--

                                                   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, 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                                                    84-1176750
(State or other jurisdiction of                                (I.R.S. Employer
incorporation or organization)                            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 14, 1997               2,977,542








                                                    Page 1 of 22


<PAGE>


<TABLE>
<CAPTION>

PART I.  FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS

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



                                                                          September 30,         December 31,

                                                                              1997                1996
                                                                              -----               ----



CURRENT ASSETS

<S>                                                                           <C>               <C>        
    Cash and cash equivalents                                                 $   372           $       628
    Accrued oil and gas revenue                                                 3,720                 4,808
    Due from affiliates                                                         1,253                   897
    Prepaid and other assets                                                       37                   493
    Current assets of affiliates                                                3,335                 3,976
                                                                                -----                -------
          Total current assets                                                  8,717                10,802
                                                                                ------               -------

PROPERTY, PLANT AND EQUIPMENT, at cost
    Oil and gas properties (full cost method)
       Proved oil and gas properties                                          290,319                278,581
       Unproved mineral interests - domestic                                    1,718                  1,240
                                                                              -------                 -----
          Total                                                               292,037               279,821

    Less - accumulated depreciation, depletion,
       amortization and impairment                                           (218,808)             (212,536)
                                                                             --------               --------
          Net property, plant and equipment                                    73,229                67,285

OTHER ASSETS
    Deferred tax asset                                                            450                   350
    Noncurrent assets of affiliates                                                20                    31
                                                                                 ----                   ----
          Total other assets                                                      470                   381
                                                                                 ----                   ----

TOTAL ASSETS                                                                $  82,416             $  78,468
                                                                            =========              ========








<FN>


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

<TABLE>
<CAPTION>


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



                                                                           September 30,       December 31,
                                                                                                      1996
                                                                               1997



CURRENT LIABILITIES
<S>                                                                         <C>                 <C>       
    Accounts payable and accrued liabilities                                $    2,438          $    2,273
    Current portion of contract settlement obligation                            1,015
    Current portion of long-term debt                                                                3,750
    Current liabilities of affiliates                                            5,780               4,826
                                                                                ------              -------
          Total current liabilities                                              9,233              10,849
                                                                                ------              -------

NONCURRENT LIABILITIES
    Contract settlement obligation                                                                     948
    Long-term debt                                                              18,000              16,250
    Long-term obligations of affiliates                                          7,001               7,243
    Deferred liability                                                              96                 117
                                                                               -------              -------
          Total noncurrent liabilities                                          25,097              24,558
                                                                               -------              -------

          Total liabilities                                                     34,330              35,407
                                                                               -------              -------


STOCKHOLDERS' EQUITY
    Common stock, par value $.01; 10,000,000 shares                              
       authorized; 2,977,542 shares issued in 1997 and 1996                         30                  30
    Additional paid-in capital                                                  80,054              80,071
    Accumulated deficit                                                        (28,124)            (33,166)
    Treasury stock - 259,278 shares in 1997 and 1996                            (3,874)             (3,874)
                                                                               --------             ------
          Stockholders' equity - net                                            48,086              43,061
                                                                               --------             ------


TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                   $  82,416           $  78,468
                                                                             ==========           ========








<FN>



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


<PAGE>

<TABLE>
<CAPTION>

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



                                                                                   For the Three Months Ended
                                                                                               September 30,

                                                                                 1997                     1996
                                                                                 ----                     ----



REVENUES:
<S>                                                                            <C>                      <C>    
    Oil revenue                                                                $ 3,277                  $ 4,107
    Gas revenue                                                                  3,973                   4,163
    Pipeline and other                                                             232                      277
    Contract settlement                                                              6                       14
    Interest income                                                                 17                       33
                                                                                ------                    ------
                                                                                 7,505                    8,594
                                                                                ------                    ------


EXPENSES:
    Production operating                                                         2,576                    2,471
    General and administrative                                                     799                      993
    Interest                                                                       506                      594
    Depreciation, depletion and amortization                                     2,271                    2,276
                                                                                ------                    ------
                                                                                 6,152                    6,334
                                                                                ------                    ------

INCOME BEFORE INCOME TAXES                                                       1,353                    2,260
                                                                                ------                    -----


PROVISION (BENEFIT) FOR INCOME TAXES:
    Current                                                                        528                       47
    Deferred                                                                      (100)
                                                                                  -----                    -----
                                                                                   428                       47
                                                                                   ---                       --

NET INCOME                                                                    $    925                  $ 2,213
                                                                               =======                   ======


NET INCOME PER SHARE                                                         $     .33                $     .80
                                                                              ========                 ========



WEIGHTED AVERAGE COMMON SHARES AND
    COMMON SHARE EQUIVALENTS OUTSTANDING                                         2,835                    2,781
                                                                               =======                   ======







<FN>


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


<PAGE>

<TABLE>
<CAPTION>



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



                                                                             For the Nine Months Ended
                                                                                        September 30,

                                                                       1997                        1996
                                                                       ----                        ----



REVENUES:
<S>                                                                   <C>                         <C>     
    Oil revenue                                                       $ 10,142                    $ 12,560
    Gas revenue                                                         12,107                      11,937
    Pipeline and other                                                   1,260                         983
    Contract settlement                                                     21                          35
    Interest income                                                        134                          76
                                                                        ------                      -------
                                                                        23,664                      25,591
                                                                        ------                      -------

EXPENSES:
    Production operating                                                 7,523                       7,701
    General and administrative                                           2,584                       2,614
    Interest                                                             1,668                       1,938
    Depreciation, depletion and amortization                             6,272                       7,183
    Other                                                                                              114
                                                                        -------                       -----
                                                                        18,047                      19,550
                                                                        -------                     -------

INCOME BEFORE INCOME TAXES                                               5,617                       6,041
                                                                         -----                      -------

PROVISION (BENEFIT) FOR INCOME TAXES:
    Current                                                                675                         115
    Deferred                                                              (100)
                                                                           ----                        ----
                                                                           575                         115
                                                                           ----                        -----

NET INCOME                                                            $  5,042                    $  5,926
                                                                      =========                    =======


NET INCOME PER SHARE                                                 $    1.80                   $    2.14
                                                                     ==========                   ========



WEIGHTED AVERAGE COMMON SHARES AND
    COMMON SHARE EQUIVALENTS OUTSTANDING                                 2,808                       2,772
                                                                       ========                     ======
                                                 





<FN>


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


<PAGE>

<TABLE>
<CAPTION>

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



                                                                             For the Nine months Ended
                                                                                      September 30,


                                                                               1997           1996
                                                                -              -----  -       ----



OPERATING ACTIVITIES:
<S>                                                                     <C>               <C>      
    Net income                                                          $   5,042         $   5,926

    Adjustments  to  reconcile  net  income to net cash  provided  by  operating
       activities:
         Depreciation, depletion and amortization                           6,272             7,183
         Noncash interest expense                                              67                61
         Undistributed earnings of affiliates                               (2,929)           (4,374)
         Deferred income tax benefit                                          (100)
         Recoupment of take-or-pay liability                                   (21)             (98)
                                                                             ------           ------
              Cash provided by operations before
                 working capital changes                                    8,331            8,698

    Changes in  assets  and  liabilities  provided  (used)  cash net of  noncash
       activity:
          Accrued oil and gas sales                                         1,088              (973)
          Due from affiliates                                                 (497)            (802)
          Prepaid and other assets                                            456              (571)
          Accounts payable and accrued liabilities                            165            (1,394)
                                                                             ----             ------

              Net cash provided by operating activities                     9,543             4,958
                                                                            -----             -----

INVESTING ACTIVITIES:
    Additions to oil and gas properties                                     (2,128)          (2,101)
    Exploration and development costs incurred                              (6,538)          (5,609)
    Proceeds from oil and gas property sales                                   26             1,364
    Refinance of Spraberry investment                                                        (6,338)
    Distributions received from affiliates                                    858               858
    Other                                                                     (17)                3
                                                                             -----            ------
              Net cash used in investing activities                         (7,799)         (11,823)
                                                                            -------         -------



FINANCING ACTIVITIES:
    Repurchase and retirement of common stock                                                (1,752)
    Proceeds from long-term debt                                            1,000             9,000
    Payments on long-term debt                                             (3,000)           (1,000)
    Payments on contract settlement obligation                                                 (118)
                                                                            -----            -------
              Net cash provided by (used in) financing activities           (2,000)           6,130
                                                                           --------           -----

NET DECREASE IN CASH AND CASH QUIVALENTS                                      (256)            (735)

CASH AND CASH EQUIVALENTS:

BEGINNING OF PERIOD                                                           628             1,139
                                                                             ----             ------
END OF PERIOD                                                            $    372         $     404
                                                                         =========         ========

<FN>

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


<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,  Mid-Continent,  Permian and Delaware Basins 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 September 30, 1997 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 259,278 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.  All share and per share  information  has been  restated  to
reflect the  three-for-one  stock split  described in Note 4. The stock  options
granted during 1995 are considered to be common share  equivalents since January
1, 1996 and the stock options  granted  during 1997 are  considered to be common
stock  equivalents  since July 1, 1997,  because the market  price of the common
stock has  exceeded  the exercise  price of the options  since those dates.  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 (ASFAS 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.  A comparison of EPS shown in the accompanying  financial  statements
with the pro forma amounts that would have been  determined  in accordance  with
SFAS 128 is as follows:
<TABLE>
<CAPTION>

                                   For the Quarter Ended September 30,       For the Nine Months Ended September 30,
                                        1997                 1996                  1997                  1996

Primary (Basic):
<S>                                     <C>                  <C>                  <C>                    <C>  
     As reported                        $.33                 $.80                 $1.80                  $2.14
     Pro forma                          $.34                 $.81                 $1.86                  $2.16

Fully Diluted (Diluted):
     As reported                        $.33                 $.80                 $1.80                  $2.14
     Pro forma                          $.33                 $.81                 $1.78                  $2.14
</TABLE>

Reclassifications

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


NOTE 3 -  DEBT

During the  second  quarter  of 1997,  the  Company  and its banks  amended  and
restated the Company's  Credit  Agreement to extend the maturity date to May 31,
1999.  The borrowing base is $22,500,000 as of October 31, 1997. As of September
30, 1997, the Company had borrowed  $18,000,000  against the credit line. HCRC's
borrowing  base  is  further  reduced  by  an  outstanding  contract  settlement
obligation  of  $1,015,000  and  borrowings  of  $1,000,000  made  subsequent to
September 30, 1997;  therefore,  HCRC's unused borrowing base totaled $3,485,000
at October 31, 1997.

Borrowings against the credit line bear interest,  at the option of the Company,
at either (i) the banks' Certificate of Deposit rate plus from 1.375% to 1.875%,
(ii) the  Euro-Dollar  rate plus from  1.25% to 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%.  The  applicable  interest  rate  was 7.2% at
September  30,  1997.  Interest  is payable at least  quarterly,  and  quarterly
principal  payments of $1,187,500,  as adjusted for the $1,000,000 in borrowings
made  subsequent  to  September  30, 1997,  commence  May 31,  1999.  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.




<PAGE>


NOTE 4 -  STOCK SPLIT

During July 1997, the stockholders of HCRC approved an increase in the number of
authorized  shares of its Common Stock from 2,000,000 to  10,000,000.  HCRC also
declared a three-for-one  split of its outstanding Common Stock. The stock split
was effected by issuing,  as a stock dividend,  two additional  shares of Common
Stock for each share  outstanding.  The stock  dividend was paid on August 11 to
shareholders  of record on August 4. After the stock split,  HCRC has  2,977,542
shares of Common Stock outstanding. All share and per share information has been
restated to reflect the three-for-one stock split.


NOTE 5 -  STATEMENTS OF CASH FLOWS

Cash paid for interest  during the nine months ended September 30, 1997 and 1996
was $1,080,000 and $980,000, respectively. Cash paid for income taxes during the
nine  months  ended  September  30,  1997  and 1996 was  $725,000  and  $59,000,
respectively.


NOTE 6 -  STOCK OPTION PLAN

During the second  quarter of 1997,  the  Company  adopted a stock  option  plan
covering  159,000  shares of Common  Stock and  granted  options  for all of the
shares under the plan. The terms of this plan are generally  consistent with the
terms of the Company=s existing 1995 Stock Option Plan. The options were granted
effective  June 17,  1997 at an  exercise  price of $20.33 per share,  which was
equal to the fair  market  value of the  Common  Stock on the day of grant.  The
options  expire on June 17,  2007,  unless  sooner  terminated  pursuant  to the
provisions of the plan. The options are exercisable  one-third on June 17, 1997,
an additional  one-third June 17, 1998, and the remaining  one-third on June 17,
1999.


NOTE 7 -  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.
(AHCP@) 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.


NOTE 8 -  SUBSEQUENT EVENT

The Company has reached an agreement in principle to sell $25 million  principal
amount of 10.32% Senior Subordinated Notes due 2007 to a financial  institution.
The  transaction is subject to  negotiation  of definitive  documents and to the
satisfaction of certain other conditions.



<PAGE>


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

Liquidity and Capital Resources

Cash Flow

The Company generated  $9,543,000 of cash flow from operating  activities during
the first nine months of 1997.  The other primary cash inflow was  $1,000,000 in
proceeds  from  long-term  debt and  $858,000  in  distributions  received  from
affiliates.  Cash was primarily  used for additions to property and  exploration
and  development   costs  of  $8,666,000  and  payments  on  long-term  debt  of
$3,000,000.  This resulted in a decrease in the  Company's  cash of $256,000 for
the nine months ended  September 30, 1997, from $628,000 at December 31, 1996 to
$372,000 at September 30, 1997.

Development Projects and Acquisitions

Through  September  30,  1997,  HCRC  incurred   approximately   $8,666,000  for
exploration, development and acquisition costs toward the 1997 capital budget of
$15,500,000.  The expenditures  were comprised of  approximately  $6,538,000 for
exploration   and  development   and   approximately   $2,128,000  for  property
acquisitions.  As  of  September  30,  1997,  HCRC's  reserve  replacement  from
extensions,   purchases  and  revisions   totals  100%  of  its  estimated  1997
production.

HCRC's 1997 capital  budget is primarily  allocated  to the  following  regions:
Permian/Delaware Basins, Gulf Coast Region, Rocky Mountain Region, Mid-Continent
Region and other areas.  A description  of HCRC's  significant  exploration  and
development projects through the third quarter 1997 follows.

Permian/Delaware Basins

HCRC has allocated 42% (approximately  $6,450,000) of its 1997 capital budget to
the  Permian/Delaware  Basins  located in West Texas and  Southeast  New Mexico.
Through  the end of the  third  quarter,  HCRC  spent  approximately  $3,025,000
drilling 19 development  wells and 16 exploration  wells, and on the acquisition
of undeveloped  acreage and geological and  geophysical  data. Of the wells that
were  drilled,  25 (71%) are a success.  During the last  quarter of 1997,  HCRC
plans to drill 18  additional  development  wells and 14  exploration  wells.  A
discussion of several of the larger projects within the Basins follows.

HCRC  spent  approximately  $45,000  successfully  recompleting  two  wells  and
drilling  two  unsuccessful  exploration  wells in the Catclaw Draw area in Eddy
County,  New  Mexico.  HCRC has a 5% working  interest in the wells and plans to
workover one well in the fourth quarter of 1997.

The  Company's  nonoperated  interest in the Merkel  Project  includes 10 square
miles of  proprietary  3-D  seismic  data in Jones,  Taylor and Nolan  Counties,
Texas.  HCRC  began its  involvement  in this  area in 1995 with the  successful
completion  of one well.  In 1996,  HCRC  participated  in the drilling of eight
additional  wells,  seven of which were successful.  In 1997, HCRC continued its
participation  with the drilling of three development and two exploration wells.
Four of these wells are a success.  HCRC plans to participate in the drilling of
three more  exploration  wells  during the fourth  quarter of 1997 and has seven
additional  future  potential  locations.  HCRC's  1997 costs for the area total
approximately  $150,000.  HCRC owns an average  12.5%  working  interest in this
area.

Based on the success in the nonoperated Merkel area, HCRC acquired 74 additional
square miles of proprietary 3-D seismic data adjacent to the  nonoperated  area.
HCRC owns an average 30% working  interest in the area, and HPI is the operator.
HCRC has drilled four successful and three unsuccessful exploration wells in the
area.  Four  exploration  wells are  scheduled  to be drilled  during the fourth
quarter of 1997 and 22 potential  locations  exist for drilling in 1998.  HCRC's
1997 costs for drilling and acreage in the area are approximately $500,000.


<PAGE>


HCRC purchased an interest in proprietary 3-D seismic data and selected  acreage
within  an 85  square  mile  area,  referred  to as  the  Griffin  Project,  for
approximately  $460,000. HCRC has developed a number of prospects in the Griffin
Project which it plans to pursue in the fourth quarter of 1997 and future years.
Through  the  third  quarter,  HCRC  has  drilled  two  exploratory  wells,  for
approximately  $420,000  one of which is  successful.  HCRC  plans to drill  two
exploration  wells during the  remainder  of 1997 and will develop  future plans
based on the  results  of those  wells.  HCRC owns an  approximate  25%  working
interest in the area.

HCRC spent approximately  $260,000 in 1997 to drill four successful  development
wells in the Spraberry  area of West Texas.  In July,  HCRC acquired  additional
interests in 34 of its existing wells at a cost of approximately  $510,000. HCRC
plans to drill eight additional development wells in the fourth quarter of 1997.
HCRC owns an approximate 15% working interest in the wells.

HCRC is active in the East Keystone project in Winkler County, Texas. During the
first nine months of 1997, HCRC  successfully  drilled two and recompleted eight
development  wells (100%  success) for a cost of  approximately  $205,000.  HCRC
plans to drill two and recomplete three  development  wells during the remainder
of 1997 and to initiate  pilot  secondary  recovery  operations.  HCRC has a 15%
working interest in the wells.

In 1996,  HCRC acquired 106 square miles of 3-D seismic data on the Cowden Ranch
in Crane  County,  Texas.  In early 1997, an  exploratory  well was drilled at a
total cost of approximately  $230,000.  This well and two previous wells drilled
in 1996 were dry, and HCRC does not plan to continue exploration in this area.

In 1996,  HCRC  became  active in the Garden  City/Mills  project  in  Glasscock
County,  Texas.  This project included the  interpretation of 66 square miles of
nonproprietary  3-D seismic data and the drilling of one successful  exploratory
well prior to the end of 1996. In the first nine months of 1997,  HCRC drilled a
second  successful   delineation  well.  HCRC's  costs  incurred  to  drill  one
successful  exploration  well  through  September  30, 1997,  are  approximately
$225,000.  HCRC will attempt to drill one additional exploration well during the
remainder of 1997 and future plans will be developed based on the results of the
exploration wells. HCRC's working interest in the well is 25%.

Also in the fourth quarter of 1997, HCRC plans to drill one and recomplete three
development wells in the Carlsbad area in Lea County, New Mexico. HCRC has a 35%
working interest.

Rocky Mountain Region

HCRC has allocated  approximately  14%  (approximately  $2,150,000)  of its 1997
capital budget to the Rocky Mountain Region located in Colorado,  Montana, North
Dakota,  Northwest  New Mexico and Wyoming.  Through the third  quarter of 1997,
HCRC spent  approximately  $835,000 drilling seven development  wells,  drilling
four exploration wells, and acquiring  geological and geophysical data and land.
Three of the wells are a success,  and HCRC plans to drill an  additional  three
development  wells and two exploration  wells in this region in the last quarter
of 1997. A discussion of major projects within the region follows.

In the San Juan Basin in LaPlata  County,  Colorado and Rio Arriba  County,  New
Mexico,  HCRC has an interest in a special  purpose entity owned by a large east
cost financial  institution that has an interest in 34 wells.  Through September
30, 1997,  four successful  recompletions  were performed on these wells and two
additional development wells are planned to be recompleted in the fourth quarter
of 1997.  This work and other  activity  in the San Juan  region is  expected to
yield significant upward reserve revisions.

In the Lone Tree area of  Montana,  HCRC  recompleted  two  development  and two
exploration  wells during the first nine months of 1997. One development and one
exploration  well are successful.  Total 1997 costs for the Montana project were
approximately  $75,000. HCRC plans to redrill one exploration well in the fourth
quarter 1997.

HCRC  also  purchased  a  12.5%   interest  in  the  Hudson  Ranch  project,   a
multi-objective  exploration  project generated from  approximately 120 miles of
2-D   proprietary   seismic  data.   HCRC's  1997  costs  for  the  project  are
approximately  $325,000.  A 3-D seismic data acquisition program is underway and
exploratory drilling is anticipated to begin in 1998.



<PAGE>


Gulf Coast Region

HCRC's 1997 capital budget allocation for the Gulf Coast Region in Louisiana and
Texas is  approximately  10%  (approximately  $1,525,000).  In 1997,  HCRC spent
approximately   $1,060,000   drilling  one  development   well,   drilling  four
exploration wells and acquiring acreage.  Two of the wells are successful.  HCRC
plans to  directionally  drill one 10,000 foot exploration well in the Bigeneria
Humblei  formation  from the shore to a bottom hole location under the waters of
the Gulf of Mexico.  The well is  planned  to be spud in the  fourth  quarter of
1997. HCRC owns a 12.5% working interest.

In 1997,  HCRC  spent  approximately  $220,000  for tubing  repairs,  additional
perforations,  workovers, and miscellaneous maintenance costs in this area. HCRC
also  spent  approximately  $630,000  in the first  nine  months of 1997 for two
exploration wells in Louisiana which were unsuccessful.

Mid-Continent and Other Areas

HCRC's 1997 capital budget allocated to all other areas is approximately  35% of
the  total  budget  (approximately  $5,375,000).  To  date,  HCRC  has  incurred
approximately  $640,000  on  nine  successful  development  projects  and  three
unsuccessful exploration wells. HCRC plans to drill two development well and six
exploration wells during the fourth quarter of 1997.

HCRC is participating in an exploration prospect in Carter County, Oklahoma. The
project is a 19,000 feet deep  multi-formation  structural test. In 1997, HCRC's
cost is approximately $245,000 for its 5% interest in the well.

In September 1997,  HCRC and an  unaffiliated  partner were awarded a deep-water
exploration  block offshore of northern Peru.  HCRC has a 7.5% working  interest
and its  partner  is  proceeding  with a 1,200 mile  seismic  program to further
evaluate the project.  HCRC's partner,  major oil company, is the operator,  and
HCRC has a carried interest until drilling begins.

Projects  begun in the  fourth  quarter  of 1996 have  cost  HCRC  approximately
$570,000  through the third quarter of 1997. The additional  costs are comprised
primarily of approximately  $200,000 for two unsuccessful  exploratory  wells in
the Gulf Coast Region and in the Permian/Delaware Basins.

As a result  of  environmental  and  title  problems,  HCRC has  terminated  its
previously  disclosed  agreement to acquire for $9.8 million  properties located
principally in Texas.  The seller of the properties is disputing HCRC's right to
terminate  the   agreement  and  has  demanded  that  the  parties   proceed  to
arbitration.

Financing

During the  second  quarter  of 1997,  the  Company  and its banks  amended  and
restated the Company's  Credit  Agreement to extend the maturity date to May 31,
1999.  The borrowing base is $22,500,000 as of October 31, 1997. As of September
30, 1997, the Company had borrowed  $18,000,000  against the credit line. HCRC's
borrowing  base  is  further  reduced  by  an  outstanding  contract  settlement
obligation  of  $1,015,000  and  borrowings  of  $1,000,000  made  subsequent to
September 30, 1997;  therefore,  its unused borrowing base totaled $3,485,000 at
October 31, 1997.

Borrowings against the credit line bear interest,  at the option of the Company,
at either (i) the banks' Certificate of Deposit rate plus from 1.375% to 1.875%,
(ii) the  Euro-Dollar  rate plus from  1.25% to 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%.  The  applicable  interest  rate  was 7.2% at
September  30,  1997.  Interest  is payable at least  quarterly,  and  quarterly
principal  payments of $1,187,500,  as adjusted for the $1,000,000 in borrowings
made  subsequent  to  September  30, 1997,  commence  May 31,  1999.  The credit
facility  is  secured  by a first  lien on  approximately  80% in  value  of the
Company's oil and gas properties.



<PAGE>


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 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 third 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>                 <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
Second quarter 1997                17.85               17.88                  1.91                1.87
Third quarter 1997                 18.20               18.31                  2.09                1.96
</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  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  tables provide a summary of the Company's  outstanding  financial
contracts:


                                                    Oil

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



Last three months of 1997                   45%                 $17.88
1998                                        15%                  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  30% 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.


                                                    Gas

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



Last three months of 1997                   39%                  $1.89
1998                                        35%                   1.91
1999                                        22%                   1.67
2000                                        11%                   1.86




<PAGE>


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 fourth quarter  through  October 31, 1997,  the weighted  average oil
price (for  barrels  not  hedged)  was  approximately  $20.20 per barrel and the
weighted  average  price of natural gas (for mcf not  hedged) was  approximately
$3.15 per mcf.

Inflation

Inflation  did not have a  material  impact  on the  Company  in 1996 and 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.





<PAGE>
<TABLE>
<CAPTION>


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



                                       For the Quarter Ended September 30, 1997        For the Quarter Ended September 30, 1996
                                       ----------------------------------------        ----------------------------------------

                                            Direct                                     Direct
                                            Owned        HEP         Total             Owned               HEP        Total



<S>                                        <C>         <C>          <C>              <C>                <C>          <C> 
Oil production (bbl)                           145         34           179              164                37           201 
Gas production (mcf)                         1,500         523        2,023             1,618              527         2,145


Average oil price (per bbl)                  $ 18.33     $ 18.21     $ 18.31          $ 20.37            $ 20.70      $ 20.43
Average gas price (per mcf)                 $   1.92    $   2.08    $   1.96         $   1.86           $   2.18     $   1.94



Oil revenue                                  $ 2,658    $    619     $ 3,277          $ 3,341           $    766      $ 4,107
Gas revenue                                    2,886       1,087       3,973            3,012              1,151        4,163
Pipeline and other                               143          89         232              166                111          277
Contract settlement                                6                       6               14                              14
Interest income                                    5          12          17               11                 22           33
                                              ------      ------       -----            -----              -----         ----
       Total revenue                           5,698       1,807       7,505            6,544              2,050        8,594
                                               -----       -----       -----            -----              -----        -----

Production operating                           2,034         542       2,576            1,963                508        2,471
General and administrative                       619         180         799              760                233          993
Interest                                         372         134         506              417                177          594
Depreciation, depletion and amortization       1,586         685       2,271            1,767                509        2,276
                                               -----         ---       -----            -----                ---        -----
       Total expense                           4,611       1,541       6,152            4,907              1,427        6,334
                                               -----       -----       -----            -----              -----        -----

Income before income taxes                     1,087         266       1,353            1,637                623        2,260
                                               -----         ---       -----            -----                ---        -----

Provision (benefit) for income taxes:
    Current                                      528                     528               47                              47
    Deferred                                    (100)                   (100)
                                                ----                    ----              ---                             ----
                                                 428                     428               47                              47
                                                 ---                     ---               --                              --


       Net income                           $    659    $    266   $     925          $ 1,590           $    623      $ 2,213
                                             =======     =======    ========           ======            =======       ======
</TABLE>



<PAGE>
<TABLE>
<CAPTION>


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


                                     For the Nine Months Ended September 30, 1997     For the Nine Months Ended September 30, 1996
                                     --------------------------------------------    --------------------------------------------

                                           Direct                                         Direct
                                           Owned          HEP         Total               Owned          HEP          Total


<S>                                         <C>           <C>         <C>                  <C>          <C>           <C>
Oil production (bbl)                           433           102         535                  512          130           642
Gas production (mcf)                         4,336         1,465       5,801                4,655        1,641         6,296


Average oil price (per bbl)               $  18.92      $  19.10    $  18.96             $  19.60     $  19.40      $  19.56
Average gas price (per mcf)              $    2.06     $    2.17   $    2.09            $    1.83    $    2.09     $    1.90


Oil revenue                               $  8,194      $  1,948     $10,142              $10,038     $  2,522       $12,560
Gas revenue                                  8,930         3,177      12,107                8,503        3,434        11,937
Pipeline and other                             837           423       1,260                  610          373           983
Contract settlement                             21                        21                   35                         35
Interest income                                 76            58         134                   17           59            76
                                              -----         -----       -----               ------        -----       -------
       Total revenue                         18,058         5,606      23,664               19,203        6,388        25,591
                                             ------         -----      ------               ------        -----        ------

Production operating                          5,952         1,571       7,523                6,098        1,603         7,701
General and administrative                    1,994           590       2,584                2,047          567         2,614
Interest                                      1,232           436       1,668                1,364          574         1,938
Depreciation, depletion and amortization      4,826         1,446       6,272                5,467        1,716         7,183
Other                                                                                           68           46           114
                                             ------        ------       -----                -----        -----         -----
       Total expense                         14,004         4,043      18,047               15,044        4,506        19,550
                                             ------         -----      ------               ------        -----        ------

Income before income taxes                    4,054         1,563       5,617                4,159        1,882         6,041
                                              -----         -----       -----                -----        -----         -----

Provision (benefit) for income taxes:
    Current                                     675                       675                  115                         115
    Deferred                                   (100)                     (100)
                                               ----                      ----                 ----                        ----
                                                575                       575                  115                         115
                                                ---                       ---                 ----                         ---

       Net income                          $  3,479      $  1,563    $  5,042             $  4,044     $  1,882      $  5,926
                                            =======       =======     =======              =======      =======       =======

</TABLE>

<PAGE>


Third Quarter of 1997 Compared to Third Quarter of 1996

Oil Revenue

Oil revenue decreased $830,000 during the third quarter of 1997 as compared with
the third quarter of 1996. The decrease in revenue is comprised of a decrease in
oil  production  from 201,000  barrels in 1996 to 179,000  barrels in 1997 and a
decrease  in the  average oil price from $20.43 per barrel in 1996 to $18.31 per
barrel in 1997. The decrease in production is primarily due to normal production
declines.  Because the  Company's  hedged oil prices  were  higher than  average
posted prices in the third quarter of 1997, the effect of hedging  transactions,
as described above, was to increase the Company's  average oil price from $18.20
per barrel to $18.31 per barrel, resulting in a $20,000 increase in revenue.

Gas Revenue

Gas revenue decreased $190,000 during the third quarter of 1997 as compared with
the third  quarter of 1996.  The  decrease  is  comprised  of a decrease  in gas
production from 2,145,000 mcf in 1996 to 2,023,000 mcf in 1997, partially offset
by an increase in price from $1.94 per mcf in 1996 to $1.96 per mcf in 1997. The
decrease in  production  is primarily  due to normal  production  declines.  The
effect of the Company's hedging activity during the third quarter of 1997 was to
decrease  the  Company's  average gas price from $2.09 per mcf to $1.96 per mcf,
resulting in a $263,000 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  $45,000 during the
third  quarter  of 1997 as  compared  with  the  third  quarter  of 1996  due to
fluctuations in numerous  miscellaneous  items,  none of which are  individually
significant.

Interest Income

Interest income  decreased  $16,000 during the third quarter of 1997 as compared
with the third quarter of 1996 due to a lower average cash balance during 1997.

Production Operating Expense

Production operating expense increased $105,000 during the third quarter of 1997
as compared with the third  quarter of 1996,  primarily as a result of increased
maintenance activity.

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 decreased  $194,000 during the third quarter
of 1997 as compared with the third quarter of 1996,  due to a timing  difference
in the payment of consulting expenses.

Interest Expense

Interest expense  decreased $88,000 during the third quarter of 1997 as compared
with the third quarter of 1996 due to lower outstanding debt during 1997.



<PAGE>


First Nine months 1997 Compared to the First Nine months 1996

The  comparisons  for the first nine months of 1997 and the first nine months of
1996 are consistent  with those  discussed in the third quarter 1997 compared to
the third quarter 1996 except for the following:

Oil Revenue

Oil  revenue  decreased  $2,418,000  during  the  first  nine  months of 1997 as
compared  with the first nine months of 1996.  The  decrease is  comprised  of a
decrease in production  from 642,000 barrels in 1996 to 535,000 barrels in 1997,
combined with a decrease in the average oil price from $19.56 per barrel in 1996
to $18.96 per barrel in 1997. The majority of the production  decrease is due to
the  temporary  shut-in of two wells in Louisiana  during the second  quarter of
1997 while workover procedures were performed, and the remainder of the decrease
in production is due to normal production declines.

The effect of HCRC=s  hedging  transactions  was to decrease  HCRC=s average oil
price  from  $19.30 per barrel to $18.96  per  barrel,  representing  a $182,000
decrease in revenues.

Gas Revenue

Gas revenue increased  $170,000 during the first nine months of 1997 as compared
with the first nine months of 1996.  The increase is comprised of an increase in
the average price from $1.90 per mcf in 1996 to $2.09 per mcf in 1997, partially
offset by a decrease in production  from  6,296,000 mcf in 1996 to 5,801,000 mcf
in 1997. The majority of the production decrease is due to the temporary shut-in
of two wells in  Louisiana  during  the second  quarter  of 1997 while  workover
procedures  were  performed,  and the remainder of the decrease in production is
due to normal production declines.

The effect of HCRC=s  hedging  transactions  was to decrease  HCRC=s average gas
price from $2.27 per mcf to $2.09 per mcf,  representing a $1,044,000  reduction
in revenue from hedging transactions.

Pipeline and Other

Pipeline and other  income  increased  $277,000  during the first nine months of
1997 as compared with the same period during 1996. The increase is primarily due
to the receipt of insurance  proceeds  during the second quarter of 1997,  which
reimbursed  a portion of expense  incurred in a prior  period to settle  certain
litigation.

Interest Income

Interest  income  increased  $58,000  during  the first  nine  months of 1997 as
compared with the  corresponding  period  during 1996  primarily due to a higher
average interest rate during 1997.

Production Operating Expense

Production  operating expense decreased $178,000 during the first nine months of
1997 as compared  with the same period  during  1996,  primarily  as a result of
decreased  production taxes and operating expenses due to the decline in oil and
gas production previously discussed.

Depreciation, Depletion and Amortization

Depreciation,  depletion and amortization  expense decreased $911,000 during the
first nine months of 1997 as compared with the same period during 1996, due to a
lower  depletion  rate  caused  by the  decrease  in  production  as  previously
discussed.


<PAGE>


Other

Other  expense  during the first nine  months of 1996 is  comprised  of numerous
miscellaneous items, none of which is individually significant.


<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 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


ITEM 5  - OTHER INFORMATION

              None.


ITEM 6  - EXHIBITS AND REPORTS ON FORM 8-K

              Exhibits

             10.15  1997 Stock Option Plan Loan Program

             10.16 Amended No. 1 to Second Amended and Restated Credit Agreement
                   dated as of October 31, 1997


<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 14, 1997                  By: Robert S. Pfeiffer
                                              Robert S. Pfeiffer, Vice President
                                                 (Chief Financial Officer)