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

                                 -------------

                                   FORM 10-Q

[ X ]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
       EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 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 1-7726


                            REUNION INDUSTRIES, INC.
             (Exact name of registrant as specified in its charter)


                  DELAWARE                         06-1439715
     (State or other jurisdiction of          (I.R.S. Employer
      incorporation or organization)          Identification Number)



                              62 SOUTHFIELD AVENUE
                        ONE STAMFORD LANDING  SUITE 208
                               STAMFORD, CT 06902
                    (Address of principal executive offices)

                                 (203) 324-8858
              (Registrant's telephone number, including area code)



     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
                                 -----       -----      

     As of April 23, 1999 the Registrant had 3,917,600 shares of common stock,
par value $.0l, outstanding.
<PAGE>
 
                               TABLE OF CONTENTS



PART I.  FINANCIAL INFORMATION                                          PAGE
                                                                        ----
Item 1.  Financial Statements

         Consolidated Balance Sheets - March 31 , 1999 (Unaudited)
           and December 31, 1998                                           2

         Consolidated Statements of Operations (Unaudited)
           Three Months Ended March 31, 1999 and 1998                      4

         Consolidated Statements of Cash Flows (Unaudited)                 
           Three months Ended March 31, 1999 and 1998                      5

         Notes to Consolidated Financial Statements (Unaudited)            6


Item 2.  Management's Discussion and Analysis of Financial Condition and  
          Results of Operations                                           12

Item 3.  Qualitative and Quantitative Disclosures About Market Risk       17
 
 
PART II. OTHER INFORMATION
 
Item 1.  Legal Proceedings                                                18
Item 6.  Exhibits and Reports on Form 8-K                                 19
 
SIGNATURE                                                                 20
 

                           FORWARD LOOKING STATEMENTS

     This Form 10-Q contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934.  These forward-looking statements speak only as of the
date of this Form 10-Q, and the Company expressly disclaims any obligation or
undertaking to publicly release any updates or revisions to any forward-looking
statements contained herein.  Although the Company believes that its
expectations are based on reasonable assumptions, it cannot assure that the
expectations contained in such forward-looking statements will be achieved.
Such statements involve risks, uncertainties and assumptions which could cause
actual results to differ materially from those contained in such statements.
Such factors include, but are not limited to,  domestic and international
economic conditions which affect the volume of sales of business and consumer
goods by the Company's customers and, therefore, the volume of sales of
component parts produced by the Company; the cost and availability of materials,
labor and other goods and services used in the Company's operations; actions of
the Company's competitors and industry trends, which affect the pricing of the
Company's products; the cost of interest on the Company's debt; and the effects
of our, or parties with whom we do business, failure to achieve Y2K compliance.
<PAGE>
 
                           REUNION INDUSTRIES, INC.
                          CONSOLIDATED BALANCE SHEETS
                                (IN THOUSANDS)
<TABLE> 
<CAPTION> 

                                                              MARCH 31,  DECEMBER 31,
                                                                1999        1998
                                                             ----------  -----------   
                                                             (Unaudited)
<S>                                                           <C>         <C>         
ASSETS
 
CURRENT ASSETS
  Cash and Cash Equivalents                                  $   2,405   $  2,009
  Accounts Receivable, Less Allowance for
    Doubtful Accounts of $198 and $360, respectively            10,911     12,389
 Inventories                                                     8,060      7,104
 Customer Tooling-in-Process                                       598        897
 Other Current Assets                                            1,050        803
                                                             ---------   --------   
    Total Current Assets                                        23,024     23,202
                                                             ---------   --------    
PROPERTY, PLANT AND EQUIPMENT-- NET                             40,182     41,353
                                                             ---------   --------    
OTHER ASSETS
  Goodwill                                                       8,188      8,371
   Other                                                         1,732      1,948
                                                             ---------   --------    
    Total Other Assets                                           9,920     10,319
                                                             ---------   --------    
TOTAL ASSETS                                                 $  73,126   $ 74,874
                                                             =========   ========    
</TABLE>

                                       2
<PAGE>
 
                            REUNION INDUSTRIES, INC.

                          CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
 
 
                                                                 MARCH 31,      DECEMBER 31,
                                                                   1999             1998
                                                                ---------      ------------   
                                                               (UNAUDITED)
            LIABILITIES AND STOCKHOLDERS' EQUITY
<S>                                                             <C>            <C> 
Current Liabilities
  Current Portion of Long-Term Debt                              $ 10,548        $ 11,155
  Short Term Term Debt - Related Parties                              278           1,015
  Accounts Payable                                                  9,669           8,684
  Advances From Customers                                             833           1,249
  Accrued Bargo Judgment                                            8,625           8,425
  Other Current Liabilities                                         5,591           5,591
                                                                 --------        --------       
       Total Current Liabilities                                   35,544          36,119
 
 Long-Term Debt                                                    16,108          15,245
 Long-Term Debt-Related Parties                                     1,385           1,385
 Other Liabilities                                                  3,327           3,279
                                                                 --------        --------        
       Total Liabilities                                           56,364          56,028
                                                                 --------        --------       
Commitments and Contingencies
Redeemable preferred stock of consolidated subsidiary                 561             607
Minority Interests                                                  2,054           2,000
 
Stockholders' Equity
 
  Common Stock  ($.01 par value; 20,000 authorized;
   3,900 and 3,900 issued and outstanding, respectively)               39              39
  Additional Paid-in Capital                                       29,332          29,332
  Accumulated Deficit (Since January 1, 1989)                     (14,648)        (12,961)
  Foreign Currency Translation Adjustments                           (576)           (171)
                                                                 --------        --------        
       Total Stockholders' Equity                                  14,147          16,239
                                                                 --------        --------        
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                       $ 73,126        $ 74,874
                                                                 ========        ========        
</TABLE>

                                       3
<PAGE>
 
                           REUNION INDUSTRIES, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (UNAUDITED)
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                        
 
 
 
                                                           Three Months Ended
                                                                 March 31,
                                                           -------------------- 
                                                              1999        1998
                                                           --------     -------
  NET SALES
    Plastics                                               $ 19,915     $26,368
    Agriculture                                                  61           -
                                                           --------     -------
                                                             19,976      26,368
 
  COST OF SALES
    Plastics                                                 16,868      22,356
    Agriculture                                                 137           -
                                                           --------     -------
                                                             17,005      22,356
 
  GROSS PROFIT                                                2,971       4,012
 
  SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                3,113       2,952
                                                           --------     ------- 
  OPERATING INCOME (LOSS)                                      (142)      1,060
 
  OTHER INCOME AND (EXPENSE)
      Interest Expense                                         (675)       (736)
      Provision for Bargo Judgment and Related Costs           (966)          -
      Other, Including Interest Income                          113           2
                                                           --------     ------- 
                                                             (1,528)       (734)
                                                           --------     ------- 
    Income (Loss) Before Taxes                               (1,670)        326
 
     Income Tax Expense                                         (17)        (52)
                                                           --------     ------- 
  NET INCOME (LOSS)                                          (1,687)        274
 
  FOREIGN CURRENCY TRANSLATION ADJUSTMENT                      (405)       (147)
                                                           --------     ------- 
   COMPREHENSIVE INCOME (LOSS)                             $ (2,092)    $   127
                                                           ========     ======= 
 
EARNINGS PER SHARE
 BASIC                                                     $  (0.43)    $  0.07
                                                           ========     ======= 
 DILUTED                                                   $  (0.43)    $  0.07
                                                           ========     ======= 
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
 BASIC                                                        3,900       3,857
                                                           ========     ======= 
 DILUTED                                                      3,900       3,968
                                                           ========     ======= 


          See Accompanying Notes to Consolidated Financial Statements

                                       4
<PAGE>
 
                            REUNION INDUSTRIES, INC.
                                        
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)
                                 (IN THOUSANDS)
                                        
<TABLE> 
<CAPTION> 

                                                              Three Months Ended
                                                                   March 31,
                                                             --------------------
                                                               1999         1998
                                                             --------    --------
<S>                                                           <C>         <C>                              
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net Income (Loss)                                            $(1,687)    $   274
 Adjustments to Reconcile Net Income (Loss) to Net Cash
  Provided by Operating Activities
   Depreciation                                                   877         906
   Goodwill amortization                                          183         176
   Debt issuance costs amortization                               485          86
                                                             --------    --------
                                                                 (142)      1,442
   Changes in Assets and Liabilities:
   (Increase) Decrease in Accounts Receivable                   1,478      (1,728)
   Increase in  Inventory                                        (956)       (791)
   Increase in Accounts Payable                                   156       2,253
   Other - net                                                    935        (143)
                                                             --------    --------
NET CASH PROVIDED BY OPERATING ACTIVITIES                       1,471       1,033
                                                             --------    -------- 
CASH FLOWS FROM INVESTING ACTIVITIES:
 Capital Expenditures                                            (444)       (849)
                                                             --------    --------
NET CASH USED IN INVESTING ACTIVITIES                            (444)       (849)
                                                             --------    -------- 
CASH FLOWS FROM FINANCING ACTIVITIES:
 Proceeds from Issuance of Debt Obligations                     7,524           -
 Debt Issuance Costs                                             (150)          -
 Payments of Debt Obligations                                  (6,589)     (1,512)
 Increase (Decrease) in Short Term Borrowings                  (1,416)         91
 Proceeds from exercise of stock options                            -          32
                                                             --------    --------
NET CASH USED IN FINANCING ACTIVITIES                            (631)     (1,389)
                                                             --------    -------- 
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                  396      (1,205)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                2,009       2,085
                                                             --------    --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                    $ 2,405     $   880
                                                             ========    ======== 
</TABLE>

          See Accompanying Notes to Consolidated Financial Statements

                                       5
<PAGE>
 
                   REUNION INDUSTRIES, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

               (In Thousands, Except Per Share Data) (Unaudited)


NOTE 1.  CONSOLIDATED FINANCIAL STATEMENTS

GOING CONCERN CONSIDERATIONS

     The accompanying consolidated financial statements have been prepared on a
going concern basis which contemplates the realization of assets and the
settlement of liabilities and commitments in the normal course of business.  The
Company has incurred losses in each of the last five years, and incurred a loss
of $1,687 in the three months ended March 31, 1999.  Corporate expenses,
including salaries and benefits, professional fees and other public company
costs, are expected to approximate $1,500 annually.  Legal costs to appeal the
Bargo Energy Company litigation (see Note 4) and the cost of collateralizing the
Bargo appeal bond will add to corporate requirements.  In addition, a
significant portion of the $1,498 accrued for environmental remediation of the
Louisiana properties (see Note 4) is expected to be expended during the next
twelve months, and a settlement payment for the California tax audit (see Note
4) is also expected to be made during this period.

     The Company's subsidiary, Oneida Rostone Corp. ("ORC") closed a new credit
facility with The CIT Group/Business Credit, Inc. in October 1998.  This new
credit facility limits payments to Reunion by ORC and Juliana. The new credit
facility also provides a letter of credit guarantee to provide credit support
for a supersedeas bond in the Bargo litigation.  Since October 1998,
substantially all the amounts otherwise permitted to be paid by ORC to Reunion
have been used to fund letter of credit and guarantee fees relating to the
supersedeas bond.

     Without additional financing, management believes that the Company will not
have sufficient resources to meet its corporate expenses and legal and
environmental costs as they become due over the next twelve months. During 1998
and January 1999, the Company borrowed a total of $1,040 from Stanwich
Financial Service Corp., ("SFSC"), a related party.  These borrowings bear
interest at 15% and were originally  due to mature September 30, 1998.  SFSC has
agreed to extend the maturity date to December 31, 1999 while the Company seeks
additional financing.  There can be no assurances that such financing will be
arranged, or that SFSC will extend the maturity indefinitely or lend additional
funds.  If the Company is unable to arrange additional financing, it may be
necessary to sell one or more of the Company's businesses.  The Company repaid
$762 of this borrowing in the first quarter of 1999 from cash balances at ORC's
subsidiary in Ireland.

     As described in Note 3, the Company has announced that it has entered into
a merger agreement with Chatwins Group, Inc. and has held financing discussions
with prospective lenders. In addition, the Company is pursuing an offering of up
to $100 million of senior unsecured notes.  If such transactions are completed,
management believes that there will be sufficient resources for the Company's
requirements.  There can be no assurances that any of these transactions can be
consummated.

PRINCIPLES OF CONSOLIDATION

     The consolidated financial statements include the accounts of Reunion
Industries, Inc. ("RII") and its majority owned subsidiaries. As used herein,
the term "Company" refers to RII, its predecessors and its subsidiaries, unless
the context indicates otherwise. All intercompany transactions and accounts are
eliminated in consolidation.

                                       6
<PAGE>
 
                   REUNION INDUSTRIES, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

               (In Thousands, Except Per Share Data) (Unaudited)


FINANCIAL STATEMENTS AT MARCH 31, 1999

     The Consolidated Balance Sheet at March 31, 1999 and the Consolidated
Statements of Operations and Cash Flows for the three months ended March 31,
1999 and 1998 included herein are unaudited; however, in the opinion of
management of the Company, they reflect all adjustments necessary to present
fairly the results for the interim periods. Such results are not necessarily
indicative of results to be expected for the year. The Consolidated Balance
Sheet at December 31, 1998 has been derived from the audited financial
statements at that date. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1998.


EARNINGS PER SHARE

     Basic earnings per share is computed based on the weighted average number
of common shares outstanding during the period.  Diluted earnings per share
gives effect to all dilutive potential common shares outstanding during the
period.  Potential  common shares include shares issuable upon exercise of the
Company's stock options and warrants.  Potential common shares were not included
in the weighted average number of shares for 1999 because their effect would
have been anti-dilutive.


ACCOUNTING PRONOUNCEMENTS

     The Financial Accounting Standards Board (FASB) has issued the following
accounting pronouncement which the company will be required to adopt in future
periods:

     FASB Statement No. 133 "Accounting for Derivative Instruments and Hedging
Activities" requires that derivative instruments such as options, forward
contracts and swaps be recorded as assets and liabilities at fair value and
provides guidance for recognition of changes in fair value depending on the
reason for holding the derivative. The Company does not presently have
significant transactions involving derivative instruments, but may do so in the
future. The Company is required to adopt Statement No. 133 for the first quarter
of 2000 and may adopt it earlier.


NOTE 2.  INVENTORIES

     Inventories consisted of the following:



                           MARCH 31, 1999  DECEMBER 31, 1998
                          ---------------  -----------------

          Raw  Materials          $3,980         $3,308
          Work-in process          1,073            962
          Finished Goods           3,007          2,834
                                  ------         ------
                  Total           $8,060         $7,104
                                  ======         ======
 

                                       7
<PAGE>
 
                   REUNION INDUSTRIES, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

               (In Thousands, Except Per Share Data) (Unaudited)



NOTE 3.  PROPOSED MERGER WITH CHATWINS GROUP, INC.

     The Company and Chatwins Group, Inc., a Delaware corporation that owns 38%
of the issued and outstanding shares of common stock of the Company ("CGI"),
have entered into an agreement for a stock-for-stock merger of CGI with and into
the Company.  The merger is subject to approval by the Company's stockholders,
the securing of adequate financing to refinance certain debt of the Company and
CGI and to operate the combined company, and the condition that no more than 5%
of the CGI stockholders exercise their appraisal rights under Delaware law.

     In connection with the merger, Reunion is pursuing a high yield debt
offering to satisfy the financing condition to the merger. Reunion has been
informed by its investment banker that market conditions for high yield debt
offerings for companies like Reunion (after giving effect to the merger) are not
favorable at this time.  Therefore, the high yield debt offering will not be
consummated prior to the designated closing date of the merger, June 29, 1999,
thereby delaying consummation of the merger.  Reunion continues to deem the
merger to be in the best interests of its stockholders, and intends to continue
to pursue the high yield offering in the hope that market conditions will
improve.  Reunion and Chatwins are simultaneously  pursuing other long-term
financing options in an effort to consummate the merger within the next several
months.  There can be no assurances that the high yield offering or other long-
term financing can be completed or that the merger will be approved or
consummated.


NOTE 4.  CONTINGENCIES

Debt

     At March 31, 1999, ORC was not in compliance with a financial covenant to 
maintain EBITDA (as defined in the financing agreements with the CIT 
Group/Business Credit, Inc. ("CITBC")) of not less than specified amounts each 
fiscal quarter. CITBC has agreed to waive compliance with this covenant for the 
quarter ended March 31, 1999. If ORC is unable to attain the required levels of 
EBITDA in future periods or is unable to obtain waivers in the future, the 
entire amount outstanding under the CITBC credit facility ($13,759 at March 31, 
1999) could be accelerated by CITBC.

Legal Proceedings

     On April 24, 1998, a jury in the state district court in Harris County,
Texas returned jury verdict findings that Bargo Energy Company ("Bargo") had a
right to terminate a November 1995 stock purchase agreement with the Company and
that the Company fraudulently induced Bargo into entering into the agreement.
The November 1995 stock purchase agreement concerned the sale of the Company's
subsidiary, REC, which operated the Company's discontinued oil and gas business.
The jury recommended that an award of $5,000 in punitive damages be assessed
against the Company. In July 1998, the court entered judgment affirming the
$5,000 jury verdict and awarding approximately $3,000 in attorneys' fees and
costs. The Company maintained at trial and continues to maintain that all
requirements to closing under the contract were met, and that Bargo was required
to close the transaction. The Company also maintains that no evidence sufficient
to support a jury finding of fraud or the related punitive damages finding was
presented at trial. The Company has filed a bond which suspends execution on the
judgment while the Company appeals the judgment. The Company filed its appeal on
April 5, 1999. Although management believes, based on consultation with counsel,
that it is more likely than not that the judgment will be overturned on appeal,
the Company recorded an accrual for the amount of the judgment with a charge to
continuing operations in 1998. Interest 

                                       8
<PAGE>
 
                   REUNION INDUSTRIES, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

               (In Thousands, Except Per Share Data) (Unaudited)

on the judgment at 10% has been accrued and will continue to accrue until the
litigation is resolved.

     The Company and its subsidiaries are the defendants in a number of lawsuits
and administrative proceedings, which have arisen in the ordinary course of
business of the Company and its subsidiaries. The Company believes that any
material liability which can result from any of such lawsuits or proceedings has
been properly reserved for in the Company's consolidated financial statements or
is covered by indemnification in favor of the Company or its subsidiaries, and
therefore the outcome of these lawsuits or proceedings will not have a material
adverse effect on the Company's consolidated financial position, results of
operations or cash flows.

Environmental Compliance

     Various U.S. federal, state and local laws and regulations including,
without limitation, laws and regulations concerning the containment and disposal
of hazardous waste, oil field waste and other waste materials, the use of
storage tanks, the use of insecticides and fungicides and the use of underground
injection wells directly or indirectly affect the Company's operations. In
addition, environmental laws and regulations typically impose "strict
liability"  upon the Company for certain environmental damages. Accordingly, in
some situations, the Company could be liable for clean up costs even if the
situation resulted from previous conduct of the Company that was lawful at the
time or from improper conduct of, or conditions caused by, previous property
owners, lessees or other persons not associated with the Company or events
outside the control of the Company. Such clean up costs or costs associated with
changes in environmental laws and regulations could be substantial and could
have a material adverse effect on the Company's consolidated financial position,
results of operations or cash flows.

     The Company's plastic products and service business routinely uses
chemicals and solvents, some of which are classified as hazardous substances.
The Company's oil and gas business and related activities routinely involved the
handling of significant amounts of waste materials, some of which are classified
as hazardous substances. The Company's vineyard operations routinely use
fungicides and insecticides, the handling, storage and use of which is regulated
under the Federal Insecticide, Fungicide and Rodenticide Act, as well as
California laws and regulations.

     Except as described in the following paragraphs, the Company believes it is
currently in material compliance with existing environmental protection laws and
regulations and is not involved in any significant remediation activities or
administrative or judicial proceedings arising under federal, state or local
environmental protection laws and regulations. In addition to management
personnel who are responsible for monitoring environmental compliance and
arranging for remedial actions that may be required, the Company has also
employed outside consultants from time to time to advise and assist the
Company's environmental compliance efforts.  Except as described in the
following paragraphs, the Company has not recorded any accruals for
environmental costs.

     In February 1996, Rostone was informed by a contracted environmental
services consulting firm that soil and ground water contamination exists at its
Lafayette, Indiana site. The Company has expended  $200 to date and has accrued
an additional $195 based on current estimates of remediation costs. Certain of
these costs are recoverable from the seller of Rostone (a related party).

                                       9
<PAGE>
 
                   REUNION INDUSTRIES, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

               (In Thousands, Except Per Share Data) (Unaudited)

     In connection with the sale of REC, the Company retained certain oil and
gas properties in Louisiana because of litigation concerning environmental
matters. The Company is in the process of environmental remediation under a plan
approved by the Louisiana Office of Conservation. The Company has recorded an
accrual for its proportionate share of the remaining estimated costs to
remediate the site based on plans and estimates developed by the environmental
consultants hired by the Company. During 1998 the Company increased this accrual
by a charge of $1,200 to discontinued operations, based on revised estimates of
the remaining remediation costs. At March 31, 1999, the balance accrued for
these remediation costs was $1,490. Owners of a portion of the property have
objected to the Company's proposed cleanup methodology and have filed suit to
require additional procedures. The Company is contesting this litigation, and
believes its proposed methodology is well within accepted industry practice for
remediation efforts of a similar nature. No accrual has been made for costs of
any alternative cleanup methodology which might be imposed as a result of the
litigation.

 Other Contingencies

     In early 1996, the State of California Franchise Tax Board initiated an
audit of the Company's franchise tax returns for the years 1991, 1992 and 1993.
In October 1996, the Company received a formal notice of assessment from the
taxing authority in the aggregate amount of $716 plus interest. Of this amount,
$645 results from the auditor's conclusion that income from gain on sales of
certain Canadian oil and gas  assets in 1991 should be reclassified from
nonbusiness to business income. The Company believes its classification of such
income was correct, and  appealed the assessment of tax.   In 1996, the Company
recorded a provision of $85 for certain other adjustments proposed.  The appeal
was denied, and the Company requested that the case be considered for
settlement.  If the Company's positions prevail on this issue, management
believes that the amounts due would not exceed amounts previously paid or
provided for. However, in connection with the settlement discussions, the
Company accrued an additional $510 in 1998, with a corresponding charge to
Discontinued Operations.  The total accrual of $595 represents management's
estimate of the minimum of the range of possible settlement outcomes.

                                       10
<PAGE>
 
                   REUNION INDUSTRIES, INC. AND SUBSIDIARIES

NOTE 5. SEGMENT INFORMATION

     The following table present information about the results of operations of
the Company's business segments:

 
 
                                                   THREE MONTHS ENDED MARCH 31, 
                                                   ----------------------------
                                                         1999        1998
                                                        ------      -------    
 
REVENUES
  Plastic products and services                         $19,915     $26,368
  Agriculture                                                61           -    
                                                        -------     -------
                                                        $19,976     $26,368
                                                        =======     =======
 
INCOME BEFORE INTEREST, TAXES, DEPRECIATION AND 
 AMORTIZATIZATION  (EBITDA)
  Plastic products and services                         $ 1,856     $ 2,627
  Agriculture                                              (120)          7
  Corporate and other                                    (1,671)       (490)
                                                        -------     -------
                                                        $    65     $ 2,144
                                                        =======     ======= 
DEPRECIATION AND AMORTIZATION
  Plastic products and services                         $ 1,026     $   967
  Agriculture                                                33         114
  Corporate and other                                         1           1
                                                        -------     -------
                                                        $ 1,060     $ 1,082
                                                        =======     ======= 
INCOME BEFORE INTEREST AND TAXES (EBIT)
  Plastic products and services                         $   830     $ 1,660
  Agriculture                                              (153)       (107)
  Corporate and other                                    (1,672)       (491)
                                                        -------     -------
                                                           (995)      1,062
Interest expense                                           (675)       (736)
                                                        -------     ------- 
 
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE 
 INCOME TAXES                                           $(1,670)    $   326
                                                        =======     =======


                                       11
<PAGE>
 
                   REUNION INDUSTRIES, INC. AND SUBSIDIARIES

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


GENERAL

     The Company's principal operations are in the plastic products and services
industry through its wholly owned subsidiary ORC. The Company is also engaged in
wine grape agricultural operations in Napa County, California through its wholly
owned subsidiary Juliana Vineyards ("Juliana").

     The Company and Chatwins Group, Inc., a Delaware corporation that owns 38%
of the issued and outstanding shares of common stock of the Company ("CGI"),
have entered into an agreement for a stock-for-stock merger of CGI with and into
the Company. The merger is subject to approval by the Company's stockholders,
the securing of adequate financing to refinance certain debt of the Company and
CGI and to operate the combined company, and the condition that no more than 5%
of the CGI stockholders exercise their appraisal rights under Delaware law.

     In connection with the merger, Reunion is pursuing a high yield debt
offering to satisfy the financing condition to the merger. Reunion has been
informed by its investment banker that market conditions for high yield debt
offerings for companies like Reunion (afer giving effect to the merger) are not
favorable at this time. Therefore, the high yield debt offering will not be
consummated prior to the designated closing date of the merger, June 29, 1999,
thereby delaying consummation of the merger. Reunion continues to deem the
merger to be in the best interests of its stockholders, and intends to continue
to pursue the high yield offering in the hope that market conditions will
improve. Reunion and Chatwins are simultaneously pursuing other long-term
financing options in an effort to consummate the merger within the next several
months. There can be no assurances that the high yield offering or other long-
term financing can be completed or that the merger will be approved or
consummated.


RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 1999

     The Company had a net loss of $1.7 million during the three months ended
March 31, 1999 compared to net income of $0.3 million for the three months ended
March 31, 1998.

     ORC: Revenues and operating income of ORC were $19.9 million and $0.8
million, respectively, for the three months ended March 31, 1999. This compares
to revenues and operating income of $26.4 million and $1.6 million,
respectively, for the three months ended March 31, 1998.

     The 24% decrease in revenues resulted from several factors, including
certain customers relocating  manufacturing operations to Mexico and Asia, end
of product cycles and delays  in new program starts, which affected all ORC
facilities.  ORC  backlog totaled $16.4  million at March 31, 1999, compared to
backlog  of  $16.7 million at  December 31, 1998 and backlog of $22.3 million at
March 31, 1998.  Backlog is also affected by customers' continuing movement to
just-in-time ordering and shorter delivery cycles.

     Cost of sales totaled $16.8 million, or 84.7% of net sales, for the three
months ended March 31,  1999 compared to $22.4 million,  or 84.8% of net sales
for the three months ended March  31, 1998 .  Gross profit  was  $3.1 million
for the three months ended March 31, 1999 compared to  $4.0 million in the prior
year period.  The decrease in both cost of sales and gross profit resulted from
the decrease in revenues.

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                   REUNION INDUSTRIES, INC. AND SUBSIDIARIES

     Selling, general and administrative expenses were $2.3  million for  the
three months ended March 31, 1999, compared to $2.4 million for the three months
ended March 31, 1998.   Operating income  was $0.8 million  for the three months
ended March  31, 1999  compared to $1.6 million  in the comparable 1998 period
because of the decrease in revenues.

     JULIANA: Juliana had an operating  loss of $0.2 million on miscellaneous
revenues of  $0.1 million for the three months ended March 31, 1999.  Juliana's
agricultural operations were  accounted for on the equity method in the prior
year period, and the loss for the period was included in Other Income (Expense).

     CORPORATE GENERAL AND ADMINISTRATIVE EXPENSE: Corporate general and
administrative expenses, consisting primarily of executive and administrative
salaries and benefits, professional fees and other public company costs, totaled
$0.7 million for the three months ended March  31, 1999 compared to $0.5 million
for the three months ended March 31, 1998.  The 1999 amount includes $0.2
million of expenses incurred in connection with the proposed sale of ORC, which
was subsequently terminated.  The 1999 and 1998 amounts include $0.2 million in
each period of legal costs for the Company's litigation with Bargo Energy
Company ("Bargo").

     OTHER INCOME AND (EXPENSE): Interest expense was $0.7  million for the
three months ended March 31, 1999 compared to $0.7 million for the prior year
period.  The Company also recorded a $1.0 million charge in the 1999 period for
interest and credit support fees relating to the bond posted in the appeal of
the Bargo litigation judgment. The Company recognized a loss of $0.1 million
from its equity investment in the agricultural operations for the three months
ended March 31, 1998.


LIQUIDITY AND CAPITAL RESOURCES

SUMMARY OF 1999 ACTIVITIES

     Cash and cash equivalents totaled $2.4 million at March 31, 1999. During
the three months  ended March  31, 1999, cash increased $0.4 million, with $1.5
million provided by operations, $0.4 million used in investing activities and
$0.6  million used in financing activities.

     Investing Activities: Capital expenditures were $0.4 million.

     Financing Activities:  Proceeds from new term loan borrowings  totaled $7.5
million, principally Juliana's $7.5 million refinancing described below.
Principal payments reduced long-term obligations by $6.6 million,  including
$5.7 million repaid from the proceeds of the Juliana refinancing.   Net short
term borrowings were reduced  $1.4 million.

FACTORS AFFECTING FUTURE LIQUIDITY

     Because of  various restrictions included in the Company's loan
arrangements, management must separately consider liquidity and financing for
corporate requirements, ORC and Juliana.

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                   REUNION INDUSTRIES, INC. AND SUBSIDIARIES

     CORPORATE: Corporate expenses, including salaries  and  benefits,
professional fees and other public company costs, are expected to  approximate
$1.5 million annually.  Legal costs to appeal the Bargo litigation and the cost
of  collateralizing the Bargo  appeal bond  will add to corporate requirements.
In addition, a significant portion of the $1.5 million accrued for environmental
remediation of the Louisiana properties, described   below under "Contingencies
and Uncertainties,"  is expected to be expended during the next twelve months
and a settlement payment for the California tax audit, described below under
"Contingencies and Uncertainties," is also expected to be made during this
period.   The Company's source of funds for these expenses, other than from
additional borrowings, are from cash balances and  permitted payments by  ORC.
At March 31, 1999 corporate cash and cash equivalents totaled  $0.02 million.

     ORC closed a new credit facility with The CIT Group/Business Credit, Inc.
("CITBC") in October 1998.  This new credit facility limits payments to Reunion
by  ORC.  If certain levels of availability (as defined in the loan agreements)
are maintained, ORC is permitted to pay  Reunion monthly payments of interest,
plus  up to $0.1 million for management fees and dividends on preferred stock,
plus tax sharing payments of up to 50% of the tax savings realized by ORC
because of Reunion's NOLs. There can be no assurances that ORC will be able to
maintain the required levels of availability and be permitted to make the
management fee and tax sharing fee payments to Reunion. In any event, the
maximum amount of such payments is not expected to be sufficient for Reunion's
corporate operating and debt service requirements.

     The new credit facility also provides a letter of credit guarantee to
provide credit support for a supersedeas bond in the Bargo litigation.   In
addition to the ORC assets, the facility is secured by a guarantee by Mr.
Charles E. Bradley, Sr., the Company's President and Chief Executive Officer,  a
pledge of assets by  Stanwich Financial Services Corp., ("SFSC"), a related
party, and a pledge of the stock of ORC and Juliana.  Since October 1998,
substantially all the amounts otherwise permitted to be paid by ORC have been
used to fund letter of credit and guarantee fees relating to the bond in the
Bargo litigation.

     Without additional financing, management believes that the Company  will
not  have sufficient resources to meet its corporate expenses and legal and
environmental costs as they  become due over the next twelve months.  During
1998, the Company  borrowed a total of $1.0 million from SFSC.  These borrowings
bear interest at 15%, and were due to mature September 30, 1998.  SFSC has
agreed to extend the maturity date to December 31, 1999 while the Company seeks
additional financing.  There can be no assurances that such financing will be
arranged, or that SFSC will extend the maturity indefinitely or lend additional
funds.  The Company repaid $0.8 million of this borrowing in the first quarter
of 1999 from cash balances at ORC's subsidiary in Ireland.

     As described above under "General,"  the Company  has announced that it has
entered into a merger agreement with  Chatwins and is pursuing long term
financing in connection with the proposed merger.   If the merger  and
refinancing are completed, management believes that there will be sufficient
resources for the Company's operating and debt service requirements.   There can
be no assurances that any of these transactions will be consummated.

     ORC: In October 1998, ORC closed the new credit facility with CITBC. This
is a six-year senior secured credit facility including revolving credit loans of
up to $10.2 million and a term loan in the initial amount of $6.0 million for
ORC. The proceeds were used to refinance ORC's debt with Congress Financial
Corporation and to provide working capital for ORC. Management believes that
ORC's cash flow from operations, together with this credit facility and
permitted levels of capital and operating leases, will be sufficient for ORC's
operating requirements, including capital expenditures and debt service, over
the next twelve months. At March 31, 1999 ORC had $1.5 million in revolving
credit availability.

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<PAGE>
 
                   REUNION INDUSTRIES, INC. AND SUBSIDIARIES

     At March 31, 1999, ORC was not in compliance with a financial covenant to 
maintain EBITDA (as defined in the CITBC agreements) of not less than specified 
amounts each fiscal quarter. CITBC has agreed to waive compliance with this 
covenant for the quarter ended March 31, 1999. If ORC is unable to attain the 
required levels of EBITDA in future periods or is unable to obtain waivers in 
the future, the entire amount outstanding under the CITBC credit facility ($13.8
million at March 31, 1999) could be accelerated by CITBC.

     JULIANA: In January 1999, Juliana closed a $7.5 million loan with Equitable
Life Assurance Society of the United States ("Equitable"). The proceeds were
used to refinance Juliana's existing $2.0 million loan with Equitable, to repay
a $3.7 million 4-month note and for working capital.

     Juliana plans to continue  a limited wine grape development effort, which
management believes will enhance the value of  the property.  Management
believes  the combination of farming revenues plus working capital provided by
borrowings will  be sufficient to fund the agricultural operations over the next
twelve months.


CONTINGENCIES AND UNCERTAINTIES

     On April 24, 1998, a jury in state district court in Harris County, Texas
returned jury verdict findings that Bargo had a right to terminate a November
1995 stock purchase agreement with the Company and that the Company fraudulently
induced Bargo into entering into the agreement. The November 1995 stock purchase
agreement concerned the sale of the Company's subsidiary, REC, which operated
the Company's discontinued oil and gas business. The jury recommended that an
award of $5.0 million in punitive damages be assessed against the Company. In
July 1998, the court entered judgment affirming the $5.0 million jury verdict
and awarding approximately $3.0 million in attorneys' fees and costs. The
Company maintained at trial and continues to maintain that all requirements to
closing under the contract were met, and that Bargo was required to close the
transaction. The Company also maintains that no evidence sufficient to support a
jury finding of fraud or the related punitive damages finding was presented at
trial. The Company has filed a bond which suspends execution on the judgment
while the Company appeals the judgment. The Company filed its appeal on April 5,
1999.

     Although management believes, based on consultation with counsel, that it
is more likely than not that the judgment will be overturned on appeal, the
Company has recorded an accrual for the amount of the judgment with a charge to
continuing operations in 1998. Interest on the judgment at 10% has been accrued
and will continue to accrue until the litigation is resolved.

     In early 1996, the State of California Franchise Tax Board initiated an
audit of the Company's franchise tax returns for the years 1991, 1992 and 1993.
In October 1996, the Company received a formal notice of assessment from the
taxing authority in the aggregate amount of $0.7 million plus interest. Of this
amount, $0.6 million results from the auditor's conclusion that income from
gains on sales of certain Canadian oil and gas assets in 1991 should be
reclassified from nonbusiness to business income. The Company believes its
classification of such income was correct, and appealed the assessment of tax.
In 1996, the Company recorded a provision for approximately $0.1 million for
certain other proposed adjustments. The appeal was denied, and the Company
requested that the case be considered for settlement. If the Company's positions
prevail on this issue, management believes that the amounts due would not exceed
amounts previously paid or provided for. However, in connection with the
settlement discussions, the Company accrued an additional $0.5 million in 1998,
with a corresponding charge to Discontinued Operations. The total accrual of
$0.6 million represents management's estimate of the minimum of the range of
possible settlement outcomes.

                                       15
<PAGE>
 
                   REUNION INDUSTRIES, INC. AND SUBSIDIARIES

     In connection with the sale of REC, the Company retained certain oil and
gas properties in Louisiana because of litigation concerning environmental
matters. The Company is in the process of environmental remediation under a plan
approved by the Louisiana Office of Conservation. The Company has recorded an
accrual for its proportionate share of the remaining estimated costs to
remediate the site based on plans and estimates developed by the environmental
consultants hired by the Company. During 1998 the Company increased this accrual
by a charge of $1.2 million to discontinued operations, based on revised
estimates of the remaining remediation costs. At March 31, 1999, the balance
accrued for these remediation costs is approximately $1.5 million. Owners of a
portion of the property have objected to the Company's proposed cleanup
methodology and have filed suit to require additional procedures. The Company is
contesting this litigation, and believes its proposed methodology is well within
accepted industry practice for remediation efforts of a similar nature. No
accrual has been made for any costs of any alternative cleanup methodology which
might be imposed as a result of the litigation.


YEAR 2000 COMPUTER COMPLIANCE

     The Company, like most companies, utilizes electronic technology which
includes computer hardware and software systems that process information and
perform calculations that are date-and time-dependent.  The Company is aware
that the coming of the Year 2000 ("Y2K") poses pervasive and complex problems in
that virtually every computer operation (including manufacturing equipment and
other non-information systems equipment),  unless it is Y2K compliant, will be
affected in some way by the rollover of the two-digit year value from "99"  to
"00" and the inadvertent recognition by electronic technology of  "00" as the
year 1900 rather than Y2K.  The Company is also aware that it may not only be
negatively affected by the failure of its own systems to be Y2K compliant, but
may also be negatively affected by the Y2K non-compliance of its vendors,
customers, lenders and any other party with which the Company transacts
business.

     The Company has completed its initial assessment of all of the systems and
software in place at all locations and has identified hardware replacements and
software upgrades necessary to achieve Y2K compliance. Because the Company uses
integrated accounting and manufacturing software provided by third party
vendors, it has avoided internal programming costs associated with modifying
code and data to handle dates past the year 2000. The latest software releases
provided by the respective third party vendors have achieved Y2K certification
from independent testing organizations. The Company is in the process of
upgrading all of its software to Y2K compliant releases. Upgrading and testing
is complete at six of the Company's seven manufacturing locations and at the
headquarters location. The Company expects to complete the remaining upgrades by
the second quarter of 1999. Significant customers and outside vendors such as
suppliers, banks and payroll services have been contacted and have provided
assurances that they either are or will be Y2K compliant by June 1999. Testing
of the Company's software and systems (including manufacturing equipment and
other non-information systems equipment) is expected to be completed during the
second quarter of 1999.

     Because management expects to complete the upgrading of all of its software
early in 1999, the Company has not developed a Y2K contingency plan. Management
regularly monitors the status of the Y2K compliance process, and will develop
contingency plans if it appears that the Company will not achieve full Y2K
compliance.

     The Company has incurred and expects to continue to incur internal staff
and other costs as a result of modifying existing systems to be Y2K compliant.
Such costs will continue to be expensed as incurred and funded through
internally generated cash while costs to acquire new equipment and software will
be capitalized and depreciated over their useful lives. The hardware
replacements and software upgrades were principally planned to 

                                       16
<PAGE>
 
                   REUNION INDUSTRIES, INC. AND SUBSIDIARIES

improve operating controls and implementation was not significantly accelerated.
Management does not expect the incremental cost to the Company of enterprise-
wide Y2K compliance to be material to its operations.

     Management recognizes that the failure of the Company or any party with
which the Company conducts business to be Y2K compliant in a timely manner could
have a material adverse impact on the operations of the Company. If the
Company's systems were to fail because they were not Y2K compliant, the Company
would incur significant costs and inefficiencies. Manual systems for
manufacturing and financial control would have to be implemented and staffed.
Significant customers might decide to cease doing business with the Company.
Disruptions in electric power or in the delivery of materials could cause
significant business interruptions. Similarly, business interruptions at
significant customers could result in deferred or canceled orders.

     The dates on which the Company believes Y2K compliance will be completed
are based on management's best estimates, which were derived utilizing numerous
assumptions of future events, including the continued availability of certain
resources, third-party modification plans and other factors. However, there can
be no guarantee that these estimates will be achieved, or that there will not be
a delay in, or increased costs associated with, the implementation of Y2K
compliance. Specific factors that might cause differences between the estimates
and actual results include, but are not limited to, the availability and cost of
personnel trained in these areas, timely responses to and corrections by third-
parties and suppliers, the ability to implement interfaces between the new
systems and the systems not being replaced, and similar uncertainties. Due to
the general uncertainty inherent in the Y2K problem, resulting in part from the
uncertainty of the Y2K readiness of third-parties, the company cannot ensure its
ability to resolve problems associated with the Y2K issue that may affect its
operations and business, or expose it to third-party liability in a timely and
cost-effective manner.


ITEM 3.   QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

     In the operation of its business, the Company has market risk exposures to
foreign currency exchange rates, raw material prices and interest rates.  Each
of these risks and the Company's strategies to manage the exposure is discussed
below.

     The Company manufactures its products in the United States and Ireland and
sells products in those markets as well as in Europe.  International sales were
28% of the Company's sales in 1998 and 33% for the three months ended March 31,
1999.  The Company's operating results could be affected by changes in foreign
currency exchange rates or weak economic conditions in Europe.  The Company does
not actively hedge its foreign currency risk because the international
operations are self-financed and the translation exposure is not considered
material to the Company's financial condition, liquidity or results of
operations.

     The principal raw materials used by the Company are thermoplastic polymers.
These materials are available from a number of suppliers.  Prices for these
materials are affected by changes in market demand, and there can be no
assurances that prices for these and other raw materials will not increase in
the future.  The Company's contracts with its customer generally provide that
such price increases can be passed through to the customers.

     The Company's operating results are subject to risk from interest rate
fluctuations on debt which carries variable interest rates.  The variable rate
debt was approximately $15 million at March 31 1999, which  is representative of
balances outstanding during the year.  A 0.25% change in interest rates would
affect results of operations by approximately $0.04 million.

                                       17
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                   REUNION INDUSTRIES, INC. AND SUBSIDIARIES

PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

     The Company filed suit in the 125th Judicial District Court of Harris
County, Texas against Bargo Energy Company ("Bargo") and its general partners,
Chisos Corporation, Austin Resources Corporation, Shearwave, Inc., Brazos Oil &
Gas Corporation, and Schroder Oil Financing & Investment Company, on January 16,
1996 for damages and relief arising out of Bargo's repudiation of its agreement
to purchase all outstanding shares of the capital stock of the Company's
subsidiary, REC. Bargo had agreed to pay the Company $15.1 million for REC's
capital stock, subject to certain potential adjustments in the purchase price as
set forth in the stock purchase agreement between the Company and Bargo and had
deposited $0.5 million with a contractual escrow agent in accordance with the
terms of the stock purchase agreement. The Company alleged in its complaint that
Bargo tortiously interfered with a prospective stock purchase agreement with
another purchaser of REC's stock, and then wrongfully repudiated its agreement
to purchase REC's stock. The Company also asserted claims against Bargo for
breach of contract and breach of duty of good faith and fair dealing, and sought
damages under these theories of liability. Bargo also filed suit against the
Company claiming that the Company, its investment bankers, and certain
individuals fraudulently misrepresented information and fraudulently induced
Bargo into signing the Stock Purchase Agreement. Bargo also asserted claims for
breach of contract and warranty, return of its escrow, and for unspecified
damages under these theories of liability. The cases were consolidated in the
334th Judicial District Court of Harris County, Texas, and the consolidated case
was realigned with the Company as plaintiff.

     On April 24, 1998, after a three week trial, a jury returned jury verdict
findings that Bargo had a right to terminate the stock purchase agreement with
the Company and that the Company fraudulently induced Bargo into entering into
the agreement and recommended that an award of $5.0 million in punitive damages
be assessed against the Company. In July 1998, the court entered judgment
affirming the $5.0 million jury verdict and awarding approximately $3.0 million
in attorneys' fees and costs. The Company maintained at trial and continues to
maintain that all requirements to closing under the contract were met, and that
Bargo was required to close the transaction. The Company also maintains that no
evidence sufficient to support a jury finding of fraud or the related punitive
damages finding was presented at trial. The Company has filed a bond which
suspends execution on the judgement while the Company appeals the judgment. The
Company filed its appeal on April 5, 1999. Management believes, based on
consultation with counsel, that it is more likely than not that any judgment
based on a finding of fraud, the award of attorneys' fees based on a finding of
fraud and punitive damages would be overturned on appeal. If the judgment is not
overturned on appeal, and the proposed merger with Chatwins and related
refinancing do not occur, the Company would be obligated to seek alternative
funding sources, including a sale of assets.

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                   REUNION INDUSTRIES, INC. AND SUBSIDIARIES

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

      (A)  EXHIBITS

      2.1  Merger Agreement, dated as of March 30, 1999, between Reunion
           Industries, Inc. and Chatwins Group, Inc. Incorporated by reference
           to Exhibit 2.1 to The Registrant's Current Report on Form 8-K filed
           on April 6, 1999.

      2.2  Merger Agreement, dated as of March 30, 1999, among Reunion
           Industries, Inc., Stanwich Acquisition Corp. and the Stockholders
           named therein. Incorporated by reference to Exhibit 2.3 to Post-
           Effective Amendment No. 1 to the Registrant's Registration Statement
           on Form S-4, filed on April 1, 1999 (File Number 333-56153).

       27  Financial Data Schedule

      (B)  CURRENT REPORTS ON FORM 8-K

      During the quarter ended March 31, 1999, the Company filed no reports on
Form 8-K.

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                   REUNION INDUSTRIES, INC. AND SUBSIDIARIES


                                   SIGNATURE

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.



                         REUNION INDUSTRIES, INC.
                         (Registrant)



                         By  /s/ Richard L. Evans
                             ---------------------------------
                             Richard L. Evans
                           Executive Vice President and Chief Financial Officer
                           (Principal Financial and Accounting Officer)


Date: May 17, 1999


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