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 December 31, 1999

                                       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 February 9,
2000 was 9,366,038.


<PAGE>


                          The Chalone Wine Group, Ltd.

                         PART I. - FINANCIAL INFORMATION

Item 1. Financial Statements                                               Page

  Consolidated Balance Sheets as of December 31, 1999, and March 31, 1999.  3

  Consolidated   Statements  of  Income  for  the   three-month  and
   nine-month periods ended December 31, 1999 and 1998.                     4

  Consolidated  Statements  of Cash  Flows for the  three-month  and
   nine-month periods ended December 31, 1999 and 1998.                     5

  Notes to Consolidated Financial Statements.                               6

Item 2. Management's  Discussion and Analysis of Financial
   Condition and Results of Operations                                      8

Item 3. Disclosures about market risk                                       12


                          PART II. - OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K                                    16


<PAGE>


<TABLE>
                                                    The Chalone Wine Group, Ltd.

                                                     CONSOLIDATED BALANCE SHEETS

                                                  (in thousands, except share data)

                                                               ASSETS

<CAPTION>
                                                                                                 December 31,             March 31,
                                                                                                     1999                   1999
                                                                                                   ---------              ---------
<S>                                                                                                <C>                    <C>
 Current assets:
     Cash and cash equivalents                                                                     $     274              $   1,670
     Accounts receivable, less allowance for doubtful
         accounts of $117 and $86, respectively                                                       10,416                  8,086
     Notes receivable                                                                                    109                    109
     Income tax receivable                                                                               519                    616
     Inventory                                                                                        52,641                 40,926
     Prepaid expenses                                                                                    515                    492
     Deferred income taxes                                                                               899                    158
                                                                                                   ---------              ---------
         Total current assets                                                                         65,373                 52,057
Investment in Chateau Duhart-Milon                                                                     9,651                 10,409
Notes receivable, long-term portion                                                                      119                    119
Property, plant and equipment - net                                                                   40,333                 33,591
Goodwill and trademarks - net                                                                          7,588                  6,196
Other assets                                                                                           1,035                  1,099
                                                                                                   ---------              ---------
              Total assets                                                                         $ 124,099              $ 103,471
                                                                                                   =========              =========

              LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
     Accounts payable and accrued liabilities                                                      $   7,570              $   2,494
     Current maturities of long-term obligations                                                       1,054                    371
                                                                                                   ---------              ---------
         Total current liabilities                                                                     8,624                  2,865
Bank line of credit                                                                                   18,364                  3,938
Long-term obligations, less current maturities                                                        21,782                 22,835
Convertible subordinated debentures                                                                     --                    8,500
Deferred income taxes                                                                                  3,108                  2,765
                                                                                                   ---------              ---------
              Total liabilities                                                                       51,878                 40,903
                                                                                                   ---------              ---------

Minority interest                                                                                      4,545                  4,277
Shareholders' equity:
Common stock - authorized 15,000,000 shares no par value;
 issued and outstanding: 9,366,038 and 8,720,771
shares, respectively                                                                                  54,491                 48,965
    Stock subscription receivable                                                                        (38)                (1,007)
    Retained earnings                                                                                 16,238                 12,629
    Accumulatedfotherncomprehensivenlossion adjustment                                                (3,015)                (2,296)
                                                                                                   ---------              ---------
              Total shareholders' equity                                                              67,676                 58,291
                                                                                                   ---------              ---------
              Total liabilities and shareholders' equity                                           $ 124,099              $ 103,471
                                                                                                   =========              =========

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

                                                                 4

<PAGE>


<TABLE>
                                                    The Chalone Wine Group, Ltd.

                                                  Consolidated Statements of Income
                                                (in thousands, except per-share data)

<CAPTION>
                                                                        Three months ended                  Nine months ended
                                                                            December 31,                       December 31,
                                                                     --------------------------          --------------------------
                                                                      1999               1998              1999              1998
                                                                     --------          --------          --------          --------
<S>                                                                  <C>               <C>               <C>               <C>
Gross revenues                                                       $ 16,361          $ 12,573          $ 40,366          $ 32,949
    Excise taxes                                                         (424)             (401)           (1,013)             (852)
                                                                     --------          --------          --------          --------
Net revenues                                                           15,937            12,172            39,353            32,097
Cost of wines sold                                                     (8,468)           (6,565)          (21,034)          (17,567)
                                                                     --------          --------          --------          --------
    Gross profit                                                        7,469             5,607            18,319            14,530
Other revenues from operations                                              9                43                62                66
Selling, general and administrative expenses                           (3,826)           (2,703)          (10,271)           (7,849)
                                                                     --------          --------          --------          --------
    Operating income                                                    3,652             2,947             8,110             6,747
Interest expense                                                         (674)             (439)           (1,766)           (1,281)
Equity in Chateau Duhart-Milon                                            168               187               698               718
Minority interests                                                       (338)             (432)             (967)           (1,007)
Other, net                                                                 20                25                41               (11)
                                                                     --------          --------          --------          --------
    Income before income taxes                                          2,828             2,288             6,116             5,166
Income taxes                                                           (1,159)             (936)           (2,507)           (2,117)
                                                                     --------          --------          --------          --------
    Net income                                                       $  1,669          $  1,352          $  3,609          $  3,049
                                                                     ========          ========          ========          ========

Net income per common share
    Basic                                                            $   0.18          $   0.16          $   0.39          $   0.35
    Diluted                                                          $   0.18          $   0.16          $   0.38          $   0.35

Average number of shares used
    in income per share computation
    Basic                                                               9,366             8,697             9,332             8,656
    Diluted                                                             9,511             8,718             9,451             8,828

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

                                                                 5

<PAGE>


<TABLE>
                                                    The Chalone Wine Group, Ltd.

                                                Consolidated Statements of Cash Flows
                                                (in thousands, except per-share data)

<CAPTION>

                                                                               Three months ended             Nine months ended
                                                                                   December 31,                 December 31,
                                                                              -----------------------       -----------------------
                                                                                1999          1998            1999           1998
                                                                              --------       --------       --------       --------
<S>                                                                           <C>            <C>            <C>            <C>
Cash flows from operating activities:

   Net income                                                                 $  1,669       $  1,352       $  3,609       $  3,049
   Non-cash transactions included in earnings:
     DepreciationcandnAmortizationousand and                                     2,621          2,245          3,960          3,339
     Equity in net income of Chateau Duhart-Milon                                  569           (187)            39           (718)
     Minority interest                                                             339            432            968          1,007
     Loss(gain) on sale of equipment                                               (11)           (63)           (12)            29
     Changes in:
      Deferred income taxes                                                       (398)        (2,261)          (398)        (2,261)
      Settlement advance                                                          --             --             --            4,500
      Accounts and other receivables                                              (401)          (124)        (2,330)        (1,822)
      Inventories                                                               (7,712)        (6,619)        (9,099)        (6,786)
      Prepaid expenses and other assets                                         (1,315)          (679)        (1,425)        (1,103)
      Accounts payable and accrued liabilities                                   2,289            868          5,076            244
                                                                              --------       --------       --------       --------
     Net cash used by operating activities                                      (2,350)        (5,036)           388           (522)
                                                                              --------       --------       --------       --------

Cash flows from investing activities:

   Capital expenditures                                                         (2,216)        (1,117)        (7,850)        (6,667)
   Purchase of Staton Hills Winery, net of cash acquired                          --             --           (6,127)          --
   Proceeds from disposal of property and equipment                                 39            125            104            125
   Increase in notes receivable                                                   --               85           --               65
   Distributions from Duhart-Milon                                                --             --              738           --
                                                                              --------       --------       --------       --------
     Net cash provided by (used for) in investing activities                    (2,177)          (907)       (13,135)        (6,477)
                                                                              --------       --------       --------       --------

Cash flows from financing activities:

   Borrowings on line of credit - net                                            5,204          3,850         14,426          4,429
   Increase (repayment) of short-term debt                                        --            5,237           --            4,285
   Distributions to minority interests                                            (400)          (405)          (700)          (476)
   Repayment of long-term debt                                                     (10)           (81)        (2,370)        (1,648)
   Issuance (purchase) of common stock                                              (3)            42             (5)         1,090
                                                                              --------       --------       --------       --------
     Net cash provided by financing activities                                   4,791          8,643         11,351          7,680
                                                                              --------       --------       --------       --------
                                                                              --------       --------       --------       --------

Net increase (decrease) in cash                                                    264          2,700         (1,396)           681
Cash at beginning of period                                                         10            213          1,670          2,232
                                                                              --------       --------       --------       --------
Cash at end of period                                                         $    274       $  2,913       $    274       $  2,913
                                                                              ========       ========       ========       ========

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

                                                                 6


<PAGE>


                          The Chalone Wine Group, Ltd.

Note 1 - Consolidated Financial Statements

The  consolidated  balance sheet as of December 31, 1999,  and the  consolidated
statements of income and cash flows for the three-month  and nine-month  periods
ended  December 31, 1999, and 1998,  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 December 31, 1999, 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,  1999,  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 - Comprehensive Income

<TABLE>
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 reporting of a  comprehensive  income which takes
into  account  certain  elements  otherwise  recorded  directly  in equity.  The
following  is a  reconciliation  of net  income  and  comprehensive  income  (in
thousands):
<CAPTION>

                                                                    Three months ended      Nine months ended
                                                                       December 31,           December 31,
                                                                   ---------------------- ----------------------
                                                                      1999       1998        1999       1998
                                                                   ----------- ---------- ----------- ----------
<S>                                                                   <C>         <C>        <C>         <C>
 Net income                                                           $ 1,669     $1,352     $ 3,609     $3,049
 Change in cumulative foreign currency translation adjustment            (557)         8        (719)     1,030
                                                                   ----------- ---------- ----------- ----------
 Total comprehensive income                                           $ 1,112     $1,360     $ 2,890     $4,079
                                                                   =========== ========== =========== ==========
</TABLE>


NOTE 4 - Earnings per Share (EPS)

Basic EPS represents the income available to common shareholders  divided by the
weighted average number of common shares outstanding for the period. Diluted EPS
represents the income available to common  shareholders  divided by the weighted
average of common shares  outstanding,  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 EPS for the Company is due
to the dilutive effect of stock options and stock warrants  calculated using the
treasury stock method, as shown below.

In April 1999,  debentures with a face value of $6.5 million were converted into
738,014  shares of the  Company's  common  stock.  At such time,  holders of the
remaining $2.0 million in debentures  elected not to exercise  their  conversion
rights and the Company repaid the $2.0 million using available  borrowings under
its  line  of  credit.  For  all  periods,  these  convertible  debentures  were
outstanding.  The  computation of diluted EPS excludes such  securities  because
they were antidilutive.

                                       7

<PAGE>


NOTE 4 - Earnings  per Share (Continued)

The following is a reconciliation of share information used to compute basic EPS
and diluted EPS:

<TABLE>
                      (in thousands, except per-share data)

<CAPTION>
                                                 Basic EPS                                 Diluted EPS
                                               ---------------                            ---------------
                                                                                                Income
                                                                                           available to
                                                  Income                                     common
                                                available to                                  shareholders
                                                  common                       Stock         and assumed
                                                shareholders     Warrants      options        conversion
                                               ---------------------------- -----------------------------
<S>                                                     <C>            <C>          <C>               <C>
Three months ended December 31, 1999:
     Income                                           $ 1,669            -             -         $ 1,669
     Shares                                             9,366          145             -           9,511
                                               ---------------                            ---------------
     EPS                                               $ 0.18                                     $ 0.18
                                               ===============                            ===============

Three months ended December 31, 1998:
     Income                                           $ 1,352            -             -         $ 1,352
     Shares                                             8,697           21                         8,718
                                               ---------------                            ---------------
     EPS                                               $ 0.16                                     $ 0.16
                                               ===============                            ===============

Nine months ended December 31, 1999:
     Income                                           $ 3,609            -             -         $ 3,609
     Shares                                             9,332          119             -           9,451
                                               ---------------                            ---------------
     EPS                                               $ 0.39                                     $ 0.38
                                               ===============                            ===============

Nine months ended December 31, 1998:
     Income                                           $ 3,049            -             -         $ 3,049
     Shares                                             8,656          172                         8,828
                                               ---------------                            ---------------
     EPS                                               $ 0.35                                     $ 0.35
                                               ===============                            ===============
</TABLE>



NOTE 5 - Acquisition of Staton Hills Winery

On June 15, 1999, the Company  purchased 100% of the  outstanding  shares of SHW
Equity  Company,  a holding  company  which,  in turn,  owns Staton Hills Winery
("SHW") and its adjacent vineyards in Yakima County, Washington. The acquisition
cost which included  assumption of $3.3 million of SHW's notes payable that were
repaid by the Company at the date of the  acquisition,  was  approximately  $6.0
million and was financed with the Company's long-term bank line of credit.

The  acquisition  was recorded  using the purchase  method of accounting and the
acquisition  price was allocated to the assets acquired and liabilities  assumed
based on their estimated fair values.  The excess of the acquisition  price over
the fair value of net assets  acquired  was  recorded as  goodwill  and is being
amortized over 20 years.

NOTE 6 - Subsequent Event  (Acquisition of Vineyard)

On December 3, 1999, the Company entered into two conditional purchase contracts
to acquire two parcels,  totaling 73 acres of property in the Napa Valley for an
aggregate  purchase price of $16.4 million.  All  contractual  conditions to the
purchase were removed on January 24, 2000.  The property  includes two homes and
an existing 57-acre cabernet sauvignon  vineyard.  The source of funding for the
purchase was the Company's existing bank line of credit.

                                       8

<PAGE>


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

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,"  "projects," "may,"
"may not,"  "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 in this Item 2, Management's Discussion and Analysis
of Financial  Condition and Results of  Operations,  relating to  projections or
predictions about the Company's future  investments in vineyards,  other capital
projects  and future  operating  results are  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 projected capital spending; (iv) the price and availability in
the  marketplace  of grapes  meeting the Company's  quality  standards and other
requirements;  (v) the effect of  weather  and other  natural  forces on growing
conditions  and, in turn,  the quality  and  quantity of grapes  produced by the
Company and (vi) the risks  associated  with the  assimilation  of Staton  Hills
Winery  and other  acquisitions  that may be made in the  future.  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 March 31, 1999.

DESCRIPTION OF THE BUSINESS

The Company  produces,  markets and sells super,  ultra and super-ultra  premium
white and red varietal table wines,  primarily Chardonnay,  Pinot Noir, Cabernet
Sauvignon and Merlot. The Company operates six wineries; four located in various
counties  of  California,  and two  located  in the  State  of  Washington.  The
Company's  wines  are  made   principally  from  grapes  grown  at  the  Chalone
Vineyard(R),  Carmenet(R)  Vineyard,  Edna  Valley  Vineyard(R),   Company-owned
vineyards adjacent to the Acacia(TM) Winery in California and the Canoe Ridge(R)
Vineyard in Washington  State.  These wines are primarily  sold under the labels
"Chalone Vineyard," "Edna Valley Vineyard,"  "Carmenet,"  "Acacia," "Canoe Ridge
Vineyard," and "Echelon(TM)".

As a result of a  substantial  investment  in the  Company by  France-based  Les
Domaines  Barons  de  Rothschild  (Lafite)  ("DBR"),  the  Company  receives  an
allocation of DBR wines,  including the wines of Chateau  Lafite-Rothschild  and
Chateau  Duhart-Milon,  first-growth  and  fourth-growth  Bordeaux region wines,
respectively.

The Chalone  Wine Group,  Ltd. was  incorporated  under the laws of the State of
California on June 27, 1969. Unless otherwise  indicated,  the term "Company" as
used in this report refers to The Chalone Wine Group,  Ltd. and its consolidated
subsidiaries. The Company became a publicly held reporting company as the result
of an initial public offering of common stock in 1984. Today, the Company is one
of only nine publicly held U.S.  corporations whose principal business is in the
production, marketing and selling of wine.

                                       9

<PAGE>


Item 2.  Management's Discussion and Analysis

         of Financial Condition and Results of Operations (Continued)

RESULTS OF OPERATIONS

<TABLE>
The following  table  represents  financial data as a percentage of net revenues
for the indicated periods:

<CAPTION>
                                  Three months ended      Percent        Nine months ended        Percent
                               December 31,                Change     December 31,                 Change
                               -------------------------- ---------   -------------------------  -----------
                               -------------------------- ---------   -------------------------  -----------
                                  1999          1998      99 vs 98       1999         1998        99 vs 98
                               ------------  ------------ ---------   ------------ ------------  -----------
<S>                                <C>           <C>        <C>           <C>          <C>           <C>
 Net revenues                      100.0 %       100.0 %    30.9 %        100.0 %      100.0 %       22.6 %
 Cost of sales                       (53.1)%       (53.9)%  29.0 %          (53.4)%      (54.7)%     19.7 %
                               ------------  ------------             ------------ ------------
    Gross profit                    46.9 %        46.1 %    33.2 %         46.6 %       45.3 %       26.1 %
 Other revenues from operations      0.1 %         0.4 %     (79.1)%        0.2 %        0.2 %         (6.1)%
 Selling, general and admin. expenses(24.0)%       (22.2)%  41.5 %          (26.1)%      (24.5)%     30.9 %
                               ------------  ------------             ------------ ------------
    Operating income                23.0 %        24.3 %    23.9 %         20.7 %       21.0 %       20.2 %
 Interest Expense                     (4.2)%        (3.6)%  53.5 %           (4.5)%       (4.0)%     37.9 %
 Equity in Chateau Duhart-Milon      1.0 %         1.5 %     (10.2)%        1.8 %        2.2 %         (2.8)%
 Minority interest                    (2.1)%        (3.6)%   (21.8)%         (2.5)%       (3.1)%       (4.0)%
 Other, net                          0.1 %         0.2 %     (20.0)%        0.1 %        0.0 %       (472.7)%
                               ------------  ------------             ------------ ------------
    Income before income taxes      17.8 %        18.8 %    23.6 %         15.6 %       16.1 %       18.4 %
 Income taxes                         (7.3)%        (7.7)%  23.8 %           (6.4)%       (6.6)%     18.4 %
                               ------------  ------------             ------------ ------------
    Net income (loss)               10.5 %        11.1 %    23.4 %          9.2 %        9.5 %       18.4 %
                               ============  ============             ============ ============
</TABLE>



Net Revenues

Net revenues for the three-month and nine-month  periods ended December 31, 1999
increased  approximately 30% and 23%, respectively,  over the comparable periods
in the prior year.  These  increases were due almost equally to (i) increases in
average  revenue-per-case  from selected price  increases and changes in product
mix, and (ii) increased sales volume.

Gross Profit

Gross  profit for the three  months and nine months  ended  December  31,  1999,
increased by approximately 33% and 26% respectively, over the comparable periods
in the prior year. For the quarter ended December 31, the gross margin increased
from 46.1% in 1998 to 46.9% in 1999, while the gross margin increased from 45.3%
to 46.6%,  respectively,  for the nine months ended  December 31, 1998 and 1999.
These gross  margin  increases  are the direct  result of  increases  in average
revenue-per-case due to selected price increases and changes in product mix.

Other Revenue from Operations

Other  revenue from  operations  consists of (i) custom  bottling and other wine
processing and other revenue from third-party  wineries and (ii) net profit from
sales of bulk wine. The Company  cannot  predict the effect on future  operating
results,  as  this  source  of  revenue  is  highly  unpredictable  and  largely
contingent on other wineries'  demand for extra production  capacity,  which can
and does vary significantly from year to year.

Other revenue from  operations  for the three months ended  December 31, 1999 as
compared with same period in 1998 decreased from $43,000 to $9,000 was primarily
attributable to a decrease in revenue from custom operations.

Selling, General and Administrative Expenses

Selling,  general  and  administrative  expenses  for the three  months and nine
months ended  December 31, 1999,  increased by  approximately  $1.1 million,  or
41.5%, and $2.4 million,  or 31%,  respectively,  over the comparable periods in
the prior year.  These increases are primarily as a result of increased  selling
efforts consistent with the corresponding $3.8 million and $7.4 million increase
in gross revenues.

                                       10

<PAGE>


Item 2.  Management's Discussion and Analysis

         of Financial Condition and Results of Operations (Continued)

Operating Income

Operating  income for the three months and nine months ended  December 31, 1999,
increased   approximately  24%  to  $3.7  million,  and  20%  to  $8.1  million,
respectively,  because  increased gross profit  surpassed  increases in selling,
general and administrative expenses as discussed above.

Interest Expense

Interest  expense for the three months and nine months ended  December 31, 1999,
increased  approximately  54% and 38%,  respectively,  primarily  due to  higher
average outstanding borrowings which are a result of (i) the Staton Hills Winery
acquisition  which  occurred  during the  quarter  ended June 30,  1999 and (ii)
continuing capital  expenditures,  related to winery-expansion over the past two
years.

Equity in Net Income of Duhart-Milon

The Company's  23.5% equity  interest in the net income of Chateau  Duhart-Milon
("Duhart-Milon")  for the three months and nine months  ended  December 31, 1999
was $168,000 and $698,000, respectively.

The Company  monitors  its  investment  in  Duhart-Milon  primarily  through its
on-going   communication   with  Domaines  Barons  de  Rothschild   (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  frequent
visits to Duhart-Milon's offices and productions facilities.

The Company's investment in Duhart-Milon is a long-term  investment  denominated
in French Francs. The accumulated other  comprehensive loss reserve for currency
translation adjustment was $3,015,000 as of December 31, 1999. This increased by
$717,000  since March 31, 1999, due to the decrease in the relative worth of the
French Franc when compared to the U.S. dollar.  The European Union's  transition
to "EURO"  currency,  which  became  effective  as of January  1,  1999,  is not
expected to  materially  affect the  valuation of the  Company's  investment  in
Duhart-Milon.  Cumulative foreign currency translation  adjustments are included
in accumulated other  comprehensive  loss in the equity section of the Company's
consolidated balance sheet.

Minority Interest

<TABLE>
The  financial  statements  of Edna  Valley  Vineyard  ("EVV")  and Canoe  Ridge
Vineyard,  LLC ("CRV") are consolidated with the Company's financial statements.
The interest in the equity and net income of EVV and CRV attributable to parties
other than the Company is  accounted  for as  minority  interest.  The  minority
interest  in the net income of EVV and CRV for the three  months and nine months
ended December 31, 1999 and 1998 consisted of the following (in thousands):


<CAPTION>
                                                                 Three months ended          Nine months ended
                                                  Minority          December 31,                December 31,
                                                              -------------------------- ---------------------------
Venture               Minority Owner               Percent       1999          1998         1999          1998
-----------           --------------------------------------  -----------  ------------- ------------ --------------
<S>                                                  <C>           <C>            <C>          <C>            <C>
EVV                   Paragon Vineyard Co., Inc.     50.00%        $ 260          $ 333        $ 722          $ 733
CRV                   Various                        49.50%           78             99          245            274
                                                              -----------  ------------- ------------ --------------
                                                                   $ 338          $ 432        $ 967        $ 1,007
                                                              ===========  ============= ============ ==============
</TABLE>


The  minority  interest  in  the  net  income  of  EVV  decreased  22%  and  2%,
respectively,  during the three months and nine months  ended  December 31, 1999
when compared to the same periods last year.  These  decreases are primarily due
to decreased sales volume of EVV wines.

                                       11

<PAGE>


Item 2.  Management's Discussion and Analysis

         of Financial Condition and Results of Operations (Continued)

The  minority  interest  in the  net  income  of CRV  decreased  $21%  and  11%,
respectively,  during the three months and nine months  ended  December 31, 1999
when  compared  to the same  periods in 1998.  The  decrease  as compared to the
previous year. is attributable to lower gross margins resulting from a change in
the  sales  product  mix,  along  with  an  increase  in  selling,  general  and
administration expenses

Net  Income

Net income for the three  months and nine months ended  December  31, 1999,  was
$1,669,000 and  $3,609,000,  respectively,  reflecting  increases of 23% and 18%
over the comparable periods in the prior year. These increases are primarily due
to  increased  gross  profits,  offset  by  (i)  higher  selling,   general  and
administrative expenses and (ii) higher financing costs.

YEAR 2000

The  Company  has not  experienced  any  significant  Year 2000  related  system
failures nor, to management's  knowledge,  have any of the Company's  suppliers.
The Company  intends to continue  to monitor and test  systems for ongoing  Year
2000 compliance;  however, management cannot guarantee that the systems of other
companies,  upon which the we rely in varying degrees, have not been affected by
issues associated with the Year 2000 conversion.

LIQUIDITY AND CAPITAL RESOURCES

Working Capital:

Working  capital  increased by 10% during the quarter  ended  December  31,1999,
starting at $51.5  million and ending at $56.7  million.  During the nine months
ended December 31, 1999,  working  capital  increased 15%, from $49.2 million to
$56.7  million  primarily  because of the  acquisition  of Staton  Hills  Winery
("SHW") which increased  assets (current and long-term),  but was financed using
the Company's non-current bank debt.

Cash Flows:

Operating Activities: Cash provided by operating activities for the three months
and nine months ended December 31, 1999,  increased by $2.7 million and $900,000
respectively  when compared to the prior year.  These  increases are primarily a
result of a timing difference in accounts payable.

Investing Activities:  Cash utilized in investing activities for the three-month
period ended December 31, 1999 increased by $1.3 million, or 140%, when compared
to the  prior  year as a result  if  increased  property,  plant  and  equipment
expenditures.  Cash utilized in investing  activities for the nine-month  period
ended December 31, 1999 increased by $6.6,  million,  or 103%,  when compared to
the  prior  year,   primarily  due  to  the  aforementioned   $6.1  million  SHW
acquisition.

Financing Activities:  For the quarter ended December 31, 1999, cash provided by
financing  activities decreased by $ 3.9 million when compared to the prior year
due to normal  variations in the Company's  need for the line(s) of credit.  For
the nine months  ended  December  31,  1999,  cash flows  provided by  financing
activities increased by $ 3.7 million when compared to the prior year, primarily
due to the  aforementioned  $6.1  million  purchase of SHW,  which was  financed
through the Company's line of credit.

General:

The Company is not aware of any  potential  impairment  to of its  liquidity and
believes its capital resources are adequate to meet current and future operating
and capital expenditure requirements for at least the next twelve months.

                                       12

<PAGE>


Item 3.  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  which
have been drafted in compliance  with recently  adopted  regulations  of the SEC
concerning the use of "Plain English." 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 and other  business and economic  conditions.  Additionally,  our
sales-volume  tends to be affected by price increases,  distributors'  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.  A portion 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.

Our Profits  Depend  Largely on Sales in Certain  States and on Sales of Certain
Varietals

In the nine months ended December 31, 1999,  approximately 70% 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.  Approximately  75% of our  net  revenues  in the  nine  months  ended
December  31, 1999 were  concentrated  in our top four selling  varietal  wines.
Specifically,  sales of Chardonnay,  Pinot Noir,  Cabernet  Sauvignon and Merlot
accounted for 55%,18%,  17% and 10% of our net revenues,  respectively,  for the
nine months ended December 31, 1999.

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.

Additionally, 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  adversely  impacted  to the
extent we are not able to compete  successfully against such wine or alternative
beverage producers.

Our Business is Seasonal

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 peak during
the  winter  when  we  have  to pay  for  harvest  costs  and  may  have to make
contractual  payments  to grape  growers.  These  and  other  factors  may cause
fluctuations in the market price of our common stock.

                                       13

<PAGE>


Item 3.  Disclosures About Market Risk (Continued)

Bad Weather, Pests and Plant Diseases Could Harm Our Business

Winemaking  and grape  growing are subject to a variety of  agricultural  risks.
Various  diseases and pests and extreme  weather  conditions  can materially and
adversely  affect the quality and quantity of grapes available to us. This could
reduce the quality or amount of wine we produce.  A deterioration in the quality
of our wines  could  adversely  impact our brand  name,  and a  decrease  in our
production could reduce our sales and profits.  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 have 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.

Many California vineyards, including vineyards in Northern California, have been
infested  with  Phylloxera,  a root  louse  that  renders  a  vine  economically
unproductive  within a few  years  after  infestation.  The  current  strain  of
Phylloxera  primarily  affects vines of a certain type. Our vineyard  properties
are  primarily  planted to  rootstocks  believed to be resistant to  Phylloxera.
However,  we cannot be certain that our existing  vineyards or the rootstocks we
are now using in our planting  and  replanting  programs  will not in the future
become  susceptible  to current or new strains of  Phylloxera,  plant insects or
diseases, any of which could adversely impact our business.

The weather  phenomenon  commonly  referred to as "El Nino" produced heavy rains
and  cooler  weather  during the Spring of 1998,  which  resulted  in colder and
wetter  soils  than  are  typical  during  California's  grape  growing  season.
Consequently,  the 1998 harvest was postponed by approximately four to six weeks
- depending on the  geographical  location and  varietals.  The unusual  weather
conditions resulting from El Nino impacted quantity and quality of the Company's
1998 estate  harvest.  The size of the Company's most  significant  crops ranged
from normal-sized  yields to 50% of normal yields (depending on the varietal and
the particular estate).  Despite the foregoing reduction in the yield of certain
crops,  the  harvested  estate  crops,  in  combination  with  contracted  grape
purchases (most of which are tonnage-based),  are expected to permit the Company
to  meet  originally   anticipated   sales-projections   for  its  1998  vintage
Chardonnay,  Cabernet and Merlot varietals which,  together,  have  historically
comprised  between  80% and 85% of its  aggregate  annual  production.  The 1999
harvest was delayed by a month as a result of a late  spring.  However the usual
October rains did not materialize, and the quality of our crop is believed to be
very good. As a result of the shortened growing period the crop size was reduced
for all varieties except  Chardonnay.  We expect to make up for any shortages by
purchasing  wine in the bulk wine market.  This shortage will decrease a portion
of the Merlot and Pinot Noir sales for the next two fiscal years,  but it is not
anticipated to have a significant impact on overall sales of the Company.

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.  Industry trends point to
rapid  plantings of new  vineyards  and  replanting  of old vineyards to greater
densities,  with the expected result of  significantly  increasing the supply of
premium wine grapes and the amount of wine which will be produced in the future.
This expected  increase in grape  production could result in an excess of supply
over demand and force wineries to hold or possibly reduce wine prices. This risk
has been  some what  mitigated  by our  recent  purchase  of a 57 acre  Cabernet
Sauvignon  vineyard  in January  2000.  The new wine from this new  vineyard  is
expected to debut in 2004 with an  estimated  initial  release of  approximately
3000 cases.  Ultimately,  the  Company  expects  this  vineyard to produce up to
20,000 cases of luxury quality Bordeaux-style red wine.

                                       14

<PAGE>


Item 3.  Disclosures About Market Risk (Continued)

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  nineteen  largest   distributors   combined,
represented  approximately 5% and 42%, respectively,  of our net revenues during
the  nine  months  ended  December  31,  1999.  Sales  to our  nineteen  largest
distributors are expected to continue to represent a substantial  portion of our
net  revenues  in the future.  We use a broker to sell our wines in  California.
Such sales  represent 32% of our net revenues during the nine month period ended
December 31, 1999. The laws and regulations of several states  prohibit  changes
of distributors, except under certain limited circumstances, making it difficult
to terminate a distributor  without  reasonable  cause, as defined by applicable
statutes.  The resulting difficulty or inability to replace  distributors,  poor
performance  of our major  distributors  or our  inability  to collect  accounts
receivable from our major distributors could adversely impact our business.

New  Regulations  or  Increased  Regulatory  Costs  Could  Adversely  Impact 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 adversely our business.

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 or additional borrowings or other financing.

Adverse Public Opinion About Alcohol May Negatively Impact 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 negatively impact 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 and
other  kinds of risks.  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.

                                       15

<PAGE>


Item 3.  Disclosures About Market Risk (Continued)

Contamination of Our Wines Would Harm Our Business

We are also subject to certain  hazards and 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  principle  competitive  advantages.  We maintain  general
liability  and  product  liability  insurance  against  these and  other  kinds.
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.

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,  packaging  supplies
and various wine production  needs 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.  We do not  believe  that our foreign
exchange risk and  international  operations  exposure is material at this time,
but the volume of  international  transactions  is  increasing  and may increase
these risks in the future.

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 strong and vigilant  enforcement of our trademarks.  There can be
no assurance that competitors will refrain from using trademarks,  tradenames 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 is expensive and tends to divert management's time and
attention.

Our Acquisition of Staton Hills Winery and Potential Future Acquisitions Involve
a Number of Risks

Our  acquisition  of Staton Hills  Winery (and  potential  future  acquisitions)
involves  risks  which  include  assimilating  Staton  Hills  into our  Company;
integrating,  retaining and motivating key Staton Hills  personnel;  integrating
and  managing  geographically-dispersed  operations  because  Staton Hills is in
Washington State and our Company is headquartered in California; integrating the
technology  and  infrastructures  of the two  companies;  risks  inherent in the
production of wine in, and  marketing of wine from,  Washington  State,  and the
risks to our Company of the increased negative cash flow and increased operating
expenses arising from the acquisition of, and plans for, Staton Hills.

The integration of the  operations,  technology and personnel of our Company and
Staton Hills' is expected to be a complex,  time consuming and expensive process
and may disrupt our business if not completed in a timely and efficient  manner.
Staton  Hills and  Chalone  must  operate as a combined  organization  utilizing
common information and communications systems,  operating procedures,  financial
controls  and  human   resources   practices.   We  may  encounter   substantial
difficulties,  costs and  delays,  including  potential  incompatibility  of our
business  cultures,  perceived adverse changes in our business plans,  potential
conflicts  in our  supplier  and  customer  relationships  and  the  loss of key
employees  and  diversion of the  attention  of  management  from other  ongoing
business initiatives.

                                       16

<PAGE>


Item 3.  Disclosures About Market Risk (Continued)



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.  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.  These broad
market fluctuations may reduce the market price of our shares.

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:February 14, 2000              The Chalone Wine Group, Ltd.
-----------------------              ----------------------------
                                                        (Registrant)


                                        /s/ Thomas B. Selfridge

                                     Thomas B. Selfridge
                                     President and Chief Executive Officer

Dated:February 14, 2000                 /s/ Thomas B. Selfridge
-----------------------              --------------------------
                                     Thomas B. Selfridge
                                     (Acting) Principal Financial Officer


                                       17