCRIPTION OF THE BUSINESS

     The Company produces,  markets and sells super premium,  ultra premium, and
luxury-priced white and red varietal table wines, primarily Pinot Noir, Cabernet
Sauvignon,  Merlot, Syrah,  Chardonnay and Sauvignon Blanc. The Company owns and
operates  wineries in various  counties of California and Washington  State. The
Company's wines are made primarily from grapes grown at Chalone  Vineyard,  Edna
Valley Vineyard, Moon Mountain Vineyard, Company-owned vineyards adjacent to the
Acacia(TM) Winery and Hewitt Vineyard in California and the Canoe Ridge Vineyard
in Washington State, as well as from purchased grapes.

     The wines are primarily sold under the labels "Acacia(TM)," "Canoe Ridge(R)
Vineyard," "Chalone Vineyards(R)," "Dynamite Vineyards(R)," "Echelon(TM)," "Edna
Valley Vineyard(R)," "Jade Mountain(R)," "Moon Mountain Vineyards(R),"
"Provenance Vineyards(TM)" and "Sagelands Vineyard(R)."

     In France,  the Company owns a minority interest in fourth-growth  Bordeaux
estate Chateau  Duhart-Milon  ("Duhart-Milon")  in partnership with Les Domaines
Barons de Rothschild (Lafite) ("DBR"). The vineyards of Duhart-Milon are located
adjacent  to  the  world-renowned  Chateau  Lafite-Rothschild  in  the  town  of
Pauillac.


                                       9


<PAGE>


     The Chalone Wine Group,  Ltd. was incorporated  under the laws of the State
of California  on June 27, 1969.  The Company  became a publicly held  reporting
company as the result of an initial public offering of common stock in 1984.

RECENT DEVELOPMENTS

     On May 17,  Domaines  Barons  de  Rothschild  (Lafite),  a 46% owner of the
Company,  announced  it  is  proposing  the  acquisition  of  all  of  Chalone's
outstanding  publicly held shares of common stock at $9.25 per share in cash. On
May 26, the Company's board of directors formed a special committee,  consisting
solely  of   independent   directors,   to  review  and  evaluate  the  proposed
acquisition. The special committee is expected to complete its evaluation of the
proposed  acquisition and to make its  recommendation  to the Company's board of
directors by the end of August 2004.

<TABLE>
<CAPTION>

RESULTS OF OPERATIONS - SECOND QUARTER AND SIX MONTHS OF 2004 COMPARED TO SECOND
QUARTER AND SIX MONTHS OF 2003


                                                  Three months ended          Percent         Six months ended           Percent
                                                 June 30,     June 30,        Change        June 30,     June 30,        Change
                                                   2004         2003       2004 vs 2003       2004         2003       2004 vs 2003
                                                 ________     ________     ____________     ________     ________     ____________
<S>                                               <C>          <C>              <C>         <C>           <C>              <C>

Net revenues                                      100.0%       100.0%           0.0%        100.0%        100.0%           0.0%
Cost of wines sold                                -68.1%       -67.6%           0.7%        -68.1%        -66.8%           1.9%
                                                  ______       ______        _______        ______        ______        _______
    Gross profit                                   31.9%        32.4%          -1.5%         31.9%         33.2%          -3.9%
Other operating expense, net                       -0.1%         0.2%        -150.0%          0.0%          0.1%        -100.0%
Cost associated with tender offer                  -1.7%         0.0%        -100.0%         -1.0%          0.0%        -100.0%
Depreciation and Amortization                      -0.7%        -1.7%         -58.8%         -1.1%         -1.5%         -26.7%
Selling, general and administrative expenses      -19.2%       -21.7%         -11.5%        -22.2%        -21.7%           2.3%
                                                  ______       ______        _______        ______        ______        _______
    Operating income                               10.2%         9.2%          10.9%          7.6%         10.0%         -24.0%
Interest expense, net                              -7.4%        -7.3%           1.4%         -9.3%         -8.6%           8.1%
Other income                                        0.8%         0.3%         166.7%          0.7%          0.3%         133.3%
Equity in net income of Chateau Duhart-Milon        3.3%         2.9%          13.8%          1.9%          1.6%          18.8%
Minority interests                                 -0.6%        -0.3%         100.0%         -0.6%         -0.3%         100.0%
                                                  ______       ______        _______        ______        ______        _______
    Income before income taxes                      6.2%         4.8%          29.2%          0.3%          2.9%         -89.7%
Income taxes                                       -2.5%        -2.0%          25.0%         -0.1%         -1.2%         -91.7%
                                                  ______       ______        _______        ______        ______        _______
    Net income                                      3.6%         2.8%          28.6%          0.2%          1.7%         -88.2%
                                                  ======       ======        =======        ======        ======        =======

</TABLE>


NET REVENUES

     Net  revenues   for  the  three  months  ended  June  30,  2004   increased
approximately  $2,718,000  or  17.5%,  over  the  corresponding  period  in  the
preceding  year.  This increase is due to a 10% increase in second  quarter case
sales over the same period in the preceding  year and an increase in revenue per
case due to new luxury wine  releases  and  continued  growth of our  Provenance
brand.

     Net revenues for the six months ended June 30, 2004 increased approximately
$1,561,000 or 5.4%,  over the  corresponding  period in the preceding  year. The
increase in revenue is due to the luxury wine releases and  continued  growth of
our  Provenance  brand  offset by a 0.5%  decrease  in case sales and  continued
competitive pricing.

GROSS PROFIT

     Gross  profit  margin  for the three and six  months  ended  June 30,  2004
decreased 0.5% and 1.3%, respectively,  as compared to the corresponding periods
in the  preceding  year.  The  respective  decreases  were driven  primarily  by
continued  pressure to provide  competitive  promotional  allowances  within the
marketplace.


                                       10


<PAGE>


COST ASSOCIATED WITH PROPOSED ACQUISITION

     The Company's board of directors has formed a special committee, consisting
solely of independent  directors,  to review and evaluate a proposed acquisition
of all of the  Company's  outstanding  publicly  held shares of common  stock at
$9.25  per  share in cash by an  affiliate  of  Domaines  Barons  de  Rothschild
(Lafite) SCA ("DBR").  DBR  currently  owns  approximately  46% of the Company's
outstanding  common stock.  The costs  associated with the proposed  acquisition
represent the legal and financial  consulting  fees incurred by the committee to
review and evaluate the DBR proposal.

     In consideration of the costs associated with the proposed acquisition, the
Company reached an agreement with the Bank group and Private  Placement  lenders
to  exclude  these  costs,  subject  to  certain  annual  limitations,  from the
quarterly  covenant  calculations.  An  amendment  documenting  this  change was
finalized in August, 2004.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

     Selling,  general and administrative  expenses for the three and six months
ended  June 30,  2004,  increased  by  $132,000  or 3.9% and  $412,000  or 6.5%,
respectively, over the comparable periods in the prior year. The increase is due
to rising worker compensation,  health care costs and winery and marketing costs
associated with the new luxury wine releases and Provenance brand.

OPERATING INCOME

     Operating  income for the three months  ended June 30,  2004,  increased by
$441,000 or 31.0%, over the same period last year. The increase is due to higher
case sales,  the new luxury wine releases and continued growth of our Provenance
brand offset with the legal and financial  consulting  fees  associated with the
DBR proposal.

     Operating  income  for the six  months  ended June 30,  2004  decreased  by
$578,000 or 20.0%,  over the  corresponding  period in the preceding  year.  The
decrease occurred due to the decrease in case shipments,  an increase in program
allowances, legal and financial consulting fees associated with the DBR proposal
offset by the new luxury wine  releases and continued  growth of our  Provenance
brand.

INTEREST EXPENSE

     Interest expense for the three and six months ended June 30, 2004 increased
$226,000  or 20.0% and  $331,000  or 13.2%,  respectively,  over the  comparable
periods in the prior year. The increase occurred as a result in the reduction of
capitalized   interest.   Currently,   the  company  has  minimal  vineyards  in
development which, in the prior year, generated capitalized interest.

EQUITY IN NET INCOME OF DUHART-MILON

     The Company monitors its investment in Duhart-Milon  primarily  through its
on-going  communication  with DBR.  Such  communication  is  facilitated  by the
presence  of the  Company's  chairman  on DBR's  Board of  Directors,  and DBR's
representation  on the Company's Board of Directors.  Additionally,  various key
employees  of the Company make  periodic  visits to  Duhart-Milon's  offices and
production facilities.

     Since the investment in Duhart-Milon is a long-term investment  denominated
in a  foreign  currency,  the  Company  records  the gain or loss  for  currency
translation  in  other   comprehensive   income  or  loss,   which  is  part  of
shareholders' equity.

     Based on  forecasts  received by DBR, the Company  anticipates  that equity
losses will be recorded in the third and fourth quarters of 2004.

MINORITY INTEREST

     The financial  statements of Edna Valley Vineyard  ("EVV") are consolidated
with the Company's  financial  statements.  The interest in EVV  attributable to
parties  other than the Company is accounted for as a "minority  interest".  The
minority  interest in the net income of EVV for the three  months and six months
ended June 30, 2004 was  $117,000 and $179,000  respectively.  The  increases in
minority  interest were $69,000 and $91,000 for the three and six-month  periods
ended June 30, 2004, respectively,  when compared to the same periods last year.
The  increase  is due to the higher net  income of EVV as  compared  to the same
period in the prior year.


NET INCOME AND EARNINGS PER SHARE

     As a result of the factors discussed above, reported net income for the six
months  ending  June 30, 2004  amounted  to $58,000 or $.00 per  diluted  share,
compared to net income of $504,000 or $.04 per diluted share a year ago.


                                       11


<PAGE>


LIQUIDITY AND CAPITAL RESOURCES

     Net working  capital  increased  $2,823,000  or 4.9% at June 30, 2004.  The
Company has historically financed its growth through increases in borrowings and
cash flow from operations. Management expects that the Company's working capital
needs will grow significantly to support expected future growth in sales volume.
Due to the  lengthy  aging  and  processing  cycles  involved  in  premium  wine
production,  expenditures  for inventory and fixed assets need to be made one to
three years or more in advance of anticipated sales.

     The  Company   expects  to  finance  these  future  capital  needs  through
operations,  securities  offerings and  additional  borrowings.  There can be no
assurance  that the  Company  will be able to  obtain  this  financing  on terms
acceptable to the Company.



ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The following  disclosures  should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations.  These
disclosures  are intended to discuss  certain  material  risks of the  Company's
business as they appear to  management at this time.  However,  this list is not
exhaustive. Other risks may, and likely will, arise from time to time.


     OUR REVENUES AND OPERATING RESULTS FLUCTUATE SIGNIFICANTLY FROM QUARTER TO
     QUARTER

     We believe  period-to-period  comparisons of our operating  results are not
necessarily  meaningful,  and  cannot be  relied  upon as  indicators  of future
performance.  In addition, there can be no assurance that our revenues will grow
or be  sustained  in  future  periods  or  that  we will  maintain  our  current
profitability   in  the   future.   Significant   factors  in  these   quarterly
fluctuations,  none of which are within our  control,  are  changes in  consumer
demand for our wines,  the effect of weather and other natural forces on growing
conditions  and, in turn,  the quality  and  quantity of grapes  produced by us,
interest rates,  inventory  levels and the timing of releases for certain wines,
among other factors.  Consequently,  we have experienced, and expect to continue
to experience, seasonal fluctuations in revenues and operating results.

     Large portions of our expenses are fixed and difficult to reduce in a short
period of time.  In quarters  when  revenues do not meet our  expectations,  our
level of fixed expenses tends to exacerbate the adverse effect on net income. In
quarters when our operating  results are below the expectations of public market
analysts or investors, the price of our common stock may be adversely affected.

     REDUCED CONSUMER SPENDING COULD LESSEN DEMAND FOR OUR WINES AND HARM OUR
     BUSINESS

     Consumer  spending  trends and changes in consumer tastes has a substantial
impact on the wine industry and our 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 our wines  could
decrease.

     OUR BUSINESS IS SEASONAL, WHICH COULD CAUSE OUR MARKET PRICE TO FLUCTUATE

     Our  business is subject to seasonal as well as quarterly  fluctuations  in
revenues and operating  results.  Our sales volume tends to increase  during the
summer months and the holiday season and decrease after the holiday season. As a
result,  our sales and earnings are typically highest during the fourth calendar
quarter and lowest in the first calendar  quarter.  Seasonal factors also affect
our level of borrowing.  For example, our borrowing levels typically are highest
during winter when we have to pay growers for grapes harvested and make payments
related to the grape harvest.  These and other factors may cause fluctuations in
the market price of our common stock.

     WE WILL NEED MORE WORKING CAPITAL TO GROW

     The premium wine industry is a capital-intensive  business,  which requires
substantial capital expenditures to develop and acquire vineyards and to improve
or expand wine production.  Further, the farming of vineyards and acquisition of
grapes and bulk wine require  substantial amounts of working capital. We project
the  need  for  significant  capital  spending  and  increased  working  capital
requirements  over the next several  years,  which must be financed by cash from
operations and by additional borrowings or additional equity.

     OUR ACQUISITIONS AND POTENTIAL FUTURE ACQUISITIONS INVOLVE A NUMBER OF
     RISKS

      Our acquisition of Provenance Vineyards, Hewitt Ranch, Staton Hills Winery
(renamed  Sagelands  Vineyard),  the Jade Mountain brand,  enlarging Canoe Ridge
Vineyard and buying out our  partners,  and  expansion to the recently  acquired


                                       12


<PAGE>


winery for the Provenance Vineyards (and potential future acquisitions)  involve
risks   associated  with   assimilating   these  operations  into  our  Company;
integrating,  retaining and motivating key personnel;  integrating  and managing
geographically-dispersed    operations    integrating    the    technology   and
infrastructures  of disparate  entities;  risks  inherent in the  production and
marketing  wine and  replanting of existing  vineyards from white wine grapes to
red wine grapes.

      We relied on debt financing to purchase Hewitt Ranch, Staton Hills Winery,
the Jade  Mountain  brand,  to enlarge  Canoe Ridge  Vineyard and to buy out our
partners  and  other   vineyard  land  and  related  assets  in  prior  periods.
Consequently  our  debt-to-equity  ratio is high in relation  to our  historical
standards,  even  after the  successful  completion  of our rights  offering  in
November 2001. The interest  costs  associated  with this debt will increase our
operating expenses and the risk of negative cash flow.


     OUR PROFITS DEPEND LARGELY ON SALES IN CERTAIN STATES AND ON SALES OF
     CERTAIN VARIETALS

     In the six months ended June 30, 2004,  approximately 89% of our wine sales
were  concentrated  in 20  states.  Changes in  national  consumer  spending  or
consumer  spending in these states and other regions of the country could affect
both the  quantity  and price  level of wines  that  customers  are  willing  to
purchase which could harm our business.

     Approximately  87% of our consolidated net revenues in the six months ended
June  30,  2004  were  concentrated  in our  four top  selling  varietal  wines.
Specifically,  sales of Chardonnay,  Cabernet Sauvignon,  Pinot Noir, and Merlot
accounted for 34%, 21%, 16% and 15% of our net revenues,  respectively.  Changes
in consumer  preferences  with respect to these varietal  wines could  adversely
affect our business.

     COMPETITION MAY HARM OUR BUSINESS

     The  premium  table  wine  industry  is  intensely  competitive  and highly
fragmented.  Our wines  compete in all of the premium wine market  segments with
many other  premium  domestic  and foreign  wines,  with  imported  wines coming
primarily  from the  Burgundy  and  Bordeaux  regions of France and, to a lesser
extent,  Italy,  Chile,  Argentina,  South Africa and Australia.  Our wines also
compete with  popular-priced  generic wines and with other  alcoholic  and, to a
lesser degree, non-alcoholic beverages, for shelf space in retail stores and for
marketing focus by our independent  distributors,  many of which carry extensive
brand portfolios.

     The wine industry has experienced  significant  consolidation.  Many of our
competitors have greater  financial,  technical,  marketing and public relations
resources  than we do.  Our sales may be harmed to the extent we are not able to
compete successfully against such wine or alternative beverage producers.


     OUR BUSINESS IS SUBJECT TO A VARIETY OF AGRICULTURAL RISKS

     Winemaking  and grape  growing  are  subject to a variety  of  agricultural
risks.  Various diseases,  pests, fungi,  viruses,  drought,  frosts and certain
other weather conditions can affect the quality and quantity of grapes available
to  us,  decreasing  the  supply  of  our  products  and  negatively   impacting
profitability.

     Many  California   vineyards  have  been  infested  in  recent  years  with
phylloxera. Our vineyard properties are primarily planted to rootstocks believed
to be  resistant to  phylloxera.  However,  there can be no  assurance  that our
existing vineyards, or the rootstocks we are now using in our planting programs,
will not become susceptible to current or new strains of phylloxera.

     Pierce's  Disease is a vine  bacterial  disease that has been in California
for more than 100 years. It kills  grapevines and there is no known cure.  Small
insects  called   sharpshooters  spread  this  disease.  A  new  strain  of  the
sharpshooter,  the glassy winged,  was discovered in Southern  California and is
believed to be migrating  north.  We are actively  supporting the efforts of the
agricultural  industry  to  control  this pest and are making  every  reasonable
effort to prevent  an  infestation  in our own  vineyards.  We cannot,  however,
guarantee that we will succeed in preventing contamination in our vineyards.

      Future government restrictions regarding the use of certain materials used
in grape growing may increase vineyard costs and/or reduce production.

     Grape growing  requires  adequate water supplies.  We generally  supply our
vineyards'  water needs through wells and reservoirs  located on our properties.
We believe that we either have,  or are currently  planning to insure,  adequate
water supplies to meet the needs of all of our vineyards. However, a substantial
reduction in water supplies  could result in material  losses of grape crops and
vines.


                                       13


<PAGE>


     WE MAY NOT BE ABLE TO GROW OR ACQUIRE ENOUGH QUALITY GRAPES FOR OUR WINES

     The adequacy of our grape supply is influenced by consumer  demand for wine
in relation to  industry-wide  production  levels.  While we believe that we can
secure  sufficient  supplies of grapes from a combination  of our own production
and from grape supply contracts with independent  growers,  we cannot be certain
that grape  supply  shortages  will not occur.  A shortage in the supply of wine
grapes could  result in an increase in the price of some or all grape  varieties
and a corresponding increase in our wine production costs.

     AN OVERSUPPLY OF GRAPES MAY ALSO HARM OUR BUSINESS

     Current  trends in the domestic and foreign  wine  industry  point to rapid
plantings of new vineyards and replanting of old vineyards to greater densities,
with the expected  result of  significantly  increasing the worldwide  supply of
premium wine grapes and the amount of wine which will be produced in the future.
This expected  increase in grape  production has resulted in an excess of supply
over demand and forces us to reduce, or not increase, our prices.

     WE DEPEND ON THIRD PARTIES TO SELL OUR WINE

     We sell our products primarily through independent distributors and brokers
for resale to retail outlets,  restaurants,  hotels and private clubs across the
United  States and in some  overseas  markets.  To a lesser  degree,  we rely on
direct sales from our wineries,  our wine library and direct mail.  Sales to our
largest  distributor and to our ten largest  distributors  combined  represented
approximately  34% and 65%,  respectively,  of our net  revenues  during the six
months ended June 30, 2004.  Sales to our ten largest  distributors are expected
to  continue  to  represent  a  substantial  portion of our net  revenues in the
future.  The  laws  and  regulations  of  several  states  prohibit  changes  of
distributors, except under certain limited circumstances, making it difficult to
terminate a  distributor  for poor  performance  without  reasonable  cause,  as
defined  by  applicable  statutes.   Any  difficulty  or  inability  to  replace
distributors,  poor  performance of our major  distributors  or our inability to
collect accounts receivable from our major distributors could harm our business.

     NEW REGULATIONS OR INCREASED REGULATORY COSTS COULD HARM OUR BUSINESS

     The wine industry is subject to extensive  regulation by the Federal Bureau
of Alcohol,  Tobacco and Firearms  and various  foreign  agencies,  state liquor
authorities  and local  authorities.  These  regulations  and laws  dictate such
matters  as  licensing  requirements,  trade and  pricing  practices,  permitted
distribution  channels,   permitted  and  required  labeling,   advertising  and
relations  with  wholesalers  and  retailers.  Any  expansion  of  our  existing
facilities or development of new vineyards or wineries may be limited by present
and  future  zoning  ordinances,  environmental  restrictions  and  other  legal
requirements.  In addition,  new  regulations  or  requirements  or increases in
excise taxes, income taxes,  property and sales taxes or international  tariffs,
could reduce our profits. Future legal or regulatory challenges to the industry,
either individually or in the aggregate, could harm our business.

     ADVERSE PUBLIC OPINION ABOUT ALCOHOL MAY HARM OUR BUSINESS

     A number of research  studies  suggest  that  various  health  benefits may
result from the moderate  consumption of alcohol, but other studies suggest that
alcohol  consumption  does not have any health benefits and may in fact increase
the risk of stroke,  cancer and other  illnesses.  If an  unfavorable  report on
alcohol  consumption gains general support,  it could harm the wine industry and
our business.

     WE USE PESTICIDES AND OTHER HAZARDOUS SUBSTANCES IN THE OPERATION OF OUR
     BUSINESS

     We use  pesticides and other  hazardous  substances in the operation of our
business. If hazardous substances are discovered on, or emanate from, any of our
properties,  and their release presents a threat of harm to public health or the
environment, we may be held strictly liable for the cost of remediation. Payment
of such costs could have a material  adverse  effect on our business,  financial
condition and results of operations.  We maintain  insurance against these kinds
of risks, and others,  under various insurance policies.  However, our insurance
may not be adequate or may not  continue to be  available at a price or on terms
that are satisfactory to us.

     CONTAMINATION OF OUR WINES WOULD HARM OUR BUSINESS

     We are  subject to certain  hazards and product  liability  risks,  such as
potential  contamination,  through  tampering or otherwise,  of  ingredients  or
products.  Contamination  of any of our  wines  could  result  in the need for a
product  recall,  which could  significantly  damage our  reputation for product
quality,  which we believe is one of our principal  competitive  advantages.  We
maintain  insurance  against  these kinds of risks,  and others,  under  various
general  liability  and  product  liability  insurance  policies.  However,  our
insurance  may not be adequate or may not continue to be available at a price or
on terms that are satisfactory to us.


                                       14


<PAGE>


     THE LOSS OF KEY EMPLOYEES WOULD DAMAGE OUR REPUTATION AND BUSINESS

     Our success depends to some degree upon the continued  services of a number
of key  employees.  Although some key employees are under  employment  contracts
with us for specific  terms,  the loss of the services of one or more of our key
employees  could harm our business and our  reputation,  particularly  if one or
more of our key  employees  resigns to join a competitor  or to form a competing
company. In such an event, despite provisions in our employment contracts, which
are designed to prevent the unauthorized disclosure or use of our trade secrets,
practices or procedures by such personnel under these  circumstances,  we cannot
be certain  that we would be able to enforce  these  provisions  or prevent such
disclosures.


     SHIFTS IN FOREIGN EXCHANGE RATES OR THE IMPOSITION OF ADVERSE TRADE
     REGULATIONS COULD HARM OUR BUSINESS

     We conduct some of our import and export  activity  for wine and  packaging
supplies in foreign currencies.  We purchase foreign currency on the spot market
on an as-needed  basis and engage in limited  financial  hedging  activities  to
offset the risk of exchange rate  fluctuations.  There is a risk that a shift in
certain foreign exchange rates or the imposition of unforeseen and adverse trade
regulations  could adversely impact the costs of these items and have an adverse
impact on our operating results.

     In addition,  the  imposition of unforeseen  and adverse trade  regulations
could have an adverse  effect on our  imported  wine  operations.  Export  sales
accounted for approximately 3% of total consolidated  revenue for the six months
ended  June 30,  2004.  We expect the volume of  international  transactions  to
increase, which may increase our exposure to future exchange rate fluctuations.

     INFRINGEMENT OF OUR TRADEMARKS MAY DAMAGE OUR BRAND NAMES OR OUR BUSINESS

     Our wines are branded consumer products,  and we distinguish our wines from
our  competitors'  by enforcement of our  trademarks.  There can be no assurance
that  competitors  will refrain from  infringing our marks or using  trademarks,
trade names or trade dress which dilute our intellectual  property  rights,  and
any such  actions may require us to become  involved  in  litigation  to protect
these  rights.  Litigation  of this  nature can be very  expensive  and tends to
divert management's time and attention.


     THE MARKET PRICE OF OUR COMMON STOCK FLUCTUATES

     All of the  foregoing  risks,  among  others not known or mentioned in this
report,  may have a  significant  effect on the market price of our shares.  The
stock markets have  experienced  extreme price and volume trading  volatility in
recent months and years.  This  volatility  has had a substantial  effect on the
market prices of securities of many companies for reasons  frequently  unrelated
or disproportionate  to the specific company's  operating  performance and could
similarly affect our market price.

     DECREASED CASH FLOW COULD LIMIT OUR ABILITY TO SERVICE OUR DEBT

     As a result  of  incurring  debt,  we are  subject  to the  risks  normally
associated  with  debt  financing,  including  the  risk  that  cash  flow  from
operations  will be  insufficient  to meet  required  payments of principal  and
interest.  Our ability to satisfy our  obligations  to pay interest and to repay
debt is dependent on our future performance.  Our performance  depends, in part,
on prevailing  economic  conditions  and  financial,  business and other factor,
including factors beyond our control.

     OUR DEBT FINANCING AGREEMENTS CONTAIN RESTRICTIVE COVENANTS WITH WHICH WE
     MAY NOT BE ABLE TO COMPLY

     Our existing line of credit and long-term debt financing agreements contain
restrictive financial covenants. These covenants require us, among other things,
to maintain specified levels of net income, working capital,  tangible net worth
and financial ratios. Our ability to comply with restrictive financial covenants
depends upon our future operating performance.  Our future operating performance
depends,  in part, on general  industry  conditions and other factors beyond our
control. If we default on our financial covenants,  our lenders may require that
we  immediately  repay the full  outstanding  amount  that we owe them.  In such
event, we may have to pursue alternative financing arrangements.


ITEM 4.    CONTROLS AND PROCEDURES

     Within the 90-day  period  prior to the date of this  report,  the  Company
carried out an evaluation,  under the supervision and with the  participation of
the  Company's  management,  including  its Chief  Executive  Officer  and Chief
Financial  Officer,  of the  effectiveness  of the design and  operation  of the
Company's  disclosure  controls and procedures.  Based on that  evaluation,  the
Chief Executive Officer and Chief Financial Officer concluded that the Company's
disclosure  controls and  procedures  are  effective in a timely manner to alert
them to material  information  relating to the Company,  which is required to be
disclosed  by the  Company in the  reports  that it files or  submits  under the
Securities  Exchange Act of 1934. There have been no significant  changes in our


                                       15


<PAGE>


internal  or other  factors  that  could  significantly  affect  these  controls
subsequent to the evaluation date,  including any corrective actions with regard
to significant deficiencies and material weaknesses.


     PART II. - OTHER INFORMATION

ITEM 5.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

         The  Company's  2004  Annual  Meeting of  Shareholders  was held at the
Company's  executive  offices,  621 Airpark Road, Napa,  California,  on May 28,
2004.  In  attendance,  in  person or by proxy,  were  11,424,278  shares of the
Company's Common Stock, or approximately  94.6% of the total votes  outstanding.
The following actions were taken:

         Election of Directors.  All eleven  positions on the Company's Board of
Directors were to be filled for new one-year  terms,  and all nominees were duly
elected,  each  nominee  receiving  in  excess of 96% of the  total  votes.  The
directors  thus  elected,  with the precise votes for,  against and  abstaining,
were:


            DIRECTOR                         FOR         AGAINST     ABSTAIN

       John Diefenbach                    10,764,669     659,609        0
       Marcel Gani                        11,373,607      50,671        0
       Mark A. Hojel                      11,403,637      20,641        0
       Yves-Andre Istel                   11,363,494      60,784        0
       C. Richard Kramlich                11,404,221      20,057        0
       George E. Meyers                   11,321,111     103,167        0
       James H. Niven                     10,796,099     628,179        0
       Phillip M. Plant                   11,401,446      22,832        0
       Eric de Rothschild                 10,737,034     687,244        0
       Christophe Salin                   10,948,757     475,521        0
       Thomas B. Selfridge                11,126,905     297,373        0


         Ratification  of Auditors.  The  appointment  of Moss-Adams  LLP as the
Company's  independent auditors for the fiscal year ending December 31, 2004 was
ratified,  with  11,384,851  votes for,  30,849  votes  against  and 8,578 votes
abstaining.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

     (a) Exhibits.

         31.1 Certification of Chief Financial Officer.
         31.2 Certification of Chief Executive Officer.
         32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
              Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
         32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
              Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

     (b) Reports on Form 8-K.

         During the second  quarter  ended June 30, 2004,  the Company filed the
         following Current Reports on Form 8-K:

         - May 14, 2004.  The Company issued a press release announcing its
          first quarter 2004 financial results.


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<PAGE>


                                   SIGNATURES


     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.


Dated:  August 16, 2004               THE CHALONE WINE GROUP, LTD.
                                              (Registrant)


                                      /s/ THOMAS B. SELFRIDGE
                                      __________________________________________
                                      Thomas B. Selfridge
                                      President and Chief Executive Officer


Dated:  August 16, 2004               /s/ SHAWN M. CONROY BLOM
                                      __________________________________________
                                      Shawn M. Conroy Blom
                                      Vice President and Chief Financial Officer


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