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 September 30, 1996

    |_|          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 November 12, 1996                 992,014






                                                   Page 1 of 21


<PAGE>
<TABLE>
<CAPTION>



PART I.  FINANCIAL  INFORMATION
ITEM 1.  FINANCIAL  STATEMENTS

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



                                                                                  September 30,            December 31,
                                                                                       1996                    1995

CURRENT ASSETS
<S>                                                                                  <C>                      <C>
    Cash and cash equivalents                                                        $     404                $  1,139
    Accrued oil and gas sales                                                            3,647                   2,674
    Due from affiliates                                                                  1,183                     381
    Prepaid and other assets                                                               393                     111
    Current assets of affiliates                                                         4,153                   4,007
                                                                                      --------               ---------
          Total current assets                                                           9,780                   8,312
                                                                                      --------               ---------

PROPERTY, PLANT AND EQUIPMENT, at cost
    Oil and gas properties (full cost method)
       Proved oil and gas properties                                                   274,895                 268,152
       Unproved mineral interests                                                        1,554                     571
                                                                                     ---------              ----------
          Total                                                                        276,449                 268,723
    Less - accumulated depreciation, depletion,
       amortization and property impairment                                          (210,473)               (203,290)
                                                                                      -------                 -------
          Net property, plant and equipment                                             65,976                  65,433
                                                                                      --------                --------

OTHER ASSETS
    Noncurrent assets of affiliates                                                         40                     194
                                                                                   -----------              ----------

TOTAL ASSETS                                                                          $ 75,796               $  73,939
                                                                                       =======                ========















<FN>

                                         (Continued on the following page)
</FN>

</TABLE>

                                                        -2-

<PAGE>

<TABLE>
<CAPTION>


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



                                                                                   September 30,            December 31,
                                                                                        1996                    1995

CURRENT LIABILITIES
<S>                                                                                  <C>                     <C>
    Accounts payable and accrued liabilities                                         $   2,281               $   3,675
    Current portion of contract settlement obligation                                                              143
    Current portion of long-term debt                                                    2,500
    Current liabilities of affiliates                                                    4,117                  11,696
                                                                                      --------                --------
          Total current liabilities                                                      8,898                  15,514
                                                                                      --------                --------

NONCURRENT LIABILITIES
    Contract settlement obligation                                                         927                     904
    Long-term debt                                                                      17,500                  12,000
    Long-term liabilities of affiliates                                                  7,590                   8,740
    Deferred liability                                                                     114                     146
                                                                                     ---------              ----------
          Total noncurrent liabilities                                                  26,131                  21,790
                                                                                       -------                --------
          Total liabilities                                                             35,029                  37,304
                                                                                       -------                --------

STOCKHOLDERS' EQUITY
    Common  stock par value  $.01;  2,000,000  shares  authorized;  992,014  and
       1,081,763 shares issued at 1996 and
       1995, respectively                                                                  111                     111
    Additional paid-in capital                                                          79,980                  81,730
    Accumulated deficit                                                               (35,450)                (41,376)
    Treasury stock - 86,426 and 83,980 shares
       at 1996 and 1995, respectively                                                  (3,874)                 (3,830)
                                                                                     --------               ---------
          Stockholders' equity - Net                                                    40,767                  36,635
                                                                                       -------                --------

TOTAL LIABILITIES AND STOCKHOLDERS'
    EQUITY                                                                            $ 75,796               $  73,939
                                                                                       =======                ========












<FN>

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

                                                        -3-

<PAGE>

<TABLE>
<CAPTION>


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



                                                                                            For the Three Months Ended
                                                                                             September 30,
                                                                                         1996                    1995

REVENUES:
<S>                                                                                   <C>                     <C>
    Oil revenue                                                                       $  4,107                $  3,271
    Gas revenue                                                                          4,163                   2,650
    Pipeline and other                                                                     277                     342
    Contract settlement                                                                     14                      11
    Interest income                                                                         33                      35
                                                                                     ---------               ---------
                                                                                         8,594                   6,309
                                                                                       -------                 -------

EXPENSES:
    Production operating expense                                                         2,471                   2,024
    General and administrative                                                             993                     850
    Interest expense                                                                       594                     444
    Depreciation, depletion and amortization                                             2,276                   1,997
    Other                                                                                                           45
                                                                                   -----------               ---------
                                                                                         6,334                   5,360
                                                                                       -------                 -------

INCOME BEFORE INCOME TAX                                                                 2,260                     949
                                                                                       -------                --------

PROVISION (BENEFIT) FOR INCOME TAX:
    Current                                                                                 47                    (58)
                                                                                     ---------              ---------

NET INCOME                                                                            $  2,213                $  1,007
                                                                                       =======                 =======

NET INCOME PER SHARE                                                                 $    2.39              $      .94
                                                                                      ========               =========

WEIGHTED AVERAGE COMMON SHARES AND
   COMMON SHARE EQUIVALENTS OUTSTANDING                                                    927                   1,067
                                                                                      ========                ========











<FN>

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

                                                        -4-

<PAGE>
<TABLE>
<CAPTION>



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



                                                                                         For the Nine Months Ended
                                                                                              September 30,
                                                                                         1996                  1995

REVENUES:
<S>                                                                                   <C>                     <C>
    Oil revenue                                                                       $ 12,560                $  8,436
    Gas revenue                                                                         11,937                   7,661
    Pipeline and other                                                                     983                   1,226
    Contract settlement                                                                     35                      32
    Interest income                                                                         76                     112
                                                                                    ----------                --------
                                                                                        25,591                  17,467
                                                                                       -------                  ------

EXPENSES:
    Production operating expense                                                         7,701                   5,906
    General and administrative                                                           2,614                   2,707
    Interest expense                                                                     1,938                   1,114
    Depreciation, depletion and amortization                                             7,183                   5,775
    Impairment of oil and gas properties                                                                         9,423
    Other                                                                                  114                     117
                                                                                     ---------                --------
                                                                                        19,550                  25,042
                                                                                       -------                  ------

INCOME (LOSS) BEFORE INCOME TAX                                                          6,041                 (7,575)
                                                                                       -------                 ------

PROVISION (BENEFIT) FOR INCOME TAX:
    Current                                                                                115                      30
    Deferred                                                                                                   (2,588)
                                                                                  ------------                 ------
                                                                                           115                 (2,558)
                                                                                     ---------                 ------

NET INCOME (LOSS)                                                                    $   5,926                $(5,017)
                                                                                      ========                 ======

NET INCOME (LOSS) PER SHARE                                                         $     6.41               $  (4.70)
                                                                                     =========                =======

WEIGHTED AVERAGE COMMON SHARES AND
  COMMON SHARE EQUIVALENTS OUTSTANDING                                                     924                   1,067
                                                                                      ========                 =======






<FN>


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

                                                        -5-

<PAGE>

<TABLE>
<CAPTION>


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


                                                                                         For the Nine Months Ended
                                                                                                September 30,
                                                                                         1996                    1995

OPERATING ACTIVITIES:
<S>                                                                                  <C>                     <C>
    Net income (loss)                                                                $   5,926               $ (5,017)
    Adjustments to reconcile net income (loss)
       to net cash provided by operating activities:
       Depreciation, depletion, amortization and
          impairment                                                                     7,183                  15,198
       Deferred income tax benefit                                                                             (2,588)
       Noncash interest expense                                                             61                      86
       Undistributed earnings of affiliates                                            (4,374)                 (1,853)
       Recoupment of take-or-pay liability                                                (98)                   (125)
                                                                                   ----------                --------

              Cash provided by operations before
                 working capital changes                                                 8,698                   5,701

    Changes in  assets  and  liabilities  provided  (used)  cash net of  noncash
       activity:
          Accrued oil and gas sales                                                      (973)                     469
          Due from affiliates                                                            (802)                   (887)
          Prepaid and other assets                                                       (571)                     115
          Accounts payable and accrued liabilities                                     (1,394)                     302
          Payable to affiliate                                                                                   (247)
                                                                                  ------------               --------

              Net cash provided by operating activities                                  4,958                   5,453
                                                                                      --------                 -------

INVESTING ACTIVITIES:
    Additions to oil and gas properties                                                (2,101)                 (6,822)
    Exploration and development costs incurred                                         (5,609)                 (5,626)
    Proceeds from oil and gas property sales                                             1,364                     509
    Refinance of Spraberry investment                                                  (6,338)
    Distributions received from affiliates                                                 858                     706
    Other                                                                                    3                      14
                                                                                   -----------               ---------

              Net cash used in investing activities                                   (11,823)                (11,219)
                                                                                      -------                 -------

FINANCING ACTIVITIES:
    Repurchase and retirement of common stock                                          (1,752)
    Proceeds from long-term debt                                                         9,000                   4,000
    Payments of long-term debt                                                         (1,000)
    Payments on contract settlement obligation                                           (118)                   (387)
                                                                                   ----------                ---------

              Net cash provided by financing activities                                  6,130                   3,613
                                                                                      --------                 -------

NET DECREASE IN CASH AND CASH EQUIVALENTS                                                (735)                 (2,153)

CASH AND CASH EQUIVALENTS:
    Balance, beginning of period                                                         1,139                   2,779
                                                                                      --------                 -------
    Balance, end of period                                                          $      404               $     626
                                                                                     =========                ========


<FN>

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

                                                        -6-

<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 footnotes included in the Company's December 31, 1995 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

As the Company owns approximately 19% of the outstanding units of HEP which owns
approximately  46% and 40% of the Company's  common stock, at September 30, 1996
and December 31, 1995,  respectively.  The Company has an interest in 86,426 and
83,980  of its  own  shares  at  September  30,  1996  and  December  31,  1995,
respectively.  These  shares are treated as treasury  stock in the  accompanying
financial statements.

Net Income (Loss) per Share

Net income  (loss) per share is computed by  dividing  net income  (loss) 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).

Reclassifications

Certain  reclassifications have been made to the prior period amounts to conform
to the  classifications  used in the  current  period.  The  share and per share
amounts for all periods presented have been restated to give effect to a one for
ten share reverse split which was effective November 9, 1995.



                                                        -7-

<PAGE>



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. On April 1, 1996, the banks  increased
their  loan   commitments   under  the  credit  agreement  from  $18,000,000  to
$22,000,000. The borrowing base is currently $23,000,000, however, the Company's
borrowings are presently limited to the bank's commitment level. As of September
30, 1996, 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 $927,000;  therefore,  unused borrowing base totaled $2,073,000 at
November 12, 1996.

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% (7.2% at September 30, 1996).  Interest is payable at least quarterly,  and
quarterly  principal  payments of $1,250,000,  commence May 31, 1997. 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
$7,000,000 of its debt for 1996 and 1997 and $5,000,000 for 1998.  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 two
hedges,  one of which 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 other of which is an
interest rate swap with a fixed rate of 7.5%. 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 - ODD LOT REPURCHASE

The Company  initiated  an offer to  repurchase  odd lot holdings of 99 or fewer
shares from its  stockholders  of record as of November 30, 1995.  The offer was
initially for the period from November 30, 1995 through  January 5, 1996 and was
subsequently  extended through January 26, 1996. The Company repurchased a total
of 98,869 shares through the January 26, 1996 closing date. The repurchase price
was $24.09 per share.

On April 1, 1996, HCRC initiated another offer to purchase holdings of 99 shares
or fewer from its stockholders of record as of March 25, 1996. The offer was for
the period from April 1, 1996  through May 3, 1996.  The Company  repurchased  a
total of 25,930  shares at a purchase  price of $34.00 per  share.  HCRC  resold
12,965 of these shares to HEP at the price paid by HCRC for such shares.


NOTE 5 - STATEMENT OF CASH FLOWS

Cash paid for interest  during the nine months ended September 30, 1996 and 1995
was $980,000 and $414,000,  respectively.  Cash paid for income taxes during the
nine  months  ended  September  30,  1996  and 1995 was  $59,000  and  $202,000,
respectively.


NOTE 6 - ACQUISITION OF PROPERTY INTERESTS

On July 1, 1996, HCRC and HEP completed a transaction  involving the acquisition
from Fuel Resources Development Co., a wholly owned subsidiary of Public Service
Company of Colorado,  and other interest owners of their interest in 38 coal bed
methane wells located in La Plata County,  Colorado and Rio Arriba,  New Mexico.
Thirty-four of the wells, estimated to have reserves of 53 bcf, were assigned to
44 Canyon LLC ("44  Canyon"),  a special  purpose  entity  owned by a large east
coast financial institution.  The wells qualify for tax credits under Section 29
of the Internal Revenue

                                                        -8-

<PAGE>



Code. Hallwood Petroleum, Inc. ("HPI") will manage and operate the properties on
behalf of 44 Canyon.  The $27.8 million  purchase  price was funded by 44 Canyon
through the sale of a  volumetric  production  payment to an  affiliate of Enron
Capital & Trade  Resources  Corp.,  a subsidiary  of Enron Corp.,  the sale of a
subordinated  production  payment and certain other property interests for $3.45
million to an affiliate of HCRC and HEP, and additional cash  contributed by the
owners  of 44  Canyon.  The  affiliate  of HCRC  and  HEP  which  purchased  the
subordinated production payment and other property interests is owned equally by
HCRC and HEP. The interests in the four wells in Rio Arriba County were acquired
directly by HEP and HCRC. As a result of the transaction, HCRC expects to add 10
BCF of gas  to its  reserve  base,  which  represents  approximately  95% of its
estimated 1996 production.


NOTE 7 - LEGAL PROCEEDINGS

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  $4,958,000 of cash flow from operating  activities during
the first nine months of 1996.

The other primary cash inflows were:

    o  $9,000,000 in proceeds from long-term borrowings

    o  $858,000 in distributions received from affiliates

    o  $1,364,000 in proceeds oil and gas property sales

Cash was used for:

     o $7,710,000  for  additions to property and  exploration  and  development
           costs

    o  $6,338,000 for the refinance of Spraberry investment

    o  $1,752,000 for the repurchase and retirement of common stock

    o  $1,000,000 for the repayment of debt

    o  $118,000 for payments of contract settlement obligation

                                                        -9-

<PAGE>




This  resulted in a decrease  in the  Company's  cash of  $735,000  for the nine
months ended September 30, 1996 from $1,139,000 at December 31, 1995 to $404,000
at September 30, 1996.

Development Projects and Acquisitions

Through  September 30, 1996, HCRC incurred  approximately  $1,752,000 for an odd
lot  share   repurchase   discussed   below,  and  $7,710,000  for  exploration,
development   and  acquisition   costs,   toward  the  1996  capital  budget  of
$13,700,000.  The expenditures  were comprised of  approximately  $5,609,000 for
exploration  and  development  expenditures  and  approximately  $2,101,000  for
property acquisitions.  A description of significant exploration and development
projects to date in 1996 follows.

HCRC  continues  to devote  capital  resources  to the West Texas Kermit area in
1996.  HCRC has drilled or  participated  in the  drilling  of  fourteen  wells,
thirteen of which were successful, and participated in four recompletions, three
of which were successful,  in the first nine months of 1996, for a total cost of
approximately   $620,000.  The  wells  in  this  area  are  currently  producing
approximately  700 gross  equivalent  barrels of oil per day. HCRC's interest in
these  wells  averages  14%.  HCRC has plans to drill or  recomplete  up to nine
additional wells by year end.

HCRC  acquired 106 square miles of three  dimensional  (3-D) seismic data on the
Cowden  Ranch in Crane  County,  Texas.  The prospect is operated by a major oil
company, and HCRC has a 12.5% working interest. HCRC's share of costs to date is
$455,000.  Seismic  interpretation was recently  completed,  and two exploratory
wells are planned for the fourth quarter of 1996,  with  additional  exploratory
activity to follow in 1997.

HCRC  acquired 3-D seismic data and related  acreage in the Merkel  Project Area
which  covers  18 square  miles in Jones,  Taylor  and  Nolan  Counties,  Texas.
Expenditures in the first nine months of 1996 totaled  $567,000.  Thus far, HCRC
has  participated  in drilling  five wells on four  exploration  prospects for a
total cost of $135,000,  including  one well  drilled in late 1995.  Four of the
wells are each  producing at average  rates of 70 gross  barrels of oil per day,
two of the wells  encountered  multiple pay zones but only one zone is currently
producing,  and one well was unsuccessful.  HCRC's interest in the wells is 25%.
Two wells are  planned  for the fourth  quarter of 1996,  and an  additional  10
prospects  will be tested in 1997 and beyond.  An  additional 74 square miles of
3-D seismic data, which is presently being interpreted, was acquired in the same
area.   HCRC's  working  interest  in  this  area  averages  55%,  and  prospect
exploratory  drilling will begin in the first quarter of 1997.  Preliminary work
indicates as many as 25 wells may be drilled.

HCRC  incurred  approximately  $305,000  in the  first  quarter,  net to  HCRC's
interest, for four recompletions and one drilled well in the Rocker "b" Ranch in
Reagan County,  Texas. This activity  increased HCRC's share of production by 55
equivalent barrels of oil per day. During the first quarter,  HCRC also acquired
interests  in five  additional  producing  leases on the  Rocker "b" Ranch for a
total of  $93,000.  Effective  April 1, 1996,  HCRC repaid its share of the bank
debt of Hallwood Spraberry Drilling Company,  L.L.C.  ("HSD") through additional
borrowings  on its bank credit  agreement  and assumed  direct  ownership of its
share of HSD's  properties.  In the  second  and third  quarters  of 1996,  HCRC
recompleted  five  wells,  four  of  which  were  successful,  and  drilled  one
additional  well  for a total  cost  of  $230,000.  This  activity  resulted  in
increasing  HCRC's share of production by 57 equivalent  barrels of oil per day.
HCRC  plans to  recomplete  at least five more  wells  before  year end and will
consider  other work, if the capital is available.  Exploration  in this area is
expected to slow toward the end of 1997 as HCRC's  undeveloped  acreage position
declines.

HCRC  participated in the drilling of two nonoperated  wells in Williams County,
North  Dakota in the latter part of 1995 and the first  quarter of 1996,  one of
which was dry and the other  only  marginally  successful,  for a total  cost of
approximately  $300,000.  HCRC also drilled an exploratory  dry hole in Richland
County,  Montana,  at a cost of $150,000.  HCRC completed an Interlake Formation
development  well,  drilled in the third quarter at a net cost of  approximately
$535,000.  This well is currently  producing at a rate of 130 barrels of oil per
day, and HCRC's interest is 45%.


                                                       -10-

<PAGE>



In the San Juan Basin area of  Colorado,  HCRC,  through an  affiliate  La Plata
Associates LLC ("LPA"),  acquired interests in 34 coal bed methane wells located
in La Plata County,  Colorado for  $1,450,000.  HCRC's  interest in the wells is
expected  to  add  10  bcf  of  gas  to  its  reserve  base,   which  represents
approximately  95%  of  its  estimated  1996  production.  The  acquisition  was
completed on July 1, 1996. Seven refracs/recompletions have been completed since
July  1 at a  net  cost  to  HCRC  of  approximately  $300,000.  Numerous  other
recompletions  and facility  projects are planned for 1996 at an estimated total
net cost to HCRC of $500,000.  Gross  production has increased by  approximately
2,500 mcf of gas per day as a result of the work done to date.  Similar activity
levels in 1997 are  anticipated  on these newly  acquired  properties.  In other
parts of the New Mexico portion of the San Juan Basin area, HCRC has recompleted
three wells, two of which were  successful,  drilled two wells and is converting
another well to be a disposal  well.  The total cost for this work was $435,000,
and HCRC's share of this production is approximately 41%.

Numerous other  projects,  which are  individually  less  significant  have been
completed or are underway in Kansas,  Louisiana,  Texas and New Mexico including
participation in five other 3-D seismic data  acquisition  programs not included
in the  above  activity.  HCRC  is  also  actively  evaluating  acquisitions  in
strategic areas. Such  acquisitions  would be financed using the capital budget,
supplemented by external financing when appropriate.

Property Sales

During the third quarter of 1996, HCRC received  approximately  $175,000 for the
sale of its  interests in the Hoople Field in Crosby  County,  Texas.  HCRC also
received  another  $21,000 in early  April for the sale of various  nonstrategic
properties at auction. In June 1996, HCRC completed the sale of its interests in
the Bethany  Longstreet  area of  Louisiana  (approximately  175,000  equivalent
barrels of oil,  measured  using  December 31, 1995  pricing) for  approximately
$1,100,000.

Odd Lot Repurchase

The Company made an offer to  repurchase  odd lot holdings of 99 or fewer shares
from its stockholders of record as of November 30, 1995. The offer was initially
for  the  period  from  November  30,  1995  through  January  5,  1996  and was
subsequently  extended through January 26, 1996. The Company repurchased a total
of 98,869 shares  through the January 26, 1996 closing date for  $2,382,000 at a
purchase  price of $24.09 per share,  of which  $1,312,000  was expended  during
1996.

On April 1, 1996,  HCRC made another offer to purchase  holdings of 99 shares or
fewer from its  stockholders  of record as of March 25, 1996.  The offer was for
the period from April 1, 1996  through May 3, 1996.  The Company  repurchased  a
total of 25,930  shares at a purchase  price of $34.00 per  share.  HCRC  resold
12,965 of these shares to HEP at the price paid by HCRC for such shares.

Financing

On March 31, 1995 the Company and its banks  amended  their credit  agreement to
extend the maturity date to May 31, 1997. On April 1, 1996, the banks  increased
their  loan   commitments   under  the  credit  agreement  from  $18,000,000  to
$22,000,000. The borrowing base is currently $23,000,000, however, the Company's
borrowings are presently limited to the bank's commitment level. As of September
30, 1996, 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 $927,000;  therefore,  unused borrowing base totaled $2,073,000 at
November __, 1996.

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% (7.2% at September 30, 1996).  Interest is payable at least quarterly,  and
quarterly  principal  payments of $1,250,000,  commence May 31, 1997. The credit
facility  is  secured  by a first  lien on  approximately  80% in  value  of the
Company's oil and gas properties.


                                                       -11-

<PAGE>



HCRC has  entered  into  contracts  to  hedge  its  interest  rate  payments  on
$7,000,000 of its debt for 1996 and 1997 and $5,000,000 for 1998.  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 two
hedges,  one of which 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 other is an  interest
rate  swap  with a fixed  rate of  7.50%.  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  setforth  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 in
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 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 1995 and through
the third  quarter of 1996.  The  following  table sets forth the 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)
                                       (bbl)                 (bbl)                  (mcf)                  (mcf)

<S>                                    <C>                    <C>                    <C>                    <C>
First quarter 1995                     $17.08                 $17.54                 $1.43                  $1.63
Second quarter 1995                     17.01                  17.15                  1.37                   1.53
Third quarter 1995                      16.17                  16.60                  1.26                   1.45
Fourth quarter 1995                     16.93                  17.29                  1.76                   1.86
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
</TABLE>

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  decreases  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:

<TABLE>
<CAPTION>

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

<S>                                     <C>                            <C>
Last three months of 1996                63%                            $18.92
1997                                     43%                             17.88
1998                                     16%                             15.07
1999                                      5%                             15.88
</TABLE>

Between  15% 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  28% 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.

<TABLE>
<CAPTION>

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

<S>                                        <C>                      <C>
Last three months of 1996                   50%                     $1.87
1997                                        46%                      1.89
1998                                        40%                      1.91
1999                                        24%                      1.68
2000                                        12%                      1.86
</TABLE>

Between  0% and 40% 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 $2.65 to $2.93 per mcf.

During the fourth quarter  through  October 25, 1996, the oil price (for barrels
not hedged) is averaging  between  $22.00 and $24.00 per barrel and the weighted
average price of natural gas (for mcf not hedged) is averaging between $1.50 and
$2.10 per mcf.

Inflation

Inflation is not anticipated to have a material impact on the Company in 1996.



                                                       -12-

<PAGE>




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 interest
shares interest in oil and gas properties.  The "HEP" column  represents  HCRC's
share of the results of operations of HEP;  HCRC owned  approximately  9% of the
outstanding limited partner units of HEP during 1995 and 19% during 1996.


                                                       -13-

<PAGE>

<TABLE>
<CAPTION>




                                     TABLE OF HCRC EARNINGS FOR MANAGEMENT DISCUSSION
                           (In thousands except price)
               For the Quarters Ended September 30, 1996 and 1995



                                               For the Quarter Ended September 30, 1996    For the Quarter Ended September 30, 1995
                                               ----------------------------------------    ----------------------------------------
                                                  Direct                                         Direct
                                                   Owned         HEP          Total              Owned         HEP       Total

<S>                                                   <C>           <C>          <C>                <C>           <C>       <C>
Oil production (bbl)                                  164           37           201                174           23        197
Gas production (mcf)                                1,618          527         2,145              1,551          273      1,824

Average oil price                                  $20.37       $20.70        $20.43             $16.59       $16.65     $16.60
Average gas price                                  $ 1.86       $ 2.18        $ 1.94             $ 1.37       $ 1.87     $ 1.45

Oil revenue                                       $ 3,341     $    766       $ 4,107            $ 2,888     $    383    $ 3,271
Gas revenue                                         3,012        1,151         4,163              2,140          510      2,650
Pipeline and other                                    166          111           277                308           34        342
Contract settlement                                    14                         14                 11                      11
Interest income                                        11           22            33                 29            6        35
                                                 --------     --------      --------           --------    ---------   -------

       Total revenue                                6,544        2,050         8,594              5,376          933      6,309
                                                   ------       ------        ------             ------      -------     ------

Production operating expense                        1,963          508         2,471              1,746          278      2,024
General and administrative expense                    760          233           993                757           93        850
Interest expense                                      417          177           594                353           91        444
Depreciation, depletion, and amortization           1,767          509         2,276              1,724          273      1,997
Other                                                                                                             45         45
                                               ----------   ----------    ----------         ----------     --------   --------

       Total expense                                4,907        1,427         6,334              4,580          780      5,360
                                                   ------       ------        ------             ------      -------     ------

Income before Income Tax                            1,637          623         2,260                796          153        949
                                                   ------      -------        ------            -------      -------    -------

Provision (Benefit) for Income Tax:
    Current                                            47                         47               (58)                    (58)
                                                 --------                   --------          ---------               --------

       Net income                                 $ 1,590     $    623       $ 2,213           $    854     $    153    $ 1,007
                                                   ======      =======        ======            =======      =======     ======
</TABLE>


                                                           -14-

<PAGE>


<TABLE>
<CAPTION>




                                     TABLE OF HCRC EARNINGS FOR MANAGEMENT DISCUSSION
                           (In thousands except price)
              For the Nine Months Ended September 30, 1996 and 1995



                                         For the Nine Months Ended September 30, 1996   For the Nine Months Ended September 30, 1995
                                         --------------------------------------------   --------------------------------------------
                                                  Direct                                         Direct
                                                  Owned          HEP          Total              Owned         HEP        Total

<S>                                                  <C>           <C>           <C>                <C>           <C>        <C>
Oil production (bbl)                                 512           130           642                435           60         495
Gas production (mcf)                               4,655         1,641         6,296              4,243          756       4,999

Average oil price                                 $19.60        $19.40        $19.56             $16.95       $17.73      $17.04
Average gas price                                 $ 1.83        $ 2.09        $ 1.90             $ 1.48       $ 1.83      $ 1.53

Oil revenue                                      $10,038       $ 2,522       $12,560           $  7,372      $ 1,064    $  8,436
Gas revenue                                        8,503         3,434        11,937              6,277        1,384       7,661
Pipeline and other                                   610           373           983              1,075          151       1,226
Contract settlement                                   35                          35                 32                       32
Interest income                                       17            59            76                 91           21         112
                                               ---------      --------     ---------           --------     --------    --------

       Total revenue                              19,203         6,388        25,591             14,847        2,620      17,467
                                                  ------        ------        ------             ------       ------      ------

Production operating expense                       6,098         1,603         7,701              5,170          736       5,906
General and administrative expense                 2,047           567         2,614              2,387          320       2,707
Interest expense                                   1,364           574         1,938                847          267       1,114
Depreciation, depletion, and amortization          5,467         1,716         7,183              4,963          812       5,775
Impairment of oil and gas properties                                                              9,066          357       9,423
Other                                                 68            46           114                             117         117
                                               ---------      --------      --------        -----------      -------    --------

       Total expense                              15,044         4,506        19,550             22,433        2,609      25,042
                                                  ------        ------        ------             ------       ------      ------

Income (Loss) before Income Tax                    4,159         1,882         6,041            (7,586)           11     (7,575)
                                                 -------        ------        ------           -------      --------     ------

Provision (Benefit) for Income Tax:
    Current                                          115                         115                 30                       30
    Deferred                                                                                    (2,588)                  (2,588)
                                             -----------    ----------   -----------           -------     ---------    -------
                                                     115                         115            (2,558)                  (2,558)
                                                --------    ----------      --------           -------     ---------    -------

       Net income (loss)                         $ 4,044       $ 1,882       $ 5,926          $ (5,028)    $      11   $ (5,017)
                                                  ======        ======        ======           =======      ========    =======

</TABLE>

                                                           -15-

<PAGE>



Third Quarter of 1996 Compared to Third Quarter of 1995

Oil Revenue

Oil revenue  increased  $836,000,  during the third  quarter of 1996 as compared
with the third  quarter of 1995.  The  increase  in revenue is  comprised  of an
increase in oil production  from 197,000  barrels in 1995 to 201,000  barrels in
1996  combined  with an increase in the average oil price from $16.60 per barrel
in 1995 to $20.43 per  barrel in 1996.  The  increase  in  production  is due to
increased  production from exploratory and  developmental  drilling projects in,
Montana, Wyoming and West Texas, partially offset by normal production declines.
Because the Company's hedged oil prices were lower than average posted prices in
1996, the effect of hedging  transactions,  as described  above, was to decrease
the  Company's  average  oil price from  $21.39 per barrel to $20.43 per barrel,
resulting in a $193,000 decrease in revenue.

Gas Revenue

Gas revenue  increased  $1,513,000  during the third quarter of 1996 as compared
with the third quarter of 1995.  The increase is comprised of an increase in gas
production from 1,824,000 mcf in 1995 to 2,145,000 mcf in 1996, combined with an
increase  in price  from  $1.45  per mcf in 1995 to $1.94  per mcf in 1996.  The
increase in  production  is due to increased  production  from  exploratory  and
developmental  drilling projects in Montana,  Wyoming and West Texas,  partially
offset by normal  production  declines.  The  effect  of the  Company's  hedging
activity was to decrease the  Company's  average gas price from $1.99 per mcf to
$1.94 per mcf, resulting in a $107,000 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  decreased  $65,000 during the
third quarter of 1996 as compared  with the third quarter of 1995.  The decrease
is  due  to  numerous  miscellaneous  items,  none  of  which  are  individually
significant.

Production Operating Expense

Production operating expense increased $447,000 during the third quarter of 1996
as compared with the third  quarter of 1995,  primarily as a result of increased
production  taxes  and  operating  expenses  due to the  increased  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  $143,000 during the third quarter
of 1996 as compared  with the third quarter of 1995,  because  certain bank fees
were  incurred  during the third quarter in 1996 and during the first quarter in
1995.

Interest Expense

Interest expense increased $150,000 during the third quarter of 1996 as compared
with the third quarter of 1995. The increase is primarily the result of a higher
outstanding debt balance during 1996.



                                                       -16-

<PAGE>



Depreciation, Depletion and Amortization

Depreciation,  depletion and amortization  expense increased $279,000 during the
third  quarter of 1996 as  compared  with the third  quarter  of 1995,  due to a
higher  depletion  rate  caused by the  increase  in  production  as  previously
discussed.

Provision (Benefit) for Income Taxes

Income taxes for the third quarter of 1996 are less than would be expected using
the  statutory  rate due to the  change in the  valuation  allowance  due to the
utilization of net operating loss carryforwards.

First Nine Months of 1996 Compared to First Nine Months of 1995

The  comparisons  for the first nine months of 1996 and the first nine months of
1995 are consistent  with those  discussed in the third quarter of 1996 compared
to the third quarter of 1995 except for the following:

Oil Revenue

Oil  revenue  increased  $4,124,000  during  the  first  nine  months of 1996 as
compared  with the first nine months of 1995.  The  increase is  comprised of an
increase  in  average  oil prices  from  $17.04 per barrel in 1995 to $19.56 per
barrel in 1996 combined with an increase in production  from 495,000  barrels in
1995 to 642,000  barrels in 1996.  The  production  increase is due to increased
production  from  developmental  drilling  projects in West  Texas,  Montana and
Wyoming, partially offset by normal production declines.

The effect of HCRC's  hedging  transactions  was to decrease  HCRC's average oil
price  from  $20.03 per barrel to $19.56  per  barrel,  representing  a $302,000
decrease in revenues.

Gas Revenue

Gas  revenue  increased  $4,276,000  during  the  first  nine  months of 1996 as
compared  with the first nine months of 1995.  The  increase is  comprised of an
increase  in price from $1.53 per mcf in 1995 to $1.90 per mcf in 1996  combined
with an increase in  production  from  4,999,000 mcf in 1995 to 6,296,000 mcf in
1996. The production increase is due to increased  production from developmental
drilling projects in West Texas, Montana and Wyoming, partially offset by normal
production declines.

The effect of HCRC's  hedging  transactions  was to decrease  HCRC's average gas
price from $1.93 per mcf to $1.90 per mcf,  representing a $189,000 reduction in
revenue from hedging transactions.

Pipeline and Other

Pipeline and other revenue decreased by $243,000 during the first nine months of
1996 as compared  with the first nine months of 1995,  primarily due to a payout
adjustment on one of HCRC's wells which occurred during the first nine months of
1995.

Interest Income

Interest  income  decreased  $36,000  during  the first  nine  months of 1996 as
compared with the same period during 1995  primarily due to a lower average cash
balance during 1996.



                                                       -17-

<PAGE>



General and Administrative Expense

General  and  administrative  expense  decreased  $93,000  during the first nine
months of 1996 as compared  with the first nine months of 1995  primarily due to
lower overall  administrative  costs resulting from personnel  reductions during
1995.

Impairment of Oil and Gas Properties

Impairment  of oil and gas  properties  during  the  first  nine  months of 1995
includes the  write-off of HCRC's  Indonesian  operations  as well as a property
impairment  recorded  because  capitalized  costs at June 30, 1995  exceeded the
present value  (discounted at 10%) of estimated  future net revenues from proved
oil and gas reserves based on prices received at that date.

                                                       -18-

<PAGE>



PART II -     OTHER INFORMATION


ITEM 1  -     LEGAL PROCEEDINGS

              Reference  is made to Item 8 - Note 16 of Form  10-K  for the year
              ended December 31, 1995, and Item 1 - Note 7 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.



                                                       -19-

<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: November 12, 1996                  By:   /s/Robert S. Pfeiffer
     ------------------------------         ------------------------
                       Robert S. Pfeiffer, Vice President
                                                (Chief Financial Officer)



                                                       -20-

<PAGE>