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

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

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO
------------------ ------------------

FOR THE PERIOD ENDED MARCH 31, 2000 COMMISSION FILE NUMBER: 1-8303

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

THE HALLWOOD GROUP INCORPORATED
(Exact name of registrant as specified in its charter)

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

DELAWARE 51-0261339
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)

3710 RAWLINS, SUITE 1500
DALLAS, TEXAS 75219
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (214) 528-5588

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
--- ---

1,424,789 shares of Common Stock, $.10 par value per share, were
outstanding at April 30, 2000.

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

THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES

TABLE OF CONTENTS

ITEM NO. PART I - FINANCIAL INFORMATION PAGE
-------- ------------------------------ ----

1 Financial Statements (Unaudited):

Consolidated Balance Sheets as of March 31, 2000
and December 31, 1999.................................................. 3-4

Consolidated Statements of Income for the
Three Months Ended March 31, 2000 and 1999............................. 5-6

Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2000 and 1999............................. 7

Notes to Consolidated Financial Statements................................. 8-15

2 Managements's Discussion and Analysis of
Financial Condition and Results of Operations.............................. 16-20

3 Quantitative and Qualitative Disclosures about Market Risk..................... 21

PART II - OTHER INFORMATION

1 thru 6 Exhibits, Reports on Form 8-K and Signature Page............................... 22-23

Page 2

THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)

ASSETS

MARCH 31, DECEMBER 31,
2000 1999
------------ ------------

ASSET MANAGEMENT
REAL ESTATE
Investments in HRP ........................ $ 8,338 $ 8,232
Receivables and other assets
Related parties ........................ 1,768 1,698
Other .................................. 133 229
------------ ------------
10,239 10,159

ENERGY
Investment in Hallwood Energy ............. 5,294 4,927
------------ ------------

Total asset management assets .......... 15,533 15,086

OPERATING SUBSIDIARIES
TEXTILE PRODUCTS
Inventories ............................... 18,839 18,782
Receivables ............................... 14,479 12,630
Property, plant and equipment, net ........ 9,367 8,997
Other ..................................... 1,865 867
------------ ------------
44,550 41,276
HOTELS
Properties, net ........................... 31,093 31,509
Receivables and other assets .............. 2,360 2,026
------------ ------------
33,453 33,535
------------ ------------
Total operating subsidiaries assets .... 78,003 74,811

OTHER
Deferred tax asset, net ................... 7,051 7,221
Restricted cash ........................... 1,704 1,883
Other ..................................... 1,675 1,791
Cash and cash equivalents ................. 1,066 926
------------ ------------

Total other assets ..................... 11,496 11,821
------------ ------------

TOTAL .................................. $ 105,032 $ 101,718
============ ============

See accompanying notes to consolidated financial statements.

Page 3

THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)

LIABILITIES AND STOCKHOLDERS' EQUITY

MARCH 31, DECEMBER 31,
2000 1999
------------ ------------

ASSET MANAGEMENT
REAL ESTATE
Accounts payable and accrued expenses ............................... $ 596 $ 707

ENERGY
Accounts payable and accrued expenses ............................... -- 465
------------ ------------

Total asset management liabilities ............................... 596 1,172

OPERATING SUBSIDIARIES
TEXTILE PRODUCTS
Loans payable ....................................................... 12,347 11,545
Accounts payable and accrued expenses ............................... 10,347 8,506
------------ ------------
22,694 20,051
HOTELS
Loans payable ....................................................... 31,701 31,918
Accounts payable and accrued expenses ............................... 2,288 2,021
------------ ------------
33,989 33,939
------------ ------------

Total operating subsidiaries liabilities ......................... 56,683 53,990

OTHER
Senior Secured Term Loan ............................................ 17,296 18,000
10% Collateralized Subordinated Debentures .......................... 6,758 6,768
Interest and other accrued expenses ................................. 3,814 3,730
Convertible loan from shareholder ................................... 1,500 --
------------ ------------
Total other liabilities .......................................... 29,368 28,498
------------ ------------

TOTAL LIABILITIES ................................................ 86,647 83,660

REDEEMABLE PREFERRED STOCK
Series B, 250,000 shares issued and outstanding ..................... 1,000 1,000

STOCKHOLDERS' EQUITY
Preferred stock, 250,000 shares issued and outstanding as Series B .. -- --
Common stock, issued 2,396,149 shares at both dates;
outstanding 1,424,789 shares at both dates ....................... 240 240
Additional paid-in capital .......................................... 54,743 54,743
Accumulated deficit ................................................. (22,680) (23,007)
Treasury stock, 971,360 shares at both dates; at cost ............... (14,918) (14,918)
------------ ------------

TOTAL STOCKHOLDERS' EQUITY ....................................... 17,385 17,058
------------ ------------

TOTAL ............................................................ $ 105,032 $ 101,718
============ ============

See accompanying notes to consolidated financial statements.

Page 4

THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

THREE MONTHS ENDED
MARCH 31,
-------------------------
2000 1999
---------- ----------

ASSET MANAGEMENT
REAL ESTATE
Fees
Related parties .................................. $ 1,398 $ 1,028
Other ............................................ 106 236
Equity income from investments in HRP ............... 274 388
---------- ----------
1,778 1,652

Administrative expenses ............................. 364 518
Depreciation and amortization ....................... 168 168
---------- ----------
532 686
---------- ----------
Income from real estate operations ............... 1,246 966

ENERGY
Equity income from investment in Hallwood Energy .... 682 --
Gas revenues ........................................ -- 894
Oil revenues ........................................ -- 318
Other income ........................................ -- 95
---------- ----------
682 1,307

Operating expenses .................................. -- 527
Depreciation, depletion and amortization ............ -- 511
Administrative expenses ............................. -- 335
Interest ............................................ -- 121
---------- ----------
-- 1,494
---------- ----------
Income (loss) from energy operations ............. 682 (187)
---------- ----------

Income from asset management operations .......... 1,928 779

OPERATING SUBSIDIARIES
TEXTILE PRODUCTS
Sales ............................................... 20,024 21,858

Cost of sales ....................................... 16,844 19,008
Administrative and selling expenses ................. 2,370 2,299
Interest ............................................ 262 222
---------- ----------
19,476 21,529
---------- ----------
Income from textile products operations .......... 548 329

See accompanying notes to consolidated financial statements.

Page 5

THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

THREE MONTHS ENDED
MARCH 31,
--------------------------
OPERATING SUBSIDIARIES (CONTINUED) 2000 1999
---------- ----------

HOTELS
Sales ................................................. $ 5,032 $ 6,455

Operating expenses .................................... 4,254 5,037
Depreciation and amortization ......................... 725 724
Interest .............................................. 712 610
---------- ----------
5,691 6,371
---------- ----------
Income (loss) from hotel operations ................ (659) 84
---------- ----------

Income (loss) from operating subsidiaries .......... (111) 413

OTHER
Interest on short-term investments and other income ... 7 6
Fee income from related parties ....................... -- 137
---------- ----------
7 143

Interest .............................................. 778 296
Administrative expenses ............................... 469 523
---------- ----------

1,247 819
---------- ----------

Other loss, net .................................... (1,240) (676)
---------- ----------

Income before income taxes ............................ 577 516
Income taxes .......................................... 250 11
---------- ----------

NET INCOME ................................................... $ 327 $ 505
========== ==========

PER COMMON SHARE
Basic
Net income ............................................ $ 0.23 $ 0.27
========== ==========

Assuming Dilution
Net income ............................................ $ 0.23 $ 0.26
========== ==========

WEIGHTED AVERAGE SHARES OUTSTANDING
Basic .................................................... 1,425 1,883
========== ==========

Assuming Dilution ........................................ 1,437 1,910
========== ==========

See accompanying notes to consolidated financial statements.

Page 6

THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)

THREE MONTHS ENDED
MARCH 31,
--------------------------
2000 1999
---------- ----------

CASH FLOWS FROM OPERATING ACTIVITIES
Net income .............................................................. $ 327 $ 505
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation, depletion and amortization ............................. 1,202 1,719
Equity in net income of Hallwood Energy .............................. (682) --
Equity in net income of HRP .......................................... (274) (388)
Decrease in deferred tax asset ....................................... 170 --
Preferred dividends from Hallwood Energy ............................. 11 --
Amortization of deferred gain from debenture exchanges ............... (10) (109)
Undistributed income from HEP ........................................ -- (546)
Distributions from HEP ............................................... -- 511
Net change in textile products assets and liabilities ................ 71 (3,575)
Net change in other assets and liabilities ........................... 48 30
Net change in energy assets and liabilities .......................... -- 128
---------- ----------

Net cash provided by (used in) operating activities ............... 863 (1,725)

CASH FLOWS FROM INVESTING ACTIVITIES
Payments for textile products business acquisition ...................... (1,479) --
Investments in textile products property and equipment .................. (334) (531)
Purchase of minority shares in HEC ...................................... (465) --
Capital expenditures for hotels ......................................... (308) (296)
Proceeds from sale of Hallwood Energy preferred stock ................... 303 --
Net change in restricted cash for investing activities .................. 179 (138)
Investments in energy property and equipment ............................ -- (4)
---------- ----------

Net cash used in investing activities ............................. (2,104) (969)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank borrowings and loans payable ......................... 2,302 3,500
Repayment of bank borrowings and loans payable .......................... (921) (532)
---------- ----------

Net cash provided by financing activities ........................ 1,381 2,968
---------- ----------

NET INCREASE IN CASH AND CASH EQUIVALENTS ................................... 140 274

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD .............................. 926 769
---------- ----------

CASH AND CASH EQUIVALENTS, END OF PERIOD .................................... $ 1,066 $ 1,043
========== ==========

See accompanying notes to consolidated financial statements.

Page 7

THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(UNAUDITED)

1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS AND ACCOUNTING POLICIES

Interim Consolidated Financial Statements. The consolidated financial
statements of The Hallwood Group Incorporated (the "Company") have been
prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and disclosures required by accounting
principles generally accepted in the United States of America, although, in
the opinion of management, all adjustments considered necessary for a fair
presentation have been included. These financial statements should be read
in conjunction with the audited consolidated financial statements and
related disclosures thereto included in Form 10-K for the year ended
December 31, 1999.

Comprehensive Income. The Company had no items of other comprehensive
income in the periods presented.

New Accounting Pronouncements. Statement of Financial Accounting
Standards No. 133 "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS No. 133") was issued in June 1998. The original
effective date for periods beginning after June 15, 1999 has been extended
one year to June 15, 2000, accordingly the Company will be required to
adopt SFAS No. 133 on January 1, 2001. The Company is not planning on early
adoption, and has not had an opportunity to evaluate the impact of the
provisions on its consolidated financial statements relating to future
adoption.

2. INVESTMENTS IN REAL ESTATE AFFILIATE (DOLLAR AMOUNTS IN THOUSANDS)

AS OF MARCH 31, 2000 AMOUNT AT INCOME FROM INVESTMENTS
---------------------- WHICH CARRIED AT FOR THE THREE MONTHS ENDED
COST OR -------------------------- MARCH 31,
NUMBER OF ASCRIBED MARCH 31, DECEMBER 31, ---------------------------
DESCRIPTION OF INVESTMENT UNITS VALUE 2000 1999 2000 1999
- ------------------------- --------- -------- --------- ------------ ------------ ------------

HALLWOOD REALTY PARTNERS, L.P.
- General partner interest ............. -- $ 8,650 $ 3,092 $ 3,243 $ 18 $ 14
- Limited partner interest ............. 330,432 4,302 5,246 4,989 256 374
-------- --------- ------------ ------------ ------------

Totals .............................. $ 12,952 $ 8,338 $ 8,232 $ 274 $ 388
======== ========= ============ ============ ============

At March 31, 2000, Hallwood Realty, LLC ("Hallwood Realty") and HWG,
LLC, wholly owned subsidiaries of the Company, owned a 1% general
partner interest and a 20% limited partner interest in its Hallwood
Realty Partners, L.P. ("HRP") affiliate, respectively. The Company
accounts for its investment in HRP using the equity method of
accounting. In addition to recording its share of HRP's net income, the
Company also records non-cash adjustments for the elimination of
intercompany profits with a corresponding adjustment to equity income,
its pro-rata share of HRP's capital transactions with corresponding
adjustments to additional paid-in capital and amortization of the
amount that the Company's share of the underlying equity in net assets
of HRP exceeded its investment, on the straight-line basis over 19
years. The cumulative amount of such adjustments from the original date
of investment through March 31, 2000, resulted in a $1,051,000 decrease
in the carrying value of the HRP investment.

The carrying value of the Company's general partner interest of HRP
includes the value of intangible rights to provide asset management and
property management services. The Company amortizes that portion of the
general partner interest ascribed to the management rights. For the
three months ended March 31, 2000 and 1999 such amortization was
$168,000 in each period.

The Company has pledged 300,397 HRP limited partner units to
collateralize the Senior Secured Term Loan and 30,035 units to secure
hotel capital leases.

The quoted market price and the Company's carrying value per limited
partner unit (AMEX symbol HRY) at March 31, 2000 were $48.00 and
$15.87, respectively. The general partner interest is not publicly
traded.

Page 8

THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(UNAUDITED)

3. INVESTMENTS IN ENERGY AFFILIATE (DOLLAR AMOUNTS IN THOUSANDS)

HALLWOOD ENERGY CORPORATION
- Common stock.................. 1,440,000 $ 4,318 $ 5,294 $ 4,624 $ 671 $ --
- Preferred stock............... -- -- 303 11 --
-------- --------- ------------ ------------ ------------

Totals....................... $ 4,318 $ 5,294 $ 4,927 $ 682 $ --
======== ========= ============ ============ ============

At March 31, 2000, the Company owned a 14% common stock interest in
Hallwood Energy Corporation ("Hallwood Energy"). The Company accounts
for its investment in Hallwood Energy using the equity method of
accounting, as the Company exercises significant influence over Hallwood
Energy's operational and financial policies. In addition to recording
its share of Hallwood Energy's net income available to common
stockholders, the Company also records its preferred dividends (prior to
the sale of its preferred stock), its pro-rata share of any capital
transactions and amortization of the amount that the Company's share of
the underlying equity in net assets of Hallwood Energy exceeded its
investment, at a rate which approximates the depletion rate of Hallwood
Energy's reserves.

The Company acquired its common and preferred stock ownership interests
in Hallwood Energy in June 1999 in connection with the consolidation of
its energy interests with those of its former affiliates, Hallwood
Energy Partners, L.P. ("HEP") and Hallwood Consolidated Resources
Corporation into the newly-formed Hallwood Energy. Prior to the
consolidation, the Company and its energy subsidiaries accounted for
their ownership of HEP using the proportionate consolidation method of
accounting, whereby the entities recorded their proportional share of
HEP's revenues and expenses, current assets, current liabilities,
noncurrent assets, long-term obligations and fixed assets.

In February 2000, the Company sold all of its preferred stock to
Hallwood Energy at its carrying value of $303,000.

The quoted market price and the Company's carrying value per common
share (NASDAQ symbol HECO) at March 31, 2000 were $4.37 and $3.67,
respectively

4. LITIGATION, CONTINGENCIES AND COMMITMENTS

Reference is made to Notes 9 and 18 to the consolidated financial
statements contained in Form 10-K for the year ended December 31, 1999.

Beginning in February 1997, the Company and its HRP affiliate have been
involved in two lawsuits that were brought by Gotham Partners, L.P. Trial
is currently scheduled for January 2001.

In December 1999, the Company deposited $900,000 into an escrow account
to secure the maximum amount which could be payable by the Company in a
lawsuit brought by a former promissory note holder. The litigation is in
the discovery phase and a trial date has not yet been scheduled.

In December 1999 the Company distributed certain assets and incurred a
contingent obligation, under the agreement to separate the interests of its
former president and director (the "Separation Agreement"). The contingent
obligation, which has a carrying value of $3,175,000 at March 31, 2000, is
estimated as the present value of expected payments to be made. This amount
is reported as other accrued expenses. Interest on the

Page 9

THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(UNAUDITED)

contingent obligation has been imputed at 12.75% and amounted to $103,000
for the quarter ended March 31, 2000.

5. LOANS PAYABLE

Loans payable at the balance sheet dates are detailed below by business
segment (in thousands):

MARCH 31, DECEMBER 31,
2000 1999
------------ ------------

Textile Products
Revolving credit facility, prime + .25% or
Libor + 2.25%, due December 2002 ............................. $ 11,347 $ 11,545
Acquisition credit facility, prime + .25% or
Libor + 2.50%, due December 2002 ............................. 1,000 --
Equipment credit facility, prime + .25% or
Libor + 2.50%, due December 2002 ............................. -- --
------------ ------------
12,347 11,545
Hotels
Term loan, 7.50% fixed, due October 2008 ......................... 16,925 16,968
Term loan, 7.86% fixed, due January 2008 ......................... 6,560 6,577
Term loan, 8.20% fixed, due November 2007 ........................ 5,122 5,142
Capital leases, 12.18% fixed, due December 2004 .................. 1,982 2,085
Term loan, Libor + 7.5%, due October 2005 ........................ 1,112 1,146
------------ ------------
31,701 31,918
Other
Senior Secured Term Loan, 10.25% fixed, due December 2004 ........ 17,296 18,000
Convertible loan from shareholder, 10% fixed, due March 2005 ..... 1,500 --
------------ ------------
18,796 18,000
------------ ------------
Total ........................................................ $ 62,844 $ 61,463
============ ============

Further information regarding loans payable is provided below:

Textile Products

Revolving credit facility. The Company's Brookwood subsidiary had a
revolving credit facility in an amount of up to $17,500,000, as amended,
(the "Former Credit Agreement"). Borrowings under the Former Credit
Agreement were collateralized by accounts receivable, inventory imported
under trade letters of credit, certain finished goods inventory, the
machinery and equipment of Brookwood's subsidiaries and all of the issued
and outstanding capital stock of Brookwood and its subsidiaries.

In December 1999 the Former Credit Agreement was replaced by a new
revolving credit facility in an amount up to $17,000,000 with Key Bank
National Association ("Key Credit Agreement"). Availability for direct
borrowings and letter of credit obligations under the Key Credit Agreement
are limited to the lesser of the facility amount or the borrowing base so
defined in the agreement. As of March 31, 2000, Brookwood had an additional
$4,077,000 of borrowing base availability. Borrowings are collateralized by
accounts receivable, inventory imported under trade letters of credit,
certain finished goods inventory, machinery and equipment and all of the
issued and outstanding capital stock of Brookwood and its subsidiaries. The
revolving credit facility bears interest at Brookwood's option of
one-quarter percent over prime (9.25% at March 31, 2000) or Libor plus

Page 10

THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(UNAUDITED)

2.25%. The revolving credit agreement contains covenants, which include
maintenance of certain financial ratios, restrictions on dividends and
repayment of debt or cash transfers to the parent company.

Acquisition credit facility. The Key Credit Agreement also provides for
a $2,000,000 acquisition revolving credit line. Brookwood borrowed
$1,000,000 under this line during the quarter ended March 31, 2000. This
facility bears interest at Brookwood's option of one-quarter percent over
prime (9.50% at March 31, 2000) or Libor plus 2.50%.

Equipment credit facility. The Key Credit Agreement also provides for a
$2,000,000 equipment revolving credit line. There are no borrowings under
this facility.

The outstanding balance of the combined Key Bank credit facilities at
March 31, 2000 was $12,347,000.

Hotels

Term loans. In September 1998, the Company's Hallwood Hotels - OKC,
Inc. subsidiary entered into a mortgage loan for $17,250,000,
collateralized by the Embassy Suites hotel located in Oklahoma City,
Oklahoma, to acquire the hotel, which was formerly held as a leasehold
interest. Significant terms include: (i) fixed interest rate of 7.5%; (ii)
monthly loan payments of $127,476, based upon a 25-year amortization
schedule, with a maturity date of October 2008; (iii) prepayment permitted
after November 2000, subject to yield maintenance provisions and; (iv)
various other financial and non-financial covenants. The outstanding
balance at March 31, 1999 was $16,925,000.

Concurrently, the Company's Hallwood Hotels - OKC-Mezz, Inc. subsidiary
entered into a mezzanine loan for $1,300,000 related to the purchase of the
Embassy Suites hotel. Significant terms include: (i) interest rate of Libor
plus 7.5% (13.15% at March 31, 2000); (ii) maturity date of October 2005;
and (iii) prepayment permitted at any time without penalty, upon 30-day
notice to lender. The outstanding balance at March 31, 2000 was $1,112,000.

Term loan. In December 1997, the Company's Brock Suite Greenville, Inc.
subsidiary entered into a $6,750,000 mortgage loan, collateralized by the
GuestHouse hotel located in Greenville, South Carolina, which replaced the
former term loan. Significant terms include: (i) fixed interest rate of
7.86%; (ii) monthly loan payments of $51,473, based upon 25-year
amortization schedule, with a maturity date of January 2008; (iii)
prepayment permitted after December 1999, subject to yield maintenance
provisions and (iv) various other financial and non-financial covenants.
The outstanding balance at March 31, 2000 was $6,560,000.

Term loan. In October 1997, the Company's Brock Suite Tulsa, Inc.
subsidiary entered into a new $5,280,000 mortgage loan collateralized by
the GuestHouse hotel in Tulsa, Oklahoma, which replaced the former term
loan. Significant terms include: (i) fixed interest rate of 8.20%; (ii)
monthly loan payments of $41,454, based upon 25-year amortization schedule,
with a maturity date of November 2007; (iii) prepayment permitted after
October 2001, subject to yield maintenance provisions and; (iv) various
other financial and non- financial covenants. The outstanding balance at
March 31, 2000 was $5,122,000.

Capital leases. During 1999, the Company's Brock Suite Hotels
subsidiaries entered into three separate five-year capital leasing
agreements for furniture, fixtures and building improvements at a cost of
$2,085,000 for the three GuestHouse Suites Plus properties. The lease terms
commenced January 2000 and expire in December 2004. The combined monthly
lease payment is $46,570 and the effective interest rate is 12.18%. The
outstanding balance at March 31, 2000 was $1,982,000.

Page 11

THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(UNAUDITED)

Other

Senior secured term loan. In December 1999, the Company and its HWG,
LLC subsidiary entered into an $18,000,000 credit agreement with First Bank
Texas, N.A. and other financial institutions (the "Senior Secured Term
Loan"). Proceeds were used to repay the 7% Debentures, the energy term loan
and provide working capital. The Senior Secured Term Loan bears interest at
a fixed rate of 10.25%, matures in December 2004, is fully amortizing and
requires a monthly payment of $385,000. Collateral is comprised of (i)
300,397 HRP limited partner units; (ii) 1,440,000 shares of Hallwood Energy
common stock; (iii) a senior lien on the capital stock of the Hallwood
Hotels, Inc. subsidiary; and (iv) a senior lien on the capital stock of the
Brock Suite Hotels, Inc. subsidiary. The Senior Secured Term Loan contains
various financial and non-financial covenants, including the maintenance of
certain financial ratios, and restrictions on certain new indebtedness and
the payment of dividends. The outstanding balance at March 31, 2000 was
$17,296,000.

Convertible loan from shareholder. In March 2000, the Company entered
into a new $1,500,000 loan with an entity associated with its chairman and
principal shareholder, Anthony J. Gumbiner. Significant terms include: (i)
fixed interest rate of 10%; (ii) interest and principal payments deferred
until maturity date of March 2005; (iii) unsecured ;and (iv) convertible
into common stock of the Company at a conversion price equal to $10.13 per
share, which was 115% of the market price on the date the note was approved
by the Company's independent board members.

Covenant Compliance. Management believes the Company is in compliance
with its loan covenants.

6. DEBENTURES

10% Collateralized Subordinated Debentures. In June 1998, the Company
announced a commission-free exchange offer to all holders of 7% Debentures
(discussed below). The Company offered to exchange a new issue of 10%
Collateralized Subordinated Debentures ("10% Debentures"), due July 31,
2005, for its 7% Debentures, in the ratio of $100 principal amount of 10%
Debentures for each $100 principal amount of 7% Debentures tendered. The 7%
debentureholders tendered $6,467,830, or 31%, of the outstanding principal
amount.

The 10% Debentures were listed on The New York Stock Exchange and
commenced trading in August 1998. For accounting purposes, a pro-rata
portion of the unamortized gain attributable to the 7% Debentures, in the
amount of $353,000, was allocated to the 10% Debentures, and will be
amortized over the term of the 10% Debentures using the effective interest
method. As a result, the effective interest rate for financial reporting is
8.9%.

The 10% Debentures are secured by a junior lien on the capital stock of
the Brookwood, Hallwood Hotels, Inc. and Brock Suite Hotels, Inc.
subsidiaries.

Page 12

THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(UNAUDITED)

Balance sheet amounts for the 10% Debentures are detailed below (in
thousands):

MARCH 31, DECEMBER 31,
DESCRIPTION 2000 1999
----------- ------------ ------------

10% Debentures (face amount) ............. $ 6,468 $ 6,468
Unamortized gain from exchange, net of
accumulated amortization .............. 290 300
------------ ------------

Totals ............................. $ 6,758 $ 6,768
============ ============

Redemption of 7% Debentures. On December 22, 1999, the Company
announced the full redemption (the "Redemption") of its outstanding 7%
Debentures in the amount of $14,088,000 on January 21, 2000 (the
"Redemption Date.") The redemption price was 100% of the face amount plus
accrued and unpaid interest to the Redemption Date. Funding for the
Redemption was provided by proceeds from the new Senior Secured Term Loan.
In accordance with the terms of the indenture, the funds were irrevocably
transferred to the trustee on December 21, 1999, and the obligation was
effectively extinguished and collateral released. The Redemption was
actually completed by the trustee on January 21, 2000 on which date the 7%
Debentures were retired and canceled. The Company recognized an
extraordinary gain from debt extinguishment in December 1999 of $240,000
from the Redemption, representing the remaining balance of the unrecognized
gain at that time.

Page 13

THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(UNAUDITED)

7. INCOME TAXES

The following is a summary of the income tax expense (in thousands):

THREE MONTHS ENDED
MARCH 31,
-----------------------------------
2000 1999
--------------- ---------------

Federal
Deferred .................. $ 170 $ --
Current ................... 22 5
--------------- ---------------
Sub-total .............. 192 5

State ........................ 58 6
--------------- ---------------

Total .................. $ 250 $ 11
=============== ===============

The amount of the deferred tax asset (net of valuation allowance) was
$7,051,000 at March 31, 2000. The deferred tax asset arises principally
from the anticipated utilization of the Company's NOLs and tax credits from
the implementation of various tax planning strategies, which include the
potential sale of certain real estate investments, energy investments and
hotel properties, that could be implemented, if necessary, to supplement
income from operations to fully realize the net recorded tax benefits
before their expiration.

State tax expense is an estimate based upon taxable income allocated to
those states in which the Company does business, at their respective tax
rates.

8. SUPPLEMENTAL DISCLOSURES TO THE CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED
MARCH 31,
----------------------------
DESCRIPTION 2000 1999
----------- ------------ ------------

Supplemental disclosures of cash payments:

Interest paid ................................ $ 1,536 $ 1,351
Income taxes paid ............................ 102 43

Page 14

THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(UNAUDITED)

9. COMPUTATION OF EARNINGS PER SHARE

The following table reconciles the Company's net income to net income
available to common stockholders, and the number of equivalent common
shares from unexercised stock options used in the calculation of net income
for the basic and assumed dilution methods (in thousands):

THREE MONTHS ENDED
MARCH 31,
--------------------------
DESCRIPTION 2000 1999
----------- ---------- ----------

NET INCOME AVAILABLE TO COMMON STOCKHOLDERS
Net income, as reported .................................... $ 327 $ 505
Less: Dividends on preferred stock ......................... -- --
---------- ----------
Net income available to common stockholders ............ $ 327 $ 505
========== ==========

WEIGHTED AVERAGE SHARES OUTSTANDING
Basic ...................................................... 1,425 1,883
Assumed issuance of shares from stock options exercised .... 54 82
Assumed repurchase of shares from stock options proceeds ... (42) (55)
---------- ----------
Assuming dilution ...................................... 1,437 1,910
========== ==========

The impact of the convertible loan from shareholder was anti-dilutive
for the quarter ended March 31, 2000.

10. SEGMENT AND RELATED INFORMATION

The following represents the Company's reportable segment position for
the three months ended March 31, 2000 and 1999, respectively (in
thousands):

REAL TEXTILE
ESTATE ENERGY PRODUCTS HOTELS OTHER CONSOLIDATED
---------- ---------- ---------- ---------- ---------- ------------

THREE MONTHS ENDED MARCH 31, 2000

Total revenue from external sources ......... $ 1,778 $ 682 $ 20,024 $ 5,032 $ 7 $ 27,523
========== ========== ========== ========== ========== ==========

Operating income (loss)................... $ 1,246 $ 682 $ 548 $ (659) $ -- $ 1,817
========== ========== ========== ========== ==========

Unallocable expenses, net................. $ (1,240) (1,240)
========== ----------
Income before income taxes................ $ 577
==========

THREE MONTHS ENDED MARCH 31, 1999
Total revenue from external sources....... $ 1,652 $ 1,307 $ 21,858 $ 6,455 $ 143 $ 31,415
========== ========== ========== ========== ========== ==========

Operating income (loss)................... $ 966 $ (187) $ 329 $ 84 $ -- $ 1,192
========== ========== ========== ========== ==========
Unallocable expenses, net................. $ (676) (676)
========== ----------
Income before income taxes................ $ 516
==========

No differences have occurred in the basis or methodologies used in the
preparation of this interim segment information from those used in the
December 31, 1999 annual report. The total assets for the Company's
operating segments have not materially changed since the December 31, 1999
annual report.

Page 15

THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES

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

RESULTS OF OPERATIONS

The Company reported net income of $327,000 for the first quarter ended
March 31, 2000, compared to net income of $505,000 in the 1999 period.
Total revenue for the 2000 first quarter was $27,523,000, compared to
$31,415,000 in the prior-year period.

Following is an analysis of the results of operations by asset
management and operating subsidiaries divisions and by the real estate,
energy, textile products and hotels business segments.

ASSET MANAGEMENT DIVISION

The Company's asset management division consists of real estate and
energy business segments.

REAL ESTATE

Revenue. Fee income of $1,504,000 for the quarter ended March 31, 2000
increased by $240,000, or 19%, from $1,264,000 in the prior-year period.
Fees are derived from the Company's asset management, property management,
leasing and construction supervision services provided to its Hallwood
Realty Partners, L.P. affiliate, a real estate master limited partnership
("HRP") and various third parties. The increase was due primarily to higher
fees from property management and construction services in the 2000 first
quarter.

The equity income from investments in HRP represents the Company's
recognition of its pro rata share of net income reported by HRP, adjusted
for the elimination of intercompany income and amortization of negative
goodwill. For the 2000 first quarter, the Company reported income of
$274,000 compared to $388,000 in the period a year ago. The decrease
resulted principally from a reduced limited partner ownership percentage
(20% in 2000, compared to 25% in 1999).

Expenses. Administrative expenses of $364,000 decreased by $154,000, or
30%, in the 2000 first quarter, compared to $518,000 in the prior-year
quarter. The decline was primarily attributable to the payments of
commissions to third party brokers associated with fee income.

Amortization expense of $168,000 in both the 2000 and 1999 quarters
relate to Hallwood Realty's general partner investment in HRP to the extent
allocated to management rights.

ENERGY

Revenue. Prior to the June 1999 energy consolidation discussed in Note
3, the Company and its energy subsidiaries accounted for their ownership of
HEP using the proportionate consolidation method of accounting, whereby the
entities recorded their proportional share of HEP's revenues and expenses.
Following the energy consolidation, the Company accounts for its investment
in Hallwood Energy using the equity method of accounting, as the Company
exercises significant influence over Hallwood Energy's operational and
financial policies. Accordingly, the revenue and expense items of the
energy segment reflect proportionally consolidated amounts through June 8,
1999. Thereafter, the Company records its pro-rata share of Hallwood
Energy's net income available to common stockholders and preferred
dividends received as a single line item - equity income from investments
in Hallwood Energy. Comparisons between 2000 and 1999 are generally not
meaningful, due to the change in method of accounting.

The equity income in the 2000 first quarter from investments in
Hallwood Energy of $682,000 represents the Company's pro rata share (14%)
of income available to common stockholders, preferred dividends on its
common stock and amortization of negative goodwill. Hallwood Energy's
income increased significantly in the

Page 16

THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES

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

2000 first quarter, compared to 1999, as a result of higher oil and gas
prices and savings associated with the disposition of certain non-strategic
properties and the completion of the energy consolidation in June 1999.

Gas revenue for the 1999 first quarter was $894,000, with production of
478,000 mcf, and an average gas price to $1.87 per mcf. Oil revenue for the
1999 first quarter was $318,000, with production of 28,000 barrels, and an
average price of $11.36 per barrel.

Other income of $95,000 in the 1999 first quarter consists primarily of
acquisition fee and interest income, as well as a share of HEP's interest
income, facilities income from two gathering systems in New Mexico,
pipeline revenue, equity in income of affiliates and miscellaneous income
or expense.

Expenses. For the 1999 first quarter operating expenses were $527,000;
depreciation, depletion and amortization was $511,000; administrative
expenses were $335,000; and interest expense was $121,000. No comparative
amounts were recorded in the 2000 first quarter due to the change in
accounting method.

OPERATING SUBSIDIARIES

The Company's operating subsidiaries division consists of textile
products and hotels business segments.

TEXTILE PRODUCTS

Revenue. Sales of $20,024,000 decreased $1,834,000, or 8%, in the 2000
first quarter, compared to $21,858,000 in the 1999 quarter. The decrease in
distribution sales was the result of U.S. customers moving production out
of the country and was partially offset by increased revenues at the dying
and finishing and laminating plants.

Expenses. Cost of sales of $16,844,000 decreased $2,164,000, or 11%, in
the 2000 first quarter, from $19,008,000 in the 1999 quarter. The decrease
in cost of sales was principally the result of the decreased sales. The
higher gross profit margin for the 2000 first quarter (15.9% versus 13.0%)
resulted from higher gross profit margins in the distribution businesses.
This resulted from a sales decrease of low margin business and increased
volume of lower cost imported fabric.

Administrative and selling expenses of $2,370,000 increased by
$71,000, or 3%, in the 2000 first quarter from $2,299,000 for the
comparable 1999 period.

Interest expense of $262,000 increased by $40,000, or 18%, for the 2000
first quarter from $222,000 in 1999 due to higher interest rates.

HOTELS

Revenue. Sales of $5,032,000 in the 2000 first quarter decreased by
$1,423,000, or 22%, from the year-ago amount of $6,455,000. The decrease
was primarily due to reduced management fees from the Enclave Suites, a
resort condominium hotel which was distributed in December 1999 as part of
the separation agreement with a former officer and shareholder, and lower
occupancy at the Company's three GuestHouse Suites Plus hotels, as a result
of a $3.0 million renovation substantially completed by the end of 1999,
partially offset by increased revenues at the Longboat Key Holiday Inn and
Suites. The occupancy rates at the GuestHouse properties are improving as
marketing programs are implemented following completion of the renovations.
For the hotel segment, average daily rate decreased 5.5% and average
occupancy level decreased 23% in the 2000 first quarter compared to the
prior-year quarter.

Page 17

THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES

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

Expenses. Operating expenses of $4,254,000 for the 2000 first quarter
were down $783,000, or 16%, from $5,037,000 in 1999. The decrease is
primarily attributable to reduced operating expenses for the December 1999
disposition of the Enclave Suites and the three GuestHouse properties.

Depreciation and amortization expense increased by $1,000 to $725,000
for the 2000 first quarter from $724,000 in the prior-year period. The
increase was due to additional depreciation from capital leases less
amounts attributable to the Enclave Suites.

Interest expense increased by $102,000 to $712,000 for the 2000 first
quarter from $610,000 in 1999, principally due to the interest expense
associated with capital leases at the three GuestHouse properties. The
leases commenced on January 1, 2000.

OTHER

Revenue. Interest on short-term investments and other income increased
by $1,000 to $7,000 for the 2000 first quarter from $6,000 in 1999.

The Company received no fee income in the 2000 first quarter, compared
to $137,000 in 1999. The decrease was due to the termination of a
consulting contract with the Company's energy affiliate following the
completion of the energy consolidation in June 1999.

Expenses. Interest expense in the amount of $778,000 for the 2000 first
quarter increased by $482,000 from the prior year amount of $296,000. The
increase was primarily due to refinancing the 7% Debentures in December
1999 from proceeds of a new $18.0 million senior secured term loan with a
fixed interest rate of 10.25% and an effective interest rate of 12.75%, and
interest costs on contingent payments associated with the December 1999
Separation Agreement.

Administrative expenses of $469,000 for the 2000 first quarter
decreased by $54,000, from the prior-year amount of $523,000, due to lower
consulting and other professional fees, partially offset by the elimination
of certain overhead reimbursements from the Company's energy affiliate
following the completion of the energy consolidation.

Income taxes. Income taxes were $250,000 for the 2000 first quarter and
$11,000 in the 1999 quarter. The 2000 quarter included a $170,000 federal
deferred charge, a $22,000 federal current charge and $58,000 for state
taxes. The 1999 quarter included a $5,000 federal current charge and $6,000
for state taxes. The state tax expense is an estimate based upon taxable
income allocated to those states in which the Company does business at
their respective tax rates.

As of March 31, 2000, the Company had approximately $99,000,000 of tax
net operating loss carryforwards ("NOLs") and temporary differences to
reduce future federal income tax liability. Based upon the Company's
expectations and available tax planning strategies, management has
determined that taxable income will more likely than not be sufficient to
utilize approximately $20,738,000 of the NOLs prior to their ultimate
expiration in the year 2010.

Page 18

THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES

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

Management believes that the Company has certain tax planning
strategies available, which include the potential sale of certain real
estate investments, energy investments and hotel properties, that could be
implemented, if necessary, to supplement income from operations to fully
realize the net recorded tax benefits before their expiration. Management
has considered such strategies in reaching its conclusion that, more likely
than not, taxable income will be sufficient to utilize a portion of the
NOLs before expiration; however, future levels of operating income and
taxable gains are dependent upon general economic conditions and other
factors beyond the Company's control. Accordingly, no assurance can be
given that sufficient taxable income will be generated for utilization of
the NOLs. Management periodically re-evaluates its tax planning strategies
based upon changes in facts and circumstances and, accordingly, considers
potential adjustments to the valuation allowance of the deferred tax asset.
Although the use of such carryforwards could, under certain circumstances,
be limited, the Company is presently unaware of the occurrence of any event
which would result in such limitations.

Page 19

THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES

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

LIQUIDITY AND CAPITAL RESOURCES

The Company's unrestricted cash and cash equivalents at March 31, 2000
totaled $1,066,000.

The Company's real estate segment generates funds principally from its
property management and leasing activities, without significant additional
capital costs. The Company has pledged 300,397 of its HRP limited
partnership units and the interest in its real estate subsidiaries to
collateralize the Senior Secured Term Loan and 30,035 HRP units to
collateralize hotel capital lease obligations.

Brookwood maintains a revolving line of credit facility with Key Bank,
which is collateralized by accounts receivable, certain inventory and
equipment. At March 31, 2000, Brookwood had $4,077,000 of unused borrowing
capacity on its revolving line of credit. In the year ended December 31,
1999, the Company received a cash dividend of $400,000 from Brookwood and
tax sharing payments of $350,000. In April 2000, the Company received a
$400,000 cash dividend and a tax sharing payment of $100,000.

Although major capital expenditures are periodically required under
franchise agreements, cash flow from hotel operations have typically
contributed to the Company's working capital. Sales of hotels are also a
source of liquidity; however, a sale may be impacted by the ability of
prospective purchasers to obtain equity capital or suitable financing. The
Company completed a renovation of the Holiday Inn and Suites hotel in April
1998, partly financed by the owner in the form of higher lease payments.
The Company completed the renovations of its three GuestHouse Suites Plus
hotels in May 2000 at a cost of approximately $3,000,000, funded by capital
leases and capital reserves.

Management believes that it will have sufficient funds for operations
and to satisfy its current obligations.

FORWARD-LOOKING STATEMENTS

In the interest of providing stockholders with certain information
regarding the Company's future plans and operations, certain statements set
forth in this Form 10-Q are forward-looking statements. Although any
forward-looking statement expressed by or on behalf of the Company is, to
the knowledge and in the judgment of the officers and directors, expected
to prove true and 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. Among others, these
risks and uncertainties include, the ability to obtain financing or
refinance maturing debt; a potential oversupply of commercial office
buildings, industrial parks and hotels in the markets served; fees for
leasing, construction and acquisition of real estate properties; lease and
rental rates and occupancy levels obtained; the volatility of oil and gas
prices; the ability to continually replace and expand oil and gas reserves;
and the imprecise process of estimating oil and gas reserves and future
cash flows. These risks and uncertainties are difficult or impossible to
predict accurately and many are beyond the control of the Company. Other
risks and uncertainties may be described, from time to time, in the
Company's periodic reports and filings with the Securities and Exchange
Commission.

Page 20

THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes to the Company's market risks
during the three months ended March 31, 2000.

The Company is exposed to market risk due to fluctuations in interest
rates. The Company utilizes both fixed rate and variable rate debt to
finance its operations. As of March 31, 2000, the Company's total
outstanding loans and debentures payable of $69,312,000 were comprised of
$55,853,000 of fixed rate debt and $13,459,000 of variable rate debt. There
is inherent rollover risk for borrowings as they mature and are renewed at
current market rates. The extent of this risk is not quantifiable or
predictable because of the variability of future interest rates and the
Company's future financing requirements. A hypothetical increase in
interest rates of two percentage points would cause an annual loss in
income and cash flows of approximately $1,386,000, assuming that
outstanding debt remained at current levels.

Real Estate. The Company's real estate division through its investment
in HRP will sometimes use derivative financial instruments to achieve a
desired mix of fixed versus floating debt. As of March 31, 2000, HRP had a
single "pay fixed/receive variable" interest rate swap agreement with
highly rated counterparties in which the interest payments are calculated
on a notional amount. Management does not consider the portion attributable
to the Company to be significant on this derivative instrument.

Energy. The Company does not directly have any derivative financial
instruments in place as of March 31, 2000, nor does it have foreign
operations. Also, the Company does not enter into financial instrument
transactions for trading or other speculative purposes. However, the
Company's energy division through its investment in Hallwood Energy has
attempted to hedge the exposure related to its variable debt and its sales
of forecasted oil and natural gas production in amounts, which it believes
are prudent based on the prices of available derivatives and, in the case
of production hedges, Hallwood Energy's deliverable volumes. Hallwood
Energy attempts to manage the exposure to adverse changes in the fair value
of its fixed rate debt agreements by issuing fixed rate debt only when
business conditions and markets are favorable. Management does not consider
the portion attributable to the Company to be significant in relation to
these derivative instruments.

Page 21

THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES

PART II - OTHER INFORMATION

Item

1 Legal Proceedings

Reference is made to Note 3 to the Company's consolidated financial
statements of this Form 10-Q.

2 Changes in Securities None

3 Defaults upon Senior Securities None

4 Submission of Matters to a Vote of Security Holders None

5 Other Information None

6 Exhibits and Reports on Form 8-K

(a) Exhibits

* (i) 10.15 - Amendment to Financial Consulting Agreement, dated as of January 1,
2000, between the Company and HSC Financial Corporation,
filed herewith. Page 25-26

(ii) 10.16 - Convertible Unsecured Promissory Note in the amount of $1,500,000,
dated as of March 16, 2000, between Hallwood Investment Company
and Hallwood Investments Limited, filed herewith. Page 27-34

(iii) 27 - Financial Data Schedule Page 35

(b) Reports on Form 8-K None

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

* Constitutes a compensation plan or agreement for executive
officers.

Page 22

THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES

SIGNATURE

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

THE HALLWOOD GROUP INCORPORATED

Dated: May 12, 2000 By: /s/ Melvin J. Melle
---------------------------------
Melvin J. Melle, Vice President
(Duly Authorized Officer and
Principal Financial and
Accounting Officer)

Page 23

THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
INDEX TO EXHIBITS

EXHIBIT
NUMBER DESCRIPTION
------- -----------

10.15 Amendment to Financial Consulting Agreement, dated as of January 1, 2000, between
the Company and HSC Financial Corporation.

10.16 Convertible Unsecured Promissory Note in the amount of $1,500,000, dated as of
March 16, 2000, between Hallwood Investment Company and Hallwood Investments
Limited.

27 Financial Data Schedule