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

                        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, 1997

                                       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
  Incorporation or Organization)            (I.R.S. Employer Identification No.)

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

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

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.
                                          Yes X    No
                                             ---     ---

The number of shares  outstanding  of  Registrant's  Common Stock on January 30,
1998 was 7,692,911.

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

<PAGE>

                          The CHALONE Wine Group, Ltd.

                         PART I. - FINANCIAL INFORMATION

Item 1. Financial Statements

        Consolidated Balance Sheets as of December 31, 1997, and March 31, 1997.


        Consolidated Statements of Operations for the three-month and nine-month
        periods ended December 31, 1997 and 1996.

        Consolidated  Statements  of  Changes  in  Financial  Position  for  the
        three-month and nine-month periods ended December 31, 1997 and 1996.

        Notes to Consolidated Financial Statements.


<PAGE>

<TABLE>
                                                    The CHALONE Wine Group, Ltd.

                                                     CONSOLIDATED BALANCE SHEETS
                                                           (in thousands)


                                                               ASSETS
<CAPTION>
                                                                                                      Dec 31,              March 31,
                                                                                                       1997                  1997
                                                                                                   (unaudited)
                                                                                                     --------              --------
<S>                                                                                                  <C>                   <C>     
Current Assets:
    Cash ...............................................................................             $     63              $    246
     Accounts receivable, less allowance for
        doubtful accounts of $76 thousand and
        $71 thousand,  respectively ....................................................                7,762                 3,944
     Notes receivable ..................................................................                1,493                 1,291
     Distribution receivable ...........................................................                 --                     382
     Note receivable from  officer .....................................................                   28                    83
     Inventory .........................................................................               32,872                28,231
     Prepaid expenses ..................................................................                  427                   219
     Deferred income taxes .............................................................                   23                    23
                                                                                                     --------              --------
        Total current assets ...........................................................               42,668                34,419
Investment in Chateau Duhart-Milon .....................................................               10,092                10,372
Notes receivable, long-term portion ....................................................                  407                   398
Property, plant & equipment, net .......................................................               27,924                24,763
Goodwill and trademarks ................................................................                5,467                 5,591
Other assets ...........................................................................                  294                   316
                                                                                                     --------              --------
        Total assets ...................................................................             $ 86,852              $ 75,859
                                                                                                     ========              ========

                                                LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
     Bank lines of credit ..............................................................             $ 13,008              $  7,771
     Current maturities of long-term obligations .......................................                  556                   564
     Accounts payable and accrued liabilities ..........................................                5,547                 1,801
                                                                                                     --------              --------
        Total current liabilities ......................................................               19,111                10,136
Long-term obligations, less current maturities .........................................                8,710                 9,879
Convertible subordinated debentures ....................................................                8,500                 8,500
Deferred income taxes ..................................................................                1,318                 1,318
Minority interest ......................................................................                3,952                 3,191
                                                                                                     --------              --------
        Total  liabilities .............................................................               41,591                33,024
                                                                                                     --------              --------
Shareholders' equity:
     Common stock ......................................................................               41,968                41,841
     Retained earnings .................................................................                5,458                 2,583
     Cumulative foreign currency translation adjustment ................................               (2,165)               (1,589)
                                                                                                     --------              --------
        Total shareholders' equity .....................................................               45,261                42,835
                                                                                                     --------              --------
        Total liabilities and shareholders' equity .....................................             $ 86,852              $ 75,859
                                                                                                     ========              ========
<FN>
                                             The accompanying notes are an integral part
                                              of the consolidated financial statements
</FN>
</TABLE>
                                                                  3

<PAGE>


<TABLE>
                                                    The CHALONE Wine Group, Ltd.

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

<CAPTION>
                                                                           Three Months                       Nine Months       
                                                                               Ended                              Ended          
                                                                            December 31,                        December 31,       
                                                                     --------------------------          --------------------------
                                                                       1997             1996              1997              1996 
                                                                     --------          --------          --------          --------
<S>                                                                  <C>               <C>               <C>               <C>     
Gross revenues .............................................         $ 11,178          $  9,857          $ 28,715          $ 26.513
Less excise taxes ..........................................              243               204               697               715
                                                                     --------          --------          --------          --------
     Net revenues ..........................................           10,935             9,653            28,018            25,798

Cost of wines sold .........................................            6,057             5,553            15,939            15,371
                                                                     --------          --------          --------          --------
     Gross profit ..........................................            4,878             4,100            12,079            10,427

Operating expenses .........................................            2,039             1,838             5,797             4,993
                                                                     --------          --------          --------          --------
     Operating income ......................................            2,839             2,262             6,282             5,434
                                                                     --------          --------          --------          --------

 Other income (expenses):
     Interest ..............................................             (387)             (576)           (1,360)           (1,407)
     Other, net ............................................              186                17               373                44
                                                                     --------          --------          --------          --------
                                                                         (201)             (559)             (987)           (1,363)
Equity in net income of Ch. Duhart-Milon ...................              103                64               296               252
Minority interests .........................................             (401)             (266)             (799)             (586)
                                                                     --------          --------          --------          --------
     Income before income taxes ............................            2,340             1,501             4,792             3,737
                                                                     --------          --------          --------          --------
 Income tax expense ........................................             (936)             (613)           (1,917)           (1,528)
                                                                     --------          --------          --------          --------
     Net income ............................................         $  1,404          $    888          $  2,875          $  2,209
                                                                     ========          ========          ========          ========

     Net income per common share:
           Basic ...........................................         $   0.18          $   0.11          $   0.37          $   0.29
           Dilutive ........................................         $   0.17          $   0.11          $   0.34          $   0.27


     Average number of shares used
     in income per share computation:
           Basic ...........................................            7,813             7,773             7,692             7,652
           Dilutive ........................................            8,398             8,283             8,368             8,168



<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 CHANGES IN FINANCIAL POSITION
                                                      (unaudited)(in thousands)

<CAPTION>
                                                                              Three Months                      Nine Months
                                                                                 Ended                             Ended
                                                                               December 31,                     December 31,
                                                                         ------------------------          ------------------------
                                                                           1997            1996             1997             1996
                                                                         -------          -------          -------          -------
<S>                                                                      <C>              <C>              <C>              <C>    
Cash flows from operating activities:
   Net earnings ................................................         $ 1,404          $   888          $ 2,875          $ 2,209
   Non-cash transactions included in earnings:
         Depreciation ..........................................           1,700             1912            2,445            2,553
         Amortization ..........................................              41               32              124               91
         Equity in Chateau Duhart-Milon ........................            (103)             (64)            (296)            (252)
         Increase in minority interest .........................             401              266              799              586
         Loss on sale of equipment .............................               3                4                6               74
      Changes in:
         Accounts receivable ...................................          (1,527)          (1,435)          (3,436)          (2,851)
         Inventory .............................................          (2,512)          (1,905)          (4,641)          (1,668)
         Prepaid expenses and other assets .....................            (110)              26             (186)            (320)
         Other receivables .....................................            --               (419)            --               (419)
         Accounts payable and accrued expenses .................           1,827            2,177            3,746            4,645
                                                                         -------          -------          -------          -------
      Net cash provided by operating activities ................           1,124            1,482            1,436            4,648
                                                                         -------          -------          -------          -------

Cash flows from investing activities:
   Capital expenditures ........................................          (1,197)             (79)          (5,736)          (6,160)
   Net change in notes receivable ..............................          (1,413)            (473)            (156)            (470)
   Investment in Duhart-Milon ..................................            --                169             --                156
   Proceeds from disposal of equipment .........................              24              211              124              316
                                                                         -------          -------          -------          -------
      Net cash used in investing activities ....................          (2,586)            (172)          (5,768)          (6,158)
                                                                         -------          -------          -------          -------

Cash flows from financing activities:
   Net change under line of credit agreement ...................           1,411             (948)           5,237           (1,447)
   Repayment of long-term debt .................................             (79)          (5,313)          (1,177)          (5,728)
   Proceeds from issuance of long-term debt ....................            --              5,162             --              8,894
   Distribution to minority interest ...........................            --               (200)             (38)            (200)
   Purchase and retirement of common stock .....................            --                103             --                103
   Net proceeds from issuance of common stock ..................              71               35              127               93
                                                                         -------          -------          -------          -------
      Net cash provided by financing activities ................           1,403           (1,161)           4,149            1,715
                                                                         -------          -------          -------          -------

      Net increase (decrease) in cash ..........................             (59)             149             (183)             205
      Cash at beginning of period ..............................             122               58              246                2
                                                                         -------          -------          -------          -------
Cash at end of period ..........................................              63              207          $    63              207
                                                                         =======          =======          =======          =======
<FN>
                                             The accompanying notes are an integral part
                                              of the consolidated financial statements
</FN>
</TABLE>

                                                                  5

<PAGE>


                          The CHALONE Wine Group, Ltd.


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - Consolidated Financial Statements

         The   consolidated   balance  sheet  as  of  December  31,  1997,   the
consolidated  statement of operations for the three-month and nine month periods
ended December 31, 1997 and 1996, and the  consolidated  statement of changes in
financial  position for the  three-month  and nine 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
changes  in  financial  position  at  December  31,  1997,  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 10K for the  transition  period ended March 31, 1997, 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 - Net Income per Share

         In February  1997,  the  Financial  Accounting  Standards  Board issued
Statement of Financial  Accounting  Standards No. 128,  Earnings per Share (SFAS
128). SFAS 128 requires a dual  presentation  of basic and diluted  earnings per
share.  Basic earnings per share  excludes  dilution and is computed by dividing
net income by the weighted  average number of common shares  outstanding for the
period.  Diluted  earnings per share reflects the potential  dilution that could
occur if  securities  or other  contracts  to issue  common  stock  (e.g.  stock
options) were exercised and converted into stock. For all periods presented, the
difference  between basic and diluted  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. Note that convertible
debentures are excluded from the computation, as these have had, and continue to
have, an antidilutive effect.

                                       6

<PAGE>

                          The CHALONE Wine Group, Ltd.

<TABLE>
NOTE 3 - Net Income per Share (continued)

                (unaudited) (in thousands, except per-share data)

<CAPTION>

                                     Three Months                    Three Months
                                        Ended                            Ended
                                  December 31, 1997                December 31, 1996
                               --------------------------   --------------------------
                              Income    Shares      EPS     Income   Shares     EPS
                                (1)       (2)     (1)/(2)     (1)      (2)     (1)/(2)
                               ------    -----   --------   ------   ------   --------
<S>                            <C>       <C>     <C>        <C>       <C>     <C>     
 Basic EPS
 Income available to
    common stockholders ....   $1,404    7,813   $   0.18   $  888    7,773   $   0.11

Effect of Dilutive
 Securities

Warrants ...................     --        453                --        416
Stock Options ..............     --        132                --         94
                               ------   ------              ------   ------

 Diluted EPS
 Income available to
    common stockholders &
    assumed conversions ....   $1,404    8,398   $   0.17   $  888    8,283   $   0.11
                               ======    =====   ========   ======    =====   ========


                                     Three Months                    Three Months
                                        Ended                            Ended
                                  December 31, 1997                December 31, 1996
                               --------------------------   --------------------------
                              Income    Shares      EPS     Income   Shares     EPS
                                (1)       (2)     (1)/(2)     (1)      (2)     (1)/(2)
                               ------    -----   --------   ------   ------   --------
<S>                            <C>       <C>     <C>        <C>       <C>     <C>     
 Basic EPS
 Income available to
    common stockholders ....   $2,875    7,692   $   0.37   $2,209    7,652   $   0.29

Effect of Dilutive
 Securities

Warrants ...................     --        515                --        418
Stock Options ..............     --        161                --         98
                               ------   ------              ------   ------

 Diluted EPS
 Income available to
    common stockholders &
    assumed conversions ....   $2,875    8,368   $   0.34   $2,209    8,168   $   0.27
                               ======    =====   ========   ======    =====   ========

</TABLE>

                                       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  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 in Monterey County,
Acacia  Winery in the  Carneros  District of Napa County,  Carmenet  Vineyard in
Sonoma  County,  and in  conjunction  with its  joint-venture  partner,  Paragon
Vineyard Co., owns and operates Edna Valley  Vineyard in San Luis Obispo County.
In the State of  Washington,  the  Company  owns a 51%  interest  in Canoe Ridge
Vineyard.  In the  Bordeaux  region  of  France,  the  Company  owns  24% of the
fourth-growth  estate of Chateau  Duhart-Milon,  in  partnership  with  Domaines
Barons de Rothschild (Lafite) who own the other 76%.

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 in Item 2., Management's Discussion and Analysis of
Financial  Condition and Results of Operations,  relating to the  sufficiency of
funds  for the  Company's  working  capital  requirements  during  1997  and the
Company's  expectation  that future 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  weather and general
farming  conditions  affecting annual harvest quantity as well as quality;  (ii)
variations in market taste as well as demand; (iii) changes in the wine industry
regulatory environment. Each of the 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  December
31, 1996 and Form 10-K for the transition period ended March 31, 1997.

                                       8

<PAGE>


                          The CHALONE Wine Group, Ltd.

Item 2.    Management's Discussion and Analysis
           of Financial Condition and Results of Operations (Continued)
<TABLE>
RESULTS OF OPERATIONS
         The following  table sets forth the percentage  relationship to revenue
of certain items in the Company's  statements of operations for the  three-month
and nine month  periods  ended  December 31, 1997 and 1996,  and the  percentage
change in such items between the comparable periods in those years.
<CAPTION>
                                           Three Months Ended Dec. 31,            Nine Months Ended Dec. 31,
                                      -----------------------------------     ----------------------------------
                                           Percentage of         Percent           Percentage of       Percent
                                             Wine Sales           Change             Wine Sales        Change
                                      -----------------------    ---------    ----------------------   ---------
                                        1997          1996       97 vs 96        1997          1996     97 vs 96
                                      --------       --------    ---------    --------      --------   ---------
<S>                                   <C>            <C>          <C>         <C>           <C>          <C>  
Net Revenues ........................ 100.0 %        100.0 %      13.3 %      100.0 %       100.0 %      8.6 %
Cost of wines sold ..................  55.4 %         57.5 %       9.1 %       56.9 %        59.6 %      3.7 %
                                      --------       --------                 --------      --------
   Gross profit .....................  44.6 %         42.5 %      19.0 %       43.1 %        40.4 %     15.8 %

Operating expenses ..................  18.6 %         19.0 %      10.9 %       20.7 %        19.3 %     16.1 %
                                      --------       --------                 --------      --------
   Operating income .................  26.0 %         23.5 %      25.5 %       22.4 %        21.1 %     15.6 %
                                      --------       --------                 --------      --------

Other income (expenses):
   Interest .........................  (3.5)%         (6.0)%     (32.8)%       (4.8)%        (5.5)%     (3.3)%
   Other, net .......................   1.7 %          0.2 %     994.1 %        1.3 %         0.2 %    747.7 %
                                      --------       --------                 --------      --------
                                       (1.8)%         (5.8)%     (64.0)%       (3.5)%        (5.3)%    (27.6)%
                                                                                                 
Equity in net income ................   0.9 %          0.7 %      60.9 %        1.1 %         1.0 %     17.5 %
Minority interests ..................  (3.7)%         (2.8)%      50.8 %       (2.9)%        (2.3)%     36.3 %
                                      --------       --------                 --------      --------
   Income before inc. taxes .........  21.4 %         15.6 %      55.9 %       17.1 %        14.5 %     28.2 %
                                      --------       --------                 --------      --------
                                                                                          
Income tax expense ..................  (8.6)%         (6.4)%      52.7 %       (6.8)%         5.9)%     25.5 %
                                      --------       --------                 --------      --------
   Net income .......................  12.8 %          9.2 %      58.1 %       10.3 %         8.6 %     30.2 %
                                      ========       ========                 ========      ========

</TABLE>

Wine Sales

     Sales for the  three  months  and nine  months  ended  December  31,  1997,
increased approximately 13% and 9%, respectively, over the comparable periods in
1996.  The number of cases sold in the nine months  ended  December 31, 1997 was
0.2% less than the comparable period in 1996. The corresponding 8.6% increase in
net revenues was therefore  primarily  attributable  to increases in average per
case realization for the same periods  resulting from changes in product mix, as
well as selected price increases.

Gross Profit

     Gross profit for the three months and nine months ended  December 31, 1997,
increased  by  approximately  19% and 16%,  respectively,  over  the  comparable
periods in 1996,  primarily as a result of the increased  per case  realizations
mentioned above without corresponding increases in production cost.


                                       9


<PAGE>


                          The CHALONE Wine Group, Ltd.

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

Operating Expenses

     Operating expenses for the three months and nine months ending December 31,
1997  increased by 11% and 16%,  respectively,  over the  comparable  periods in
1996.  This increase is primarily  the result of planned  increases in marketing
expenditures  and  increases  in selling  expenses  related to  increased  sales
revenue.

Operating Income

     Operating  income for the three months and nine months  ended  December 31,
1997,  increased by 26% and 16%,  respectively,  from the comparable  periods in
1996.  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 and nine months ended  December
31, 1997, decreased by 33% and 3%, respectively,  from the comparable periods in
1996, due to improved terms on debt financing negotiated in 1997.

     Net other income for the three  months and nine months  ended  December 31,
1997 increased by $169,000 and $329,000, respectively,  primarily as a result of
increased crushing fees received from third party wineries during the six months
ended December 31, 1997.

Equity in Net Income of Chateau Duhart-Milon

     The Company's  23.5% equity interest in  Duhart-Milon's  net income for the
nine months ended  December 31, 1997,  was $296,000,  as compared to $252,000 in
the comparable  period in 1996.  This 17% increase is primarily  attributable to
exceptionally  strong demand for Bordeaux wines and  corresponding  increases in
prices of the wines.

     The investment in Duhart is denominated in French Francs and accordingly, a
reserve  for  currency  translation  is  recorded  in the equity  section of the
balance sheet and serves to reduce the balance of the investment. The reserve as
of December 31, 1997, was  $2,165,000,  due to the declining value of the French
Franc since early 1996.

<TABLE>
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 interest in the net earnings of EVV and CRV which thus
belongs  to  parties  other  than the  Company  is  accounted  for as  "minority
interest".  This "minority  interest" for the three months and nine months ended
December 31, 1997, consisted of the following:
<CAPTION>
                                                                  Minority Interest in   
                                                                        Earnings         
                                                               --------------------------
                                                                 3 Months      9 Months  
                                                                  Ended         Ended    
                                                    Minority     Dec. 31,      Dec. 31,  
Venture                      Minority Owner         Percent        1997          1997    
-------                      --------------         -------    ----------    ------------
<S>                                                   <C>       <C>           <C>        
Edna Valley Vineyard         Paragon Vineyard                  
                               Co., Inc.              50.0%     $339,052      $694,832   

Canoe Ridge Vineyard, LLC    Various                  49.5%       61,765       103,759   
                                                               ----------    ------------
                                                                $400,817      $798,591   
                                                               ==========    ============
</TABLE>

                                       10



<PAGE>


                          The CHALONE Wine Group, Ltd.

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

     The minority  interest in earnings for EVV during the  three-month and nine
month periods of 1997 reflects increases of 52% and 47%, respectively,  from the
comparable  periods in 1996.  This is primarily the result of an increase in net
revenues  per case and the  resulting  increase  in gross  margin per case.  The
minority  interest in earnings for CRV during the three months  ending  December
31, 1997 reflects an increase of 52%, while the nine months ending  December 31,
1997 yielded a decrease of 9% over the comparable periods in 1996.

     Company management believes that EVV, and to a lesser degree, CRV will both
continue  to  contribute  significantly  to the  Company's  consolidated  income
statement.

Net Income

     Net income for the three  months and nine months  ended  December 31, 1997,
was $1,404,000 and $2,875,000, respectively, reflecting increases of 58% and 30%
over the comparable periods in 1996.


SEASONALITY

         The results for the interim periods are not  necessarily  indicative of
the results to be expected for the year, due to seasonal factors.  The Company's
wine sales from quarter to quarter are highly  variable  because the exact dates
when wines are  released  for sale vary from year to year.  Sales are  typically
highest  during the last three months of the calendar year, due to heavy holiday
sales and because most wines are released  around  September and October of each
year.


LIQUIDITY AND CAPITAL RESOURCES

         The Company's working capital increased $2,310,000,  or 11%, during the
three-month  period  ending  December  31,  1997.  Conversely,  working  capital
decreased by $726,000,  or 3%, during the nine month period ending  December 31,
1997, to $23,557,000. The notable increase during the quarter is consistent with
the comparable period in 1996,  wherein working capital increased by 5%. This is
primarily the result of  investments in inventory in  anticipation  of next year
sales.

         As of December  31,  1997,  the  Company  had lines of credit  totaling
$16,300,000 of which $13,147,000 had been drawn. Subsequently,  as of January 8,
1998,  the  Company  had  lines of credit  increased  to  $18,300,000,  of which
$15,690,000 were drawn on that date.

         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.

                                       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: February 13, 1998                            The CHALONE Wine Group, Ltd.
------------------------                            ----------------------------
                                                             (Registrant)




                                                       /s/ William L. Hamilton
                                                    ----------------------------
                                                    William L. Hamilton
                                                    Executive Vice President




Dated: February 13, 1998                               /s/ William L. Hamilton
------------------------                            ---------------------------
                                                    William L. Hamilton
                                                    Chief Financial Officer

                                       12