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                        SECURITIES & 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, 1998

                                       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 Identification No.)
  Incorporation or Organization)


            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 ___

The number of shares  outstanding of Registrant's  Common Stock on July 31, 1998
was 8,584,321.

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<PAGE>


                          The Chalone Wine Group, Ltd.

                         PART I. - FINANCIAL INFORMATION

Item 1. Financial Statements
                                                                            Page

   Consolidated Balance Sheets as of June 30, 1998, and March 31, 1997.       3

   Consolidated Statements of Operations for the three-month periods
   ended June 30, 1998 and 1997.                                              4

   Consolidated Statements of Cash Flows for the three-month periods
   ended June 30, 1998 and 1997.                                              5

   Notes to Consolidated Financial Statements.                                6


<PAGE>


                          The Chalone Wine Group, Ltd.

                           CONSOLIDATED BALANCE SHEETS
                                 (in thousands)


                                     ASSETS
                                                         (unaudited)
                                                           June 30,   March 31,
                                                             1998       1998
                                                           --------    --------
Current assets:
     Cash and cash equivalents                             $    177    $  2,232
     Accounts receivable, less allowance for doubtful
         accounts of $90 and $92, respectively                5,995       6,597
     Notes receivable                                           197         197
     Note receivable from officer                              --            65
     Inventory                                               35,185      34,277
     Prepaid expenses                                           577         450
     Deferred income taxes                                       14          14
                                                           --------    --------
         Total current assets                                42,145      43,832
Investment in Chateau Duhart-Milon                           10,076       9,480
Notes receivable, long-term portion                             130         130
Property, plant and equipment - net                          31,867      30,131
Goodwill and trademarks - net                                 6,520       6,473
Other assets                                                    261         248
                                                           --------    --------
              Total assets                                 $ 90,999    $ 90,294
                                                           ========    ========

                      LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
     Accounts payable and accrued liabilities              $  2,550    $  3,425
     Bank lines of credit                                     7,291      10,952
     Other short term debt                                     --           952
     Current maturities of long-term obligations              1,728         709
                                                           --------    --------
         Total current liabilities                           11,569      16,038
Long-term obligations, less current maturities                8,148       9,624
Convertible subordinated debentures                           8,500       8,500
Settlement advance                                            4,500        --
Deferred income taxes                                         2,049       2,049
                                                           --------    --------
              Total liabilities                              34,766      36,211
                                                           --------    --------

Minority interest                                             3,850       3,678
Shareholders' equity:
    Common stock                                             48,857      46,871
    Stock subscription receivable                            (1,007)       --
    Retained earnings                                         6,712       5,993
    Cumulative foreign currency translation adjustment       (2,179)     (2,459)
                                                           --------    --------
              Total shareholders' equity                     52,383      50,405
                                                           --------    --------
              Total liabilities and shareholders' equity   $ 90,999    $ 90,294
                                                           ========    ========


                   The accompanying notes are an integral part
                    of the consolidated financial statements

                                       3

<PAGE>


<TABLE>
                            The Chalone Wine Group, Ltd.

                       CONSOLIDATED STATEMENTS OF OPERATIONS
                  (unaudited, in thousands, except per-share data)

<CAPTION>
                                                              Three months ended June 30
                                                              --------------------------
                                                                  1998       1997
                                                                 -------    -------
<S>                                                              <C>        <C>    
Gross revenues                                                   $ 9,015    $ 8,287
    Excise taxes                                                    (203)      (211)
                                                                 -------    -------
Net revenues                                                       8,812      8,076
Cost of wines sold                                                (4,720)    (4,658)
                                                                 -------    -------
    Gross profit                                                   4,092      3,418
SG&A expenses                                                     (2,534)    (1,920)
                                                                 -------    -------
    Operating income                                               1,558      1,498
Other income (expense)
    Interest expense                                                (419)      (455)
    Other, net                                                         8         19
                                                                 -------    -------
                                                                    (411)      (436)

Equity in Chateau Duhart-Milon                                       316        193
Minority interests                                                  (243)      (143)
                                                                 -------    -------
    Income before income taxes                                     1,220      1,112
Income tax expense                                                  (500)      (445)
                                                                 -------    -------
    Net income                                                   $   720    $   667
                                                                 =======    =======

Net income per common share:
    Basic                                                        $  0.08    $  0.08
    Diluted                                                      $  0.08    $  0.08

Average number of shares used in income per share computation:
    Basic                                                          8,580      7,936
    Diluted                                                        8,873      8,456

<FN>
                    The accompanying notes are an integral part
                      of the consolidated financial statements
</FN>
</TABLE>

                                         4

<PAGE>


                          The Chalone Wine Group, Ltd.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (unaudited, in thousands)

                                                      Three months ended June 30
                                                      --------------------------
                                                          1998            1997
                                                         -------        -------
Cash flows from operating activities:                               
   Net earnings                                          $   719        $   667
   Non-cash transactions included in earnings:                      
    Depreciationaccounts of $92 thousand and                 464            381
    Amortizationand, respectively                            (60)            45
    Equity in net income of Chateau Duhart-Milon            (316)          (193)
    Increase in minority interest                            243            143
    Exchange rate gain                                      --               (9)
    Loss on sale of equipment                               --                2
    Changes in:                                                     
      Settlement advance                                   4,500           --
      Accounts and other receivable                          602             92
      Inventory                                             (908)           (84)
      Prepaid expenses and other assets                     (127)           (68)
      Accounts payable and accrued expense                  (875)           273
                                                         -------        -------
    Net cash provided by operating activities              4,242          1,249
                                                         -------        -------
                                                                    
Cash flows from investing activities:                               
    Capital expenditures                                  (2,200)        (2,019)
    Proceeds from disposal of property and equipment        --                5
    Net increase in notes receivable                        --              125
                                                         -------        -------
    Net cash used in investing activities                 (2,200)        (1,889)
                                                         -------        -------
                                                                    
Cash flows from financing activities:                               
   Net change under line of credit agreement              (3,661)           858
   Decrease in short-term debt                              (952)          --
   Distribution to minority interest                         (71)           (38)
   Repayment of long-term debt                              (457)          (337)
   Proceeds from issuance of common stock                  1,044             45
                                                         -------        -------
    Net cash provided by financing activities             (4,097)           528
                                                         -------        -------
                                                                    
Net decrease in cash                                      (2,055)          (112)
Cash at beginning of period                                2,232            246
                                                         -------        -------
Cash at end of period                                    $   177        $   134
                                                         =======        =======
                                                                 

                   The accompanying notes are an integral part
                    of the consolidated financial statements

                                        5

<PAGE>


                          The Chalone Wine Group, Ltd.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - Consolidated Financial Statements

The consolidated  balance sheet as of June 30, 1998, the consolidated  statement
of operations for the three-month periods ended June 30, 1998, and 1997, and the
consolidated statement of cash flows for the three-month periods then ended have
been prepared by the Company,  without audit. In the opinion of management,  all
adjustments  (which  include  only normal  recurring  adjustments)  necessary to
present fairly the Company's financial position,  results of operations and cash
flow at June 30, 1998, and for all periods presented have been made.

Certain  information  and footnote  disclosures  normally  included in financial
statements prepared in accordance with generally accepted accounting  principles
have been condensed or omitted.  For further  information,  reference  should be
made  to  the  consolidated  financial  statements  and  notes  included  in the
Company's  Form  10-K  for the year  ended  March  31,  1998,  on file  with the
Securities and Exchange Commission.

NOTE 2 - Reclassifications

Certain prior period amounts have been reclassified in order to conform with the
current period presentation.

NOTE 3 - Earnings  per Share

The Company  adopted  Statement of Financial  Accounting  No.128  ("SFAS 128") -
Earnings per Share. As a result of the adoption of SFAS 128,  earnings per share
amounts for the three months ended June 30, 1998,  have been restated to conform
to the new standard.  This standard  requires dual  presentation of two earnings
per share ("EPS")  amounts,  basic EPS and diluted EPS. Basic EPS represents the
income available to common  stockholders  divided by the weighted average number
of common shares  outstanding for the period.  Diluted EPS represents the income
available  to common  stockholders  divided  by the  weighted  average of common
shares outstanding while also giving effect to 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  earnings per share for the Company is the
inclusion of dilutive stock options and stock  warrants,  the effect of which is
calculated  using the  treasury  stock  method  as shown  below.  The  Company's
convertible debentures are excluded from the computation, as these have had, and
continue to have, an antidilutive effect.

The following is a reconciliation  of the figures used in deriving basic EPS and
those used in calculating diluted EPS:

                      (in thousands, except per-share data)

                                     Basic EPS                       Diluted EPS
                                    ------------                     -----------
                                                    Effect of          Income
                                                dilutive securities available to
                                     Income     -------------------    common
                                    available to                    stockholders
                                      common                 Stock   and assumed
                                    stockholders  Warrants   options  conversion
                                    ------------  --------   -------  ----------

Three months ended June 30, 1998:
    Income                             $  719       --        --        $  719
    Shares                              8,580        227        66       8,873
                                       ------                           ------
    EPS                                $ 0.08                           $ 0.08
                                       ======                           ======

Three months ended June 30, 1997:
    Income                             $  667       --        --        $  667
    Shares                              7,936        375       145       8,456
                                       ------                           ------
    EPS                                $ 0.08                           $ 0.08
                                       ======                           ======

                                       6

<PAGE>


                          The Chalone Wine Group, Ltd.

NOTE 4 - Comprehensive Income

In June 1997,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting  Standards  No.130 ("SFAS 130") - Reporting  Comprehensive
Income.  SFAS 130 requires the  additional  reporting of a new measure of income
which takes into account certain elements  otherwise recorded as part of equity.
For all periods  presented,  the difference between net income and comprehensive
income consists of the changes in the cumulative  foreign  currency  translation
adjustment included as part of the Company's equity.

The following is a  reconciliation  of net income and  comprehensive  income (in
thousands):


                                                              Three months ended
                                                                    June 30
                                                                ---------------
                                                                 1998     1997
                                                                ------   ------
Net income                                                      $  720   $  667
Change in cumulative foreign currency translation adjustment       280     (375)
                                                                ------   ------
Comprehensive income                                            $1,000   $  292
                                                                ======   ======

                                       7

<PAGE>


                          The Chalone Wine Group, Ltd.

Item 2.    Management's Discussion and Analysis
           of Financial Condition and Results of Operations


DESCRIPTION OF THE BUSINESS

The Chalone Wine Group, Ltd. is a Napa,  California-based company that produces,
markets and sells premium white and red varietal table wines. In California, the
company owns and operates  Chalone  Vineyard(R) in Monterey  County,  Acacia(TM)
Winery in the Carneros District of Napa County,  Carmenet(R)  Vineyard in Sonoma
County, and in conjunction with its 50% joint-venture partner,  Paragon Vineyard
Co., owns and operates Edna Valley Vineyard(R) in San Luis Obispo County. In the
State of  Washington,  the  Company  owns a 50.5%  interest  in  Canoe  Ridge(R)
Vineyard.  In the  Bordeaux  region of  France,  the  Company  owns 23.5% of the
fourth-growth  estate of Chateau  Duhart-Milon,  in  partnership  with  Domaines
Barons de Rothschild  (Lafite)  ("DBR") who own the other 76.5%.  In April 1998,
the Company  also started  selling its newest  product  under the  "Echelon(TM)"
brand name.

In  addition  to and as a result of an  investment  in the  Company by DBR,  the
Company receives an allocation of DBR wines for resale  purposes,  including the
wines of Chateau  Lafite-Rothschild,  a first growth  Bordeaux  region wine, and
Chateau Duhart-Milon, a fourth growth Bordeaux region wine.

RESULTS OF OPERATIONS

The following  table sets forth the percentage  relationship  to net revenues of
certain items in the Company's  statements  of  operations  for the  three-month
periods ended June 30, 1998, and 1997,  and the percentage  change in such items
between the comparable period in those years:


                                         Three months ended      Percent
                                               March 31           Change
                                         ------------------      --------
                                            1998       1997      98 vs 97
                                            ----       ----      --------
 Net revenues                              100.0 %    100.0 %       9.1 %
 Cost of wines sold                        (53.6)%    (57.7)%       1.3 %
                                           -----      -----
    Gross profit                            46.4 %     42.3 %      19.7 %

 SG&A expenses                             (28.8)%    (23.8)%      32.0 %
                                           -----      -----
    Operating income                        17.6 %     18.5 %       4.0 %
                                           -----      -----

 Other income (expenses):
    Interest                                (4.8)%     (5.6)%      (7.9)%
    Other, net                               0.1 %      0.2 %     (57.9)%
                                           -----      -----
                                            (4.7)%     (5.4)%      (5.7)%
 Equity in net income                        3.6 %      2.4 %      63.7 %
 Minority interests                         (2.7)%     (1.8)%      69.9 %
                                           -----      -----
    Income before income taxes              13.8 %     13.7 %       9.7 %
                                           -----      -----

 Income tax expense                         (5.6)%     (5.5)%      12.4 %
                                           -----      -----
    Net income                               8.2 %      8.2 %       7.9 %
                                           =====      =====


Net Revenues

Sales for the three months ended June 30, 1998, increased  approximately 9% over
the  comparable  period in the prior year,  primarily  as a result of  increased
average  sales price per case  resulting  from changes in product mix as well as
selected price increases.

                                       8

<PAGE>


                          The Chalone Wine Group, Ltd.

Item 2.    Management's Discussion and Analysis
           of Financial Condition and Results of Operations (Continued)


Gross Profit

Gross  profit  for  the  three   months  ended  June  30,  1998,   increased  by
approximately 20% over the comparable  period in the prior year,  primarily as a
result  of  the  increased  sales  price  per  case  mentioned  above,   without
corresponding increases in production cost.

Selling, General and Administrative (SG&A)  Expenses

SG&A expenses for the three months  ending June 30, 1998,  increased by 32% over
the comparable  period in the prior year.  This increase is primarily the result
of planned increases in marketing expenditures and increases in selling expenses
attributable to increased sales revenue.

Operating Income

Operating income for the three months ended June 30, 1998,  increased by 4% from
the comparable  period in the prior year.  This increase was due to higher gross
profit, offset by increased operating expenses, both discussed above.

Other Income (Expenses)

Net interest  expense for the three months ended June 30, 1998,  decreased by 6%
from the comparable period in the prior year, primarily due to improved terms on
short-term  debt  financing  first attained in June of 1997, as well as slightly
lower average levels of outstanding interest-bearing debt.

Equity in Net Income of Chateau Duhart-Milon

The Company's  23.5% equity interest in the net income of Societe Civile Chateau
Duhart-Milon  ("Duhart-Milon")  for the three months  ended June 30,  1998,  was
$316,000,  as  compared to $193,000  during the  comparable  period in the prior
year.  This 63%  increase is  primarily  attributable  to  increased  demand for
Bordeaux wines and corresponding price-increases of the wines.

The investment in Duhart-Milon is a long-term  investment  denominated in French
Francs.  The  Company  maintains a reserve for  currency  translation  which was
valued at $2,179,000 as of June 30, 1998.

Minority Interest

The  Edna  Valley  Vineyard  ("EVV")  and  Canoe  Ridge  Vineyard,  LLC  ("CRV")
individual  financial  statements are  consolidated in full within the Company's
financial statements. The interests of parties other than the Company in the net
earnings of EVV and CRV are accounted for as "minority  interests." The minority
interests for the  three-month  periods ended June 30, 1998,  and 1997,  were as
follows (in thousands):


                                                      Three months ended
                                                            June 30
                                        Minority       ------------------
Venture   Minority Owner                 Percent        1998        1997
-------   --------------                 -------       ------      ------
EVV       Paragon Vineyard Co., Inc.      50.00%       $  172      $  121
CRV       Various                         49.50%           71          22
                                                       ------      ------
                                                       $  243      $  143
                                                       ======      ======


The approximately 70% increase in the minority interests of EVV and CRV reflects
the improved net results of EVV and CRV between the  three-month  periods  ended
June 30, 1997, and 1998.

Net Income

Net income for the three months ended June 30, 1998,  and 1997, was $720,000 and
$667,000,  respectively,  reflecting  an increase of 8% primarily as a result of
all factors discussed above.

                                       9

<PAGE>


                          The Chalone Wine Group, Ltd.

Item 2.    Management's Discussion and Analysis
           of Financial Condition and Results of Operations (Continued)


SEASONALITY

The  company has and will  experience  changes in net  revenue  from  quarter to
quarter as a result of seasonal  factors.  Although the timing of wine  released
for sale varies from year to year,  most wines are released around the September
and October months.  Additionally,  sales are typically  highest during the last
three months of the calendar year due, in part, to heavy holiday sales.

LIQUIDITY AND CAPITAL RESOURCES

The  Company's  working  capital  increased  $2,782,000,   or  10%,  during  the
three-month  period  ending June 30,  1998.  This  resulted  primarily  from the
following: 1) $1 million received due to an exercise of warrants (which resulted
in a purchase of 142,857 shares); 2) an advance of $4.5 million from Pacific Gas
and Electric  ("PG&E") related to the Carmenet Vineyard fire of July 1996 - this
advance was recorded as a "Settlement advance" in the Company's balance sheet as
of June 30, 1998 (items 1 and 2 were more fully  described in the Company's Form
10-K for the year ended March 31, 1998, on file with the Securities and Exchange
Commission).  These items were partly  offset by  investments  in  inventory  in
anticipation of next year sales.

As of July 31, 1998,  the Company had lines of credit  totaling $16.3 million of
which $7.2 million had been drawn.

The  Company is not aware of any  potential  impairments  to its  liquidity  and
believes  that its  capital  resources  are  adequate  to meet the  current  and
historic levels of capital expenditures and liquidity needs of the Company.


"EL NINO"

The weather  phenomenon  commonly referred to as "El Nino" produced heavy Spring
rains  which  resulted  in colder  and  wetter  soils  than are  typical  during
California's   grape  growing  season.   Consequently,   California   vines  are
experiencing  a delay in  flowering  and fruit  setting,  which is  expected  to
postpone the  harvesting of such grapes by  approximately  two to three weeks. A
risk  associated  with such a delay in harvest is the possibility of rot, due to
potential  exposure  to early  winter  rains,  which  could  affect  quality and
quantity.  Although this risk exists every year, 1998 weather  conditions appear
to be less predictable than usual and thus increases the possibility thereof.

Excluding the potential risk of rot described above, however, there is currently
no indication  whether the Company's 1998 harvest will be affected by El Nino in
terms of quality.  With respect to  quantities  of its most  significant  crops,
however,  the Company has estimated that the harvest of  Chardonnay,  Merlot and
Cabernet Sauvignon will yield normal-size crops on average. The harvest of Pinot
Noir, on the other hand, will yield a smaller than  normal-size crop in terms of
quantity.  By comparison,  the 1997 harvest yielded above-normal  quantities for
all the above varietals.

YEAR 2000

The year 2000 issue is the result of computer  programs  being written using two
digits rather than four to determine the  applicable  year. Any of the Company's
computer programs that have  time-sensitive  software may recognize a date using
"00" as the  year  1900  rather  than  the  year  2000.  This  could  result  in
miscalculations  causing  disruptions  of  operations,  including,  among  other
things, temporary  inefficiencies in processing transactions,  sending invoices,
or engaging in similar normal business activities.

The Company has an ongoing  program  designed to ensure that its operational and
financial systems will not be adversely affected by Year 2000 software failures.
While the Company  believes it is doing everything  technologically  possible to
assure  Year  2000  compliance,  it is to  some  extent  dependent  upon  vendor
cooperation.  However,  preliminary estimates of the  compliance-related  costs,
based on internal  projections,  are  approximately  $15,000.  The Company  also
recognizes  that any Year 2000  compliance  failures  could result in additional
expenses to the Company,  the  materiality  of which cannot be predicted at this
time.

                                       10

<PAGE>


                          The Chalone Wine Group, Ltd.

Item 2.    Management's Discussion and Analysis
           of Financial Condition and Results of Operations (Continued)


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,"  which 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,"
"believes,"  and  other  similar  terms as they  relate  to the  Company  or its
management  are  intended  to  identify  such  forward  looking  statements.  In
particular,  statements made herein  relating to the anticipated  effects of "El
Nino", the sufficiency of funds for the Company's working capital  requirements,
and the  Company's  expectation  that  sufficient  cash flow will continue to be
provided from operations, are forward looking statements. Factors that may cause
such  differences  include,  but are not limited to: (i) future and past weather
and general  farming  conditions  affecting  annual harvest  quantity as well as
quality; (ii) variations in market taste as well as demand; and (iii) changes in
the wine industry regulatory environment. Each of these factors, and others, are
discussed  from time to time in the Company's  filings with the  Securities  and
Exchange  Commission  including the Company's annual report on Form 10-K for the
year ended March 31, 1998.

                                       11

<PAGE>


                          The Chalone Wine Group, Ltd.

                          PART II. - OTHER INFORMATION

Item 6.  Exhibits and Reports on Form 8-K

     (a) Exhibits.

         Exhibit Number
                27          Financial Data Schedule

     (b) Reports.  None.


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 10, 1998                          The Chalone Wine Group, Ltd.
                                                --------------------------------
                                                        (Registrant)


                                                /s/ Thomas B. Selfridge
                                                --------------------------------
                                                Thomas B. Selfridge
                                                President and Chief Executive
                                                Officer




Dated: August 10, 1998                          /s/ Francois P. Muse
                                                --------------------------------
                                                Francois P. Muse
                                                (Acting) Chief Financial Officer
                                                and Treasurer

                                       12