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

                                    Form 10-Q

MARK ONE
     |X|              QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
                      SECURITIES EXCHANGE ACT OF 1934

                  For the Quarterly Period Ended March 31, 1997

     |_|              TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
                      SECURITIES EXCHANGE ACT OF 1934

                         Commission File Number 0-19931


                   HALLWOOD CONSOLIDATED RESOURCES CORPORATION
             (Exact name of registrant as specified in its charter)



            Delaware
(State or other jurisdiction of                                      84-1176750
incorporation or organization)                                  (I.R.S. Employer
                                                          Identification Number)
  4582 South Ulster Street Parkway
            Suite 1700
         Denver, Colorado                                                 80237
(Address of principal executive offices)                             (Zip Code)

       Registrant's telephone number, including area code: (303) 850-7373

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  |_|

Shares of Common Stock outstanding at May 13, 1997                      992,514









                                  Page 1 of 16


<PAGE>



PART I.  FINANCIAL  INFORMATION
ITEM 1.  FINANCIAL  STATEMENTS
<TABLE>
<CAPTION>

                                  HALLWOOD  CONSOLIDATED  RESOURCES  CORPORATION
                                           CONSOLIDATED BALANCE  SHEETS
                                                    (Unaudited)
                                           (In thousands except Shares)



                                                                                     March 31,              December 31,
                                                                                        1997                    1996

CURRENT ASSETS
<S>                                                                                 <C>                    <C>        
    Cash and cash equivalents                                                       $    3,017             $       628
    Accrued oil and gas revenue                                                          3,661                   4,808
    Due from affiliates                                                                    923                     897
    Prepaid and other assets                                                               632                     493
    Current assets of affiliates                                                         4,907                   3,976
                                                                                     ---------               ---------
          Total current assets                                                          13,140                  10,802
                                                                                      --------                --------

PROPERTY, PLANT AND EQUIPMENT, at cost
    Oil and gas properties (full cost method)
       Proved oil and gas properties                                                   280,165                 278,581
       Unproved mineral interests - domestic                                             1,549                   1,240
                                                                                     ---------               ---------
          Total                                                                        281,714                 279,821
    Less - accumulated depreciation, depletion,
       amortization and impairment                                                   (214,603)               (212,536)
                                                                                      -------                 -------
          Net property, plant and equipment                                             67,111                  67,285
                                                                                      --------                --------

OTHER ASSETS
    Deferred tax asset                                                                     350                     350
    Noncurrent assets of affiliates                                                         28                      31
                                                                                   -----------             -----------
          Total other assets                                                               378                     381
                                                                                    ----------              ----------

TOTAL ASSETS                                                                          $ 80,629               $  78,468
                                                                                       =======                ========














<FN>

                                         (Continued on the following page)
</FN>
</TABLE>

                                                        -2-

<PAGE>
<TABLE>
<CAPTION>



                                    HALLWOOD CONSOLIDATED RESOURCES CORPORATION
                                            CONSOLIDATED BALANCE SHEETS
                                                    (Unaudited)
                                           (In thousands except Shares)



                                                                                      March 31,              December 31,
                                                                                        1997                    1996

CURRENT LIABILITIES
<S>                                                                                 <C>                     <C>       
    Accounts payable and accrued liabilities                                        $    1,501              $    2,273
    Current portion of contract settlement obligation                                      969
    Current portion of long-term debt                                                    5,000                   3,750
    Current liabilities of affiliates                                                    5,441                   4,826
                                                                                     ---------               ---------
          Total current liabilities                                                     12,911                  10,849
                                                                                       -------                --------

NONCURRENT LIABILITIES
    Contract settlement obligation                                                                                 948
    Long-term debt                                                                      15,000                  16,250
    Long-term obligations of affiliates                                                  6,585                   7,243
    Deferred liability                                                                     110                     117
                                                                                    ----------              ----------
          Total noncurrent liabilities                                                  21,695                  24,558
                                                                                      --------                --------

          Total liabilities                                                             34,606                  35,407
                                                                                      --------                --------

STOCKHOLDERS' EQUITY
    Common stock, par value $.01; 2,000,000 shares
       authorized; 992,514 shares issued at 1997 and 1996                                  111                     111
    Additional paid-in capital                                                          79,987                  79,990
    Accumulated deficit                                                               (30,201)                (33,166)
    Treasury stock - 86,426 shares at 1997 and 1996                                    (3,874)                 (3,874)
                                                                                    ---------               ---------
          Stockholders' Equity - Net                                                    46,023                  43,061
                                                                                      --------                --------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                           $  80,629               $  78,468
                                                                                      ========                ========














<FN>

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

                                                        -3-

<PAGE>

<TABLE>
<CAPTION>


                                    HALLWOOD CONSOLIDATED RESOURCES CORPORATION
                                       CONSOLIDATED STATEMENTS OF OPERATIONS
                                                    (Unaudited)
                                       (In thousands except per Share data)



                                                                                      For the Three Months Ended
                                                                                                 March 31,
                                                                                        1997                    1996

REVENUES:
<S>                                                                                   <C>                     <C>     
    Oil revenue                                                                       $  3,914                $  4,073
    Gas revenue                                                                          4,774                   4,131
    Pipeline and other                                                                     400                     346
    Contract settlement                                                                      7                      10
    Interest income                                                                         40                      17
                                                                                     ---------               ---------
                                                                                         9,135                   8,577
                                                                                       -------                 -------

EXPENSES:
    Production operating                                                                 2,515                   2,674
    General and administrative                                                             901                     824
    Interest                                                                               596                     740
    Depreciation, depletion and amortization                                             2,067                   2,557
                                                                                       -------                 -------
                                                                                         6,079                   6,795
                                                                                       -------                 -------

INCOME BEFORE INCOME TAXES                                                               3,056                   1,782
                                                                                       -------                 -------

PROVISION FOR INCOME TAXES:
    Current                                                                                 91                      32
                                                                                     ---------               ---------

NET INCOME                                                                            $  2,965                $  1,750
                                                                                       =======                 =======

NET INCOME PER SHARE                                                                 $    3.18               $    1.85
                                                                                      ========                ========

WEIGHTED AVERAGE COMMON SHARES AND
   COMMON SHARE EQUIVALENTS OUTSTANDING                                                    932                     945
                                                                                      ========                 =======












<FN>

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

                                                        -4-

<PAGE>

<TABLE>
<CAPTION>


                                   HALLWOOD CONSOLIDATED RESOURCES CORPORATION
                                       CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                    (Unaudited)
                                                  (In thousands)



                                                                                         For the Three Months Ended
                                                                                                 March 31,
                                                                                        1997                    1996

OPERATING ACTIVITIES:
<S>                                                                                   <C>                     <C>     
    Net income                                                                        $  2,965                $  1,750
    Adjustments to reconcile net income
       to net cash provided by operating activities:
       Depreciation, depletion and amortization                                          2,067                   2,557
       Noncash interest expense                                                             21                      21
       Undistributed earnings of affiliates                                            (1,407)                 (1,926)
       Recoupment of take-or-pay liability                                                 (7)                    (58)
                                                                                   ----------               ---------

              Cash provided by operations before
                 working capital changes                                                 3,639                   2,344

    Changes in  assets  and  liabilities  provided  (used)  cash net of  noncash
       activity:
          Accrued oil and gas sales                                                      1,147                   (225)
          Due from affiliates                                                            (409)                      31
          Prepaid and other assets                                                       (139)                      41
          Accounts payable and accrued liabilities                                       (772)                 (1,385)
                                                                                     --------                 -------

              Net cash provided by operating activities                                  3,466                     806
                                                                                       -------                --------

INVESTING ACTIVITIES:
    Additions to oil and gas properties                                                  (162)                   (287)
    Exploration and development costs incurred                                         (1,197)                 (1,593)
    Proceeds from oil and gas property sales                                                                       174
    Distributions received from affiliates                                                 286                     286
    Other                                                                                  (4)
                                                                                   ----------

              Net cash used in investing activities                                    (1,077)                 (1,420)
                                                                                      -------                  ------

FINANCING ACTIVITIES:
    Repurchase and retirement of common stock                                                                  (1,316)
    Proceeds from long-term debt                                                                                 1,000
    Payments on contract settlement obligation                                                                   (118)
                                                                                   -----------               ---------

              Net cash used in financing activities                                                              (434)
                                                                                   -----------               --------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                     2,389                 (1,048)

CASH AND CASH EQUIVALENTS:

BEGINNING OF PERIOD                                                                        628                   1,139
                                                                                      --------                 -------

END OF PERIOD                                                                         $  3,017              $       91
                                                                                       =======               =========





<FN>

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

                                                        -5-

<PAGE>



                   HALLWOOD CONSOLIDATED RESOURCES CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                   (Unaudited)


NOTE 1 -      ORGANIZATION AND BASIS OF PRESENTATION

Hallwood  Consolidated  Resources  Corporation  ("HCRC" or the  "Company")  is a
Delaware   corporation  engaged  in  the  development,   production,   sale  and
transportation of oil and gas, and in the acquisition,  exploration, development
and operation of oil and gas properties.  The Company's properties are primarily
located in the Rocky Mountain, MidContinent, Texas and Gulf Coast regions of the
United States.

The  interim  financial  data  in  the  accompanying  financial  statements  are
unaudited;  however, in the opinion of management,  the interim data include all
adjustments,  consisting only of normal recurring  adjustments,  necessary for a
fair  presentation  of the  results  for the interim  periods.  These  financial
statements  should be read in  conjunction  with the  financial  statements  and
accompanying  notes included in the Company's December 31, 1996 Annual Report on
Form 10-K.


NOTE 2 -      ACCOUNTING POLICIES

Consolidation

The Company accounts for its interest in affiliated oil and gas partnerships and
limited  liability  companies using the  proportionate  consolidation  method of
accounting.  The accompanying financial statements include the activities of the
Company and its pro rata share of the activities of Hallwood Energy Partners, L.
P. ("HEP").

Treasury Stock

At March 31, 1977 and December 31, 1996 the Company  owns  approximately  19% of
the  outstanding  units of HEP which  owns  approximately  46% of the  Company's
common  stock;  consequently,  the  Company has an interest in 86,426 of its own
shares. These shares are treated as treasury stock in the accompanying financial
statements.

Computation of Net Income Per Share

Net income per share is computed by dividing net income by the weighted  average
number of common  shares and common  share  equivalents  outstanding  during the
reporting  period.  The stock options  granted  during 1995 are considered to be
common share  equivalents  since January 1, 1996 because the market price of the
common stock has exceeded the exercise price of the options since that date. The
number of common share  equivalents was computed using the treasury stock method
which assumes that the increase in the number of common shares is reduced by the
number of common  shares which could have been  repurchased  by the Company with
the proceeds  from the exercise of the options  (which were assumed to have been
made at the  average  market  price of the common  stock  during  the  reporting
period).

During February 1997, the Financial  Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, Earnings per Share ("SFAS 128"). SFAS
128 establishes standards for computing and presenting earnings per share (EPS),
and supersedes APB Opinion No. 15 and its related  interpretations.  It replaces
the presentation of primary EPS with a presentation of basic EPS, which excludes
dilution,  and  requires  dual  presentation  of basic and  diluted  EPS for all
entities with complex capital  structures.  Diluted EPS is computed similarly to
fully  diluted EPS pursuant to Opinion No. 15. SFAS 128 is effective for periods
ending after  December 15, 1997,  including  interim  periods,  and will require
restatement of all prior period EPS data presented;  earlier  application is not
permitted.


                                                        -6-

<PAGE>



A comparison of EPS shown in the  accompany  financial  statements  with the pro
forma amounts that would have been  determined in accordance with SFAS 128 is as
follows:


                                          For the Quarter Ending March 31,
                                         1997                         1996

Primary (Basic):
    As reported                          $3.18                        $1.85
    Pro forma                             3.27                         1.85

Fully Diluted (Diluted):
    As reported                           3.18                         1.85
    Pro forma                             3.13                         1.83

Reclassifications

Certain  reclassifications have been made to the prior period amounts to conform
to the classifications used in the current period.


NOTE 3 -      DEBT

On March 31, 1995 the Company and its banks  amended  their Credit  Agreement to
extend the  maturity  date to May 31,  1997.  The  borrowing  base is  currently
$23,000,000;  however,  the Company's  borrowings  are presently  limited to the
bank's  commitment  level of $22,000,000.  As of March 31, 1997, the Company has
borrowed  $20,000,000  against the credit line. HCRC's borrowing base is further
reduced by an outstanding contract settlement obligation of $969,000; therefore,
its unused borrowing base totaled $2,031,000 at May 13, 1997.

Borrowings against the credit line bear interest,  at the option of the Company,
at either  (i) the banks'  Certificate  of Deposit  rate plus  1.875%,  (ii) the
Euro-Dollar  rate  plus  1.75% or (iii) the  higher of the prime  rate of Morgan
Guaranty  Trust or the sum of one-half of 1% plus the Federal  funds rate,  plus
 .75% (7.7% at March 31,  1997).  Interest  is payable  at least  quarterly,  and
quarterly  principal payments of $1,250,000  commence May 31, 1997. HCRC intends
to extend the maturity date of its credit line prior to the  commencement of the
amortization  period.  The  credit  facility  is  secured  by a  first  lien  on
approximately 80% in value of the Company's oil and gas properties.

HCRC has  entered  into  contracts  to  hedge  its  interest  rate  payments  on
$10,000,000  of its debt for  each of 1997 and 1998 and  $5,000,000  for each of
1999 and 2000. HCRC does not use the hedges for trading purposes, but rather for
the  purpose of  providing a measure of  predictability  for a portion of HCRC's
interest payments under its debt agreement,  which has a floating interest rate.
In general,  it is HCRC's goal to hedge 50% of the principal  amount of its debt
for the next two years and 25% for each year of the remaining  term of the debt.
HCRC has  entered  into four  hedges,  of which one is an  interest  rate collar
pursuant to which it pays a floor rate of 7.55% and a ceiling rate of 9.85%, and
the others are interest rate swaps with fixed rates ranging from 5.75% to 6.57%.
The  amounts  received  or  paid  upon  settlement  of  these  transactions  are
recognized as interest expense at the time the interest payments are due.


NOTE 4 -       STATEMENTS OF CASH FLOWS

Cash paid for interest during the three months ended March 31, 1997 and 1996 was
$402,000 and $231,000, respectively.


                                                        -7-

<PAGE>



NOTE 5 -      LEGAL PROCEEDING

On April 23,  1992,  a lawsuit  was filed in the  Chancery  Court for New Castle
County,  Delaware,  styled Tappe v. Hallwood Consolidated Resources Corporation,
Hallwood  Consolidated  Partners,  L. P.,  Hallwood Oil and Gas, Inc.,  Hallwood
Energy  Partners,  L.P., and Hallwood  Petroleum,  Inc.  (C.A.  No. 12536).  The
lawsuit seeks to rescind the conversion of Hallwood Consolidated Partners,  L.P.
("HCP") into the Company  ("Conversion")  and to recover  damages in unspecified
amounts.  The plaintiff also seeks class  certification  to represent  similarly
situated HCP  unitholders.  In general,  the suit  alleges  that the  defendants
breached  fiduciary duties to HCP unitholders by, among other things,  proposing
allocation  of common  stock in the  Conversion  on a basis  that the  plaintiff
alleges is unfair,  failing to require  that the  allocation  be  approved by an
independent  third party,  causing the costs of proposing  the  Conversion to be
borne  indirectly  by the  partners  of HCP  whether or not the  Conversion  was
completed   and   failing  to   disclose   certain   matters   in  the   Consent
Statement/Prospectus  soliciting  consents  to the  Conversion.  The  defendants
believe that they fully  considered  and disclosed all material  information  in
connection with the Conversion, and they believe that the suit is without merit.
HCRC plans to  vigorously  defend this case,  but  because of its early  stages,
cannot  predict  the outcome of this  matter or any  possible  effect an adverse
outcome might have.


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

Liquidity and Capital Resources

Cash Flow

The Company generated  $3,466,000 of cash flow from operating  activities during
the first three  months of 1997.  The other  primary cash inflow was $286,000 in
distributions received from affiliates. Cash was primarily used for additions to
property and exploration and development costs of $1,359,000.

This resulted in an increase in the Company's  cash of $2,389,000  for the three
months ended March 31, 1997 from  $628,000 at December 31, 1996 to $3,017,000 at
March 31, 1997.

Development Projects and Acquisitions

Through March 31, 1997, HCRC incurred approximately  $1,359,000 for exploration,
development   and  acquisition   costs,   toward  the  1997  capital  budget  of
$12,500,000.  The expenditures  were comprised of  approximately  $1,197,000 for
exploration and development expenditures and approximately $162,000 for property
acquisitions.  HCRC  intends to be very  active in capital  projects  during the
second and third quarters of 1997 with projects in more than 25 areas, including
drilling 11 wells in the existing Spraberry Texas area, drilling/recompleting 15
wells in the existing West Texas Kermit area, and  participating in or operating
ten seismic  prospects.  HCRC is  reviewing  possibilities  in new  locations in
Louisiana, Montana, North Dakota, Oklahoma, Wyoming and Texas. HCRC is currently
bidding with a major oil company on an offshore exploration block in Peru.

A description of significant  exploration  and  development  projects to date in
1997 follows.

In 1996, HCRC acquired 106 square miles of three  dimensional (3-D) seismic data
on the Cowden Ranch in Crane County,  Texas. Two exploratory  wells were drilled
in 1996,  both of which were dry. In early 1997,  a third  exploratory  well was
drilled  at a total  cost to HCRC of  $175,000.  This well was dry in its target
location and considered noncommercial in an identified shallow formation.

HCRC also became active in Glasscock County,  Texas in 1996 with the acquisition
and  processing  of 66 square  miles of 3-D seismic data and the drilling of one
successful  exploratory  well  prior to the end of the year.  In 1997,  HCRC has
incurred  approximately  $190,000 for the drilling of a second successful 10,000
foot  delineation  well.  This  well  is  currently  producing  at a rate of 230
equivalent  barrels of oil per day, and HCRC's working  interest in this well is
30%. HCRC currently plans to drill at least one development well in this area in
1997 and has identified two additional exploration locations.

                                                        -8-

<PAGE>



In the San Juan Basin of New Mexico, HCRC is currently recompleting two wells at
an estimated  cost of $68,000.  HCRC plans to  recomplete  at least one more New
Mexico well and up to seven of their San Juan Basin, Colorado wells in 1997.

The  completion  of projects  begun in the fourth  quarter of 1996 has cost HCRC
approximately  $500,000 in the first quarter of 1997. These additional costs are
comprised  primarily of $230,000  for two  exploratory  wells in  Louisiana  and
miscellaneous costs in the West Texas Kermit, Merkel and Cowden Ranch areas.

The Merkel Project Area initially  comprised 10 square miles of 3-D seismic data
in Jones,  Taylor and Nolan Counties,  Texas. In 1996, HCRC  participated in the
drilling of eight  wells,  seven of which were  successful.  These wells are all
outside  operated and HCRC owns an average 12.5%  working  interest in the area.
HCRC plans to drill three additional wells in 1997. Based on the success of this
area in 1996, HCRC acquired 74 additional  miles of 3-D seismic data adjacent to
the  nonoperated  area and plans to drill a minimum of five  wells in 1997,  the
first of which was dry.  HCRC will own a 30% working  interest in the first well
and will be the operator in the new area.

Financing

On March 31, 1995 the Company and its banks  amended  their Credit  Agreement to
extend the  maturity  date to May 31,  1997.  The  borrowing  base is  currently
$23,000,000;  however,  the Company's  borrowings  are presently  limited to the
bank's  commitment  level of $22,000,000.  As of March 31, 1997, the Company has
borrowed  $20,000,000  against the credit line. HCRC's borrowing base is further
reduced by an outstanding contract settlement obligation of $969,000; therefore,
its unused borrowing base totaled $2,031,000 at May 13, 1997.

Borrowings against the credit line bear interest,  at the option of the Company,
at either  (i) the banks'  Certificate  of Deposit  rate plus  1.875%,  (ii) the
Euro-Dollar  rate  plus  1.75% or (iii) the  higher of the prime  rate of Morgan
Guaranty  Trust or the sum of one-half of 1% plus the Federal  funds rate,  plus
 .75% (7.7% at March 31,  1997).  Interest  is payable  at least  quarterly,  and
quarterly  principal payments of $1,250,000  commence May 31, 1997. HCRC intends
to extend the maturity date of its credit line prior to the  commencement of the
amortization  period.  The  credit  facility  is  secured  by a  first  lien  on
approximately 80% in value of the Company's oil and gas properties.

HCRC has  entered  into  contracts  to  hedge  its  interest  rate  payments  on
$10,000,000  of its debt for  each of 1997 and 1998 and  $5,000,000  for each of
1999 and 2000. HCRC does not use the hedges for trading purposes, but rather for
the  purpose of  providing a measure of  predictability  for a portion of HCRC's
interest  payments under its debt agreement which has a floating  interest rate.
In general,  it is HCRC's goal to hedge 50% of the principal  amount of its debt
for the next two years and 25% for each year of the remaining  term of the debt.
HCRC has  entered  into four  hedges,  of which one is an  interest  rate collar
pursuant to which it pays a floor rate of 7.55% and a ceiling rate of 9.85%, and
the others are interest rate swaps with fixed rates ranging from 5.75% to 6.57%.
The  amounts  received  or  paid  upon  settlement  of  these  transactions  are
recognized as interest expense at the time the interest payments are due.

Cautionary Statement Regarding Forward-Looking Statements

In the interest of providing the Company's  stockholders and potential investors
with certain  information  regarding the Company's  future plans and operations,
certain  statements  set forth in this Form 10-Q relate to  management's  future
plans and objectives.  Such statements are  "forward-looking  statements" within
the  meaning of Section  27A of the  Securities  Act of 1933,  as  amended,  and
Section 21E of the  Securities  Exchange Act of 1934,  as amended.  Although any
forward-looking statements contained in this Form 10-Q or otherwise expressed by
or on behalf of the Company  are, to the  knowledge  and in the  judgment of the
officers and  directors  of the  Company,  expected to prove true and to come to
pass,  management  is not able to predict  the future with  absolute  certainty.
Forward-looking  statements  involve known and unknown  risks and  uncertainties
which may cause the Company's actual performance and financial results in future
periods to differ materially from any projection, estimate or forecasted result.
These risks and uncertainties include, among other things, volatility of oil and
gas prices, competition, risks inherent in the Company's oil and gas operations,
the  inexact  nature of  interpretation  of  seismic  and other  geological  and
geophysical data, imprecision of

                                                        -9-

<PAGE>



reserve  estimates,  the  Company's  ability to  replace  and expand oil and gas
reserves, and such other risks and uncertainties  described from time to time in
the  Company's  periodic  reports and filings with the  Securities  and Exchange
Commission. Accordingly, stockholders and potential investors are cautioned that
certain events or circumstances  could cause actual results to differ materially
from those projected, estimated or predicted.

Inflation and Changing Prices

Prices

Prices obtained for oil and gas production depend upon numerous factors that are
beyond the control of the Company,  including the extent of domestic and foreign
production,  imports of foreign  oil,  market  demand,  domestic  and  worldwide
economic and political  conditions,  and  government  regulations  and tax laws.
Prices for both oil and gas fluctuated significantly throughout 1996 and through
the first quarter of 1997. The following  table sets forth the weighted  average
price  received  each  quarter by the  Company  and the  effects of the  hedging
transactions described below:
<TABLE>
<CAPTION>


                                        Oil                   Oil                    Gas                    Gas
                                   (excluding the        (including the        (excluding the         (including the
                                     effects of            effects of            effects of             effects of
                                      hedging               hedging                hedging                hedging
                                   transactions)         transactions)          transactions)          transactions)
                                     (per bbl)             (per bbl)              (per mcf)              (per mcf)

<S>                                    <C>                    <C>                    <C>                    <C>  
First quarter 1996                     $17.92                 $17.86                 $2.00                  $1.94
Second quarter 1996                     21.00                 20.56                  1.80                   1.80
Third quarter 1996                      21.39                  20.43                  1.99                   1.94
Fourth quarter 1996                     24.00                  22.00                  2.66                   2.27
First quarter 1997                      23.56                  20.49                  2.64                   2.41
</TABLE>

The Company has entered into numerous financial  contracts to hedge the price of
its oil and  natural  gas.  The  purpose of the hedges is to provide  protection
against  price  drops and to  provide a measure  of  stability  in the  volatile
environment  of oil and natural gas spot pricing.  The revenue  associated  with
these  contracts  is  recognized  as oil or gas  revenue  at the time the hedged
volumes are sold.

The following  table provides a summary of the Company's  outstanding  financial
contracts:


                                                      Oil
                                     Percent of Direct           Contract
            Period                   Production Hedged         Floor Price
                                                                (per bbl)

Last nine months of 1997                    44%                   $17.88
1998                                        16%                    15.07
1999                                         5%                    15.88

Between  16% and 100% of the oil  volumes  hedged in each year are  subject to a
participating  hedge whereby HCRC will receive the contract  price if the posted
futures  price is lower than the contract  price,  and will receive the contract
price plus between 25% and 75% of the difference  between the contract price and
the  posted  futures  price if the  posted  futures  price is  greater  than the
contract  price.  Between  35% and 100% of the  volumes  hedged in each year are
subject to a collar  agreement  whereby HCRC will receive the contract  price if
the spot price is lower than the contract price, the cap price if the spot price
is higher  than the cap price,  and the spot price if that price is between  the
contract price and the cap price. The cap prices range from $17.00 to $19.35 per
barrel.

                                                       -10-

<PAGE>




                                                      Gas
                                     Percent of Direct           Contract
            Period                    Production Hedged        Floor Price
                                                                (per mcf)

Last nine months of 1997                    43%                    $1.89
1998                                        40%                     1.91
1999                                        24%                     1.67
2000                                        12%                     1.86

Between  0% and 37% of the gas  volumes  hedged  in each year are  subject  to a
collar agreement  whereby HCRC will receive the contract price if the spot price
is lower than the contract price, the cap price if the spot price is higher than
the cap price,  and the spot price if that price is between the  contract  price
and the cap price. The cap prices range from $2.78 to $2.93 per mcf.

During the second quarter through April 23, 1997, the weighted average oil price
(for  barrels not hedged) was  approximately  $18.50 per barrel and the weighted
average  price of natural gas (for mcf not hedged) was  approximately  $1.70 per
mcf.

Inflation

Inflation is not anticipated to have a material impact on the Company in 1997.

Results of Operations

The  following  tables are  presented to contrast  HCRC's  revenue,  expense and
earnings for discussion purposes.  Significant fluctuations are discussed in the
accompanying narrative.

The "direct owned" column represents HCRC's direct royalty and working interests
in oil and gas  properties.  The "HEP"  column  represents  HCRC's  share of the
results of operations of HEP; HCRC owned  approximately  19% of the  outstanding
limited partner units of HEP during 1996 and 1997.


                                                       -11-

<PAGE>


<TABLE>
<CAPTION>

                                                       

                                     TABLE OF HCRC EARNINGS FOR MANAGEMENT DISCUSSION
                                                (In thousands except price)



                                          For the Quarter Ended March 31, 1997            For the Quarter Ended March 31, 1996
                                           ------------------------------------           ------------------------------------
                                         Direct                                        Direct
                                         Owned           HEP        Total              Owned               HEP               Total

<S>                                        <C>         <C>         <C>                <C>                 <C>               <C>
Oil production (bbl)                            153         38         191                179                 49                228
Gas production (mcf)                          1,470        509       1,979              1,566                568              2,134

Average oil price (per bbl)                  $20.46     $20.63      $20.49             $17.84             $17.96             $17.86
Average gas price (per mcf)                 $  2.40    $  2.44     $  2.41            $  1.85            $  2.18            $  1.94

Oil revenue                                 $ 3,130   $    784     $ 3,914            $ 3,193           $    880            $ 4,073
Gas revenue                                   3,531      1,243       4,774              2,894              1,237              4,131
Pipeline and other                              260        140         400                211                135                346
Contract settlement                               7                      7                 10                                    10
Interest income                                  18         22          40                  4                 13                 17
                                           --------   --------    --------          ---------           --------           --------

       Total revenue                          6,946      2,189       9,135              6,312              2,265              8,577
                                             ------     ------      ------             ------             ------             ------

Production operating expense                  1,977        538       2,515              2,080                594              2,674
General and administrative expense              679        222         901                613                211                824
Interest expense                                446        150         596                529                211                740
Depreciation, depletion and amortization      1,579        488       2,067              1,928                629              2,557
                                             ------    -------      ------

       Total expense                          4,681      1,398       6,079              5,150              1,645              6,795
                                             ------     ------      ------             ------             ------             ------

Income before Income Taxes                    2,265        791       3,056              1,162                620              1,782
                                             ------    -------      ------             ------            -------             ------

Provision for Income Taxes:
    Current                                      91                     91                 32                                    32
                                           --------               --------           --------                              --------

       Net income                           $ 2,174   $    791     $ 2,965            $ 1,130           $    620            $ 1,750
                                             ======    =======      ======             ======            =======             ======

</TABLE>

                                                           -12-

<PAGE>



First Quarter of 1997 Compared to First Quarter of 1996

Oil Revenue

Oil revenue  decreased  $159,000,  during the first  quarter of 1997 as compared
with the first  quarter of 1996.  The  decrease  in revenue  is  comprised  of a
decrease in oil production  from 228,000  barrels in 1996 to 191,000  barrels in
1997,  partially  offset by an increase in the average oil price from $17.86 per
barrel in 1996 to $20.49 per  barrel in 1997.  The  decrease  in  production  is
primarily due to normal  production  declines.  Because the Company's hedged oil
prices were lower than average  posted prices in the first quarter of 1997,  the
effect  of  hedging  transactions,  as  described  above,  was to  decrease  the
Company's  average  oil price  from  $23.56  per  barrel to $20.49  per  barrel,
resulting in a $586,000 decrease in revenue.

Gas Revenue

Gas revenue increased $643,000 during the first quarter of 1997 as compared with
the first  quarter of 1996.  The  increase is  comprised of an increase in price
from  $1.94  per mcf in 1996 to $2.41  per mcf in 1997,  partially  offset  by a
decrease in gas production  from 2,134,000 mcf in 1996 to 1,979,000 mcf in 1997.
The decrease in production is primarily due to normal production  declines.  The
effect of the Company's hedging activity during the first quarter of 1997 was to
decrease  the  Company's  average gas price from $2.64 per mcf to $2.41 per mcf,
resulting in a $455,000 decrease in revenue.

Pipeline and Other

Pipeline and other revenue consists of revenue derived from salt water disposal,
incentive and tax credit  payments from certain coal bed methane wells and other
miscellaneous  items.  Pipeline and other revenue  increased  $54,000 during the
first quarter of 1997 as compared  with the first quarter of 1996.  The increase
is  due  to  numerous  miscellaneous  items,  none  of  which  are  individually
significant.

Production Operating Expense

Production operating expense decreased $159,000 during the first quarter of 1997
as compared with the first  quarter of 1996,  primarily as a result of decreased
production  taxes  and  operating  expenses  due to the  decreased  oil  and gas
production as discussed previously.

General and Administrative Expense

General  and   administrative   expense   includes  costs  incurred  for  direct
administrative  services  such as legal,  audit and  reserve  reports as well as
allocated  internal overhead incurred by Hallwood  Petroleum,  Inc. ("HPI"),  an
affiliate of HCRC,  which manages and operates certain oil and gas properties on
behalf of the Company. These costs increased $77,000 during the first quarter of
1997 as compared with the first quarter of 1996,  because certain bank fees were
incurred during the first quarter in 1997 and during the second quarter in 1996.

Interest Expense

Interest expense decreased $144,000 during the first quarter of 1997 as compared
with the first quarter of 1996.  The decrease is primarily the result of the pro
rata interest expense of an affiliate's debt during 1996.

Depreciation, Depletion and Amortization

Depreciation,  depletion and amortization  expense decreased $490,000 during the
first quarter of 1997 as compared with the first quarter of 1996, due to a lower
depletion rate caused by the decrease in production as previously discussed.


                                                       -13-

<PAGE>



Provision for Income Taxes

Income taxes for the first quarter of 1997 are less than would be expected using
the  federal  statutory  rate  due to the  change  in  the  valuation  allowance
resulting from the utilization of net operating loss carryforwards.


                                                       -14-

<PAGE>



PART II -     OTHER INFORMATION


ITEM 1  -     LEGAL PROCEEDINGS

              Reference  is made to Item 8 - Note 14 of Form  10-K  for the year
              ended December 31, 1996, and Item 1 - Note 5 of this Form 10-Q.


ITEM 2  -     CHANGES IN SECURITIES

              None.


ITEM 3  -     DEFAULTS UPON SENIOR SECURITIES

              None.


ITEM 4  -     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
              ---------------------------------------------------

              None.


ITEM 5  -     OTHER INFORMATION

              None.


ITEM 6  -     EXHIBITS AND REPORTS ON FORM 8-K

              None.



                                                       -15-

<PAGE>


SIGNATURE

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


                                    HALLWOOD CONSOLIDATED RESOURCES CORPORATION



Date: May 13, 1997                  By: /s/Robert S. Pfeiffer
     -----------------------------     ----------------------
                                       Robert S. Pfeiffer, Vice President
                                            (Chief Financial Officer)



                                                       -16-

<PAGE>