SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM 10-Q


X   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998

    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________ TO _________


                           COMMISSION FILE NO. 1-12334


                      FORTUNE NATURAL RESOURCES CORPORATION
             (Exact Name of Registrant as specified in its charter)


             Delaware                                           95-4114732
  (State or other jurisdiction of                           (I.R.S. Employer
   incorporation or organization)                          Identification No.)

 One Commerce Green, 515 W. Greens Rd.,
       Suite 720, Houston, Texas                                  77067
(Address of Principal Executive Offices)                       (Zip Code)


                                  281-872-1170
                            -------------------------
                            Issuer's telephone number


                                       N/A
              ----------------------------------------------------
              (Former name, former address and former fiscal year,
                         if changed since last report)



Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 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 ___


Applicable only to corporate issuers:

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.

                         12,133,478 as of April 30, 1998




<PAGE>
<TABLE>
<CAPTION>

                      FORTUNE NATURAL RESOURCES CORPORATION
                                 BALANCE SHEETS

                                     ASSETS
                                                                            March 31,    December 31,
                                                                              1998           1997
                                                                          ------------   ------------
                                                                           (Unaudited)     (Audited)
<S>                                                                       <C>            <C>         
CURRENT ASSETS:
     Cash and cash equivalents .........................................  $  4,672,000   $  1,667,000
     Accounts receivable ...............................................       291,000        507,000
                                                                          ------------   ------------
         Total Current Assets ..........................................     4,963,000      2,174,000
                                                                          ------------   ------------

PROPERTY AND EQUIPMENT:
     Oil and gas properties, accounted for
       using the full cost method ......................................    23,977,000     27,822,000
     Office and other ..................................................       384,000        383,000
                                                                          ------------   ------------
                                                                            24,361,000     28,205,000
     Less--accumulated depletion, depreciation and amortization ........   (18,973,000)   (18,403,000)
                                                                          ------------   ------------
                                                                             5,388,000      9,802,000
                                                                          ------------   ------------
OTHER ASSETS:
     Materials, supplies and other .....................................       126,000        124,000
     Debt issuance costs (net of accumulated amortization of 
       $189,000 and $93,000 at March 31, 1998 and 
       December 31, 1997, respectively) ................................       431,000        526,000
                                                                          ------------   ------------
                                                                               557,000        650,000
                                                                          ------------   ------------

TOTAL ASSETS ...........................................................  $ 10,908,000   $ 12,626,000
                                                                          ============   ============
</TABLE>

<TABLE>
<CAPTION>

                      LIABILITIES AND STOCKHOLDERS' EQUITY

                                                                            March 31,    December 31,
                                                                              1998           1997
                                                                          ------------   ------------
<S>                                                                       <C>            <C>         
CURRENT LIABILITIES:
     Accounts payable ..................................................  $       --     $    279,000
     Accrued expenses ..................................................       300,000        407,000
     Royalties and working interests payable ...........................        24,000         36,000
     Accrued interest ..................................................          --           76,000
                                                                          ------------   ------------
         Total Current Liabilities .....................................       324,000        798,000
                                                                          ------------   ------------

LONG-TERM DEBT .........................................................     3,235,000      3,775,000
                                                                          ------------   ------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
     Preferred stock, $1.00 par value:
         Authorized--2,000,000 shares
         Issued and outstanding--None ..................................          --             --
     Common stock, $.01 par value :
         Authorized--40,000,000 shares
         Issued and outstanding 12,133,479 and 12,118,982 at
         March 31, 1998 and December 31, 1997, respectively ............       121,000        121,000
     Treasury Stock, at cost (9,769 shares at December 31, 1997) .......          --          (38,000)
     Capital in excess of par value ....................................    30,280,000     30,283,000
     Accumulated deficit ...............................................   (23,052,000)   (22,313,000)
                                                                          ------------   ------------
NET STOCKHOLDERS' EQUITY ...............................................     7,349,000      8,053,000
                                                                          ------------   ------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .............................  $ 10,908,000   $ 12,626,000
                                                                          ============   ============
</TABLE>


                 See accompanying notes to financial statements.


                                       2
<PAGE>
<TABLE>
<CAPTION>

                      FORTUNE NATURAL RESOURCES CORPORATION
                            STATEMENTS OF OPERATIONS


                                                                           For the Three Months Ended
                                                                          ---------------------------
                                                                            March 31,      March 31,
                                                                              1998           1997
                                                                          ------------   ------------
                                                                                  (Unaudited)
<S>                                                                       <C>            <C>         
REVENUES
     Sales of oil and gas, net of royalties ............................. $    706,000   $  1,113,000
     Other income .......................................................       17,000         52,000
                                                                          ------------   ------------
                                                                               723,000      1,165,000
                                                                          ------------   ------------

COSTS AND EXPENSES
     Production and operating ...........................................      227,000        193,000
     Provision for depletion, depreciation and amortization .............      570,000        484,000
     Impairment to oil and gas properties ...............................         --          200,000
     General and administrative .........................................      459,000        553,000
     Debt conversion expense ............................................         --          316,000
     Stock offering cost ................................................         --          114,000
     Interest ...........................................................      110,000         54,000
     Amortization of deferred financing cost ............................       96,000         14,000
                                                                          ------------   ------------
                                                                             1,462,000      1,928,000
                                                                          ------------   ------------

LOSS BEFORE PROVISION FOR INCOME TAXES ..................................     (739,000)      (763,000)
PROVISION FOR INCOME TAXES ..............................................         --             --
                                                                          ------------   ------------

NET LOSS .................................................................    (739,000)  $   (763,000)
                                                                          ============   ============

WEIGHTED AVERAGE NUMBER OF
  COMMON SHARES OUTSTANDING .............................................   12,122,000     11,974,000
                                                                          ============   ============

NET LOSS PER COMMON SHARE ............................................... $      (0.06)  $      (0.06)
                                                                          ============   ============
</TABLE>

                 See accompanying notes to financial statements.


                                       3
<PAGE>

<TABLE>
<CAPTION>

                      FORTUNE NATURAL RESOURCES CORPORATION
                       STATEMENTS OF STOCKHOLDERS' EQUITY
                      FOR THE YEAR ENDED DECEMBER 31, 1997
                    AND THE THREE MONTHS ENDED MARCH 31, 1998



                                                                        Capital in                                      Stock-
                                                  Common Stock           Excess of     Treasury       Accumulated      holders'
                                              Shares        Amount       Par Value       Stock          Deficit        Equity
                                          ------------   ------------  ------------   ------------   ------------   ------------
<S>                                         <C>          <C>           <C>            <C>            <C>            <C>
BALANCE, December 31, 1996 .............    11,853,663   $    119,000  $ 29,273,000   $       --     $(16,355,000)  $ 13,037,000

Common stock issued for
   exercise of stock options ...........         6,400           --          18,000           --             --           18,000
Common stock issued for
   exercise of warrants ................        45,000           --          89,000           --             --           89,000
Common stock issued in exchange
   for debentures, net of offering costs       218,858          2,000       889,000           --             --
                                                                                                                         891,000
Common stock contributed to
   Company 401(k) Plan .................         4,835           --          14,000           --             --           14,000
Common stock repurchased in
   odd-lot buyback .....................        (9,769)          --            --          (38,000)          --          (38,000)
Common stock returned to treasury ......            (5)          --            --             --             --             --
Net loss ...............................          --             --            --             --       (5,958,000)    (5,958,000)
                                          ------------   ------------  ------------   ------------   ------------   ------------

BALANCE, December 31, 1997 .............    12,118,982   $    121,000  $ 30,283,000   $    (38,000)  $(22,313,000)  $  8,053,000
                                          ============   ============  ============   ============   ============   ============

Common stock issued for
   exercise of warrants ................         4,312           --          11,000           --             --           11,000
Common stock contributed to
   Company 401(k) Plan .................        10,185           --          24,000           --             --           24,000
Cancellation of treasury stock .........          --             --         (38,000)        38,000           --             --
Net loss ...............................          --             --            --             --         (739,000)      (739,000)
                                          ------------   ------------  ------------   ------------   ------------   ------------
BALANCE, March 31, 1998
   (Unaudited) .........................    12,133,479   $    121,000  $ 30,280,000   $       --     $(23,052,000)  $  7,349,000
                                          ============   ============  ============   ============   ============   ============

</TABLE>

                 See accompanying notes to financial statements.


                                       4
<PAGE>

<TABLE>
<CAPTION>

                      FORTUNE NATURAL RESOURCES CORPORATION
                            STATEMENTS OF CASH FLOWS

                                                                     For the Three Months Ended
                                                                     --------------------------
                                                                       March 31,     March 31,
                                                                         1998          1997
                                                                     ------------  ------------
                                                                            (Unaudited)
<S>                                                                  <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net loss .....................................................  $   (739,000) $   (763,000)
     Adjustments to reconcile net loss to net
       cash provided by (used in) operating activities:
         Depletion, depreciation and amortization .................       570,000       484,000
         Non-cash compensation expense ............................          --           5,000
         Amortization of deferred financing cost ..................        96,000        14,000
         Impairment of oil and gas assets .........................          --         200,000
         Debt conversion expense ..................................          --         316,000
         Stock offering cost ......................................          --         114,000
     Changes in assets and liabilities:
         Accounts receivable ......................................       216,000       142,000
         Prepaids .................................................          --          18,000
         Accounts payable and accrued expenses ....................      (386,000)       78,000
         Royalties and working interest payable ...................       (12,000)      (53,000)
         Accrued interest .........................................       (76,000)      (66,000)
         Other ....................................................        23,000          --
                                                                     ------------  ------------
     Net cash provided by (used in) operating activities ..........      (308,000)      489,000
                                                                     ------------  ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Expenditures for oil and gas properties ......................      (850,000)     (899,000)
     Restricted cash used .........................................          --          55,000
     Proceeds from sale of properties and equipment ...............     4,695,000       203,000
     Expenditures for other property and equipment and other assets        (3,000)       (8,000)
                                                                     ------------  ------------
     Net cash provided by (used in) investing activities ..........     3,842,000      (649,000)
                                                                     ------------  ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Repayment of long term debt ..................................      (540,000)     (225,000)
     Proceeds from issuance of common stock .......................        11,000       103,000
     Expenditures for debenture exchange and stock offering .......          --        (139,000)
                                                                     ------------  ------------
     Net cash used in financing activities ........................      (529,000)     (261,000)
                                                                     ------------  ------------
NET INCREASE (DECREASE) IN CASH
  AND CASH EQUIVALENTS ............................................     3,005,000      (421,000)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ....................     1,667,000     2,174,000
                                                                     ------------  ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD ..........................  $  4,672,000  $  1,753,000
                                                                     ============  ============
Supplemental information:
     Interest paid in cash ........................................  $    110,000  $     54,000
Non-cash transactions
     Common stock issued for conversion of debt ...................          --         975,000
     Common stock issued for 401(k) Plan contribution .............        24,000          --

</TABLE>

                 See accompanying notes to financial statements


                                       5
<PAGE>

                      FORTUNE NATURAL RESOURCES CORPORATION
                         PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                          NOTES TO FINANCIAL STATEMENTS
                                 March 31, 1998

(1)    LINE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING 
       POLICIES AND PROCEDURES

       The condensed  financial  statements at March 31, 1998, and for the three
months  then  ended  included  herein  have been  prepared  by  Fortune  Natural
Resources Corporation  ("Fortune" or the "Company"),  without audit, pursuant to
the Rules and  Regulations of the Securities  and Exchange  Commission.  Certain
information and footnote  disclosures  normally included in financial statements
prepared in accordance with generally accepted  accounting  principles have been
condensed  or omitted  pursuant  to such  Rules and  Regulations,  although  the
Company  believes  that the  disclosures  are  adequate to make the  information
presented not misleading. These condensed financial statements should be read in
conjunction with the financial  statements and the notes thereto included in the
Company's latest annual report on Form 10-K. Certain reclassifications have been
made to prior period amounts to conform to  presentation  in the current period.
In the opinion of the Company, the financial statements reflect all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly the
financial  position of the Company as of March 31, 1998 and  December  31, 1997,
the  results of its  operations  for the three  months  ended March 31, 1998 and
1997,  and cash flows for the three  months  ended March 31, 1998 and 1997.  The
results  of  the  operations  for  such  interim  periods  are  not  necessarily
indicative of the results for the full year.

(2)    LONG-TERM DEBT

       At March 31, 1998, a summary of long-term debt is as follows:

                                                      March  31,  December 31,
                                                         1998         1997
                                                     -----------   -----------
       Convertible Subordinated Notes 
         due December 31, 2007....................   $ 3,225,000   $ 3,225,000

       Credit Lyonnais credit facility 
         due July 11, 1999,.......................        10,000       550,000
                                                     -----------   -----------

       Total long-term debt.......................     3,235,000     3,775,000
       Less current installments..................         --            --
                                                     -----------   -----------

       Long-term debt, 
         excluding current installments............  $ 3,235,000   $ 3,775,000
                                                     ===========   ===========

       The   Convertible   Subordinated   Notes  (the   "Notes)"  are  currently
convertible  into the Company's  Common Stock at a conversion price of $3.00 per
share, subject to adjustment. The Notes are convertible by the holders after May
1,  1999,  subject  to a  one-time  option by the  holders to convert at a lower
conversion  price prior to that date in the event that the Company issues shares
of its  Common  Stock at a price  below  the  conversion  price.  The  Notes are
redeemable by the Company  after May 1, 1999, at a premium that reduces  monthly
from 10% to zero over an 18-month  period.  Any such  premium on  redemption  is
waived in the event that the  Company's  Common  Stock  price  averages at least
$4.50 per share for 30  consecutive  trading days. The holders of the Notes will
be entitled to receive  additional  shares upon conversion in the event that the
Company's  Common  Stock price  averages  less than the  conversion  price for a
certain period prior to May 1, 1999.  The Company has determined  that the value
of the potential adjustments to the conversion price is not material.  The Notes
are  subordinate  to all of the  Company's  secured  debt,  including the credit
facility  with  Credit  Lyonnais.  The Notes bear  interest at a rate of 12% per
year,  payable  quarterly.  The  costs  incurred  to  issue  the  Notes is being
amortized as additional  interest expense over the 18-month period ending May 1,
1999,  the  first  date  that the  Notes  are  convertible.  As a result of this
amortization  of issuance costs,  the effective  interest rate of the Notes over
this 18-month period is 21.2%. If the Notes were held to maturity, the effective
interest rate over the life of the Notes would be 13.4%.

                                       6
<PAGE>

       A portion of the net  proceeds of the private  placement of the Notes was
used to refinance  existing debt. On December 5, 1997, the Company  redeemed the
remaining  outstanding  balance of $1,028,000 of the  Company's  Debentures  due
December 31, 1997. In addition,  $315,000 of net proceeds was used to reduce the
borrowings under the Company's credit facility with Credit Lyonnais.

     The Company has in place a $20 million credit facility with Credit Lyonnais
New York Branch ("Credit  Lyonnais").  The Credit Lyonnais  facility is due July
11,  1999,  extendable  for one year upon mutual  consent.  Under the new credit
facility,  the Company may  initially  borrow up to a  pre-determined  borrowing
base, for acquisitions and development  projects  approved by Credit Lyonnais at
either 1.25% above  Credit  Lyonnais'  base rate or 4% above  LIBOR.  The Credit
Lyonnais  facility  is secured by a mortgage  on all of the  Company's  existing
proved oil and gas properties.  The Company is also required to pay a commitment
fee of 0.5% on the unused portion of the borrowing  base. On March 31, 1998, the
Company repaid all but $10,000 of the outstanding balance of the credit facility
with a portion of the proceeds from the sale of East Bayou Sorrel. (See note 6).
Prior to the Company's sale of its interest in the East Bayou Sorrel field,  the
Company's  borrowing  base  was $2  million.  The  bank  has not  completed  its
redetermination  of the borrowing base  subsequent to this sale.  Primarily as a
result of the lower revenues in the current  quarter,  the Company was unable to
meet the 3 to 1 coverage ratio of cash flow to  fixed-charges  which is required
by the credit  facility for the  nine-months  period  ended March 31, 1998.  The
Company  has  obtained  a waiver of this  covenant  from the bank for the period
ended March 31, 1998.

       The Company's  maturities of long-term debt over the next three years are
as follows:

                   Year               Debt
                 --------          ----------
                   1998            $        -
                   1999                10,000
                   2000                     -
                                   ----------
                                   $   10,000
                                   ==========

(3)    INCOME TAX EXPENSE

       No  provision  for income  taxes was  required for the three months ended
March 31, 1998.

       At March 31, 1998, the Company  estimates it had cumulative net operating
loss  carryforwards  for federal  income tax  purposes of $13 million  which are
significantly   restricted  under  IRC  Section  382.  These  carryforwards  are
available  to  offset  future  federal  taxable  income,  if any,  with  various
expirations  through 2013. The Company is uncertain as to the  recoverability of
the above  deferred  tax  assets  and has  therefore  applied  a 100%  valuation
allowance.

       The Company has  available IRC Section 29 Tax Credits that may be used to
reduce  or  eliminate  any  corporate  taxable  income in  future  years.  It is
uncertain at this time to what extent the Company will be able to utilize  these
federal tax credits,  as their utilization is dependent upon the amount, if any,
of future  federal income tax incurred,  after  application of the Company's net
operating loss carryforwards.

(4)    LEGAL PROCEEDINGS

       There are no material  pending  legal  proceedings  involving  any of the
Company's  properties  or which  involve a claim for damages which exceed 10% of
the Company's current assets.


                                       7
<PAGE>

       On April 16, 1996,  Fortune was served with two  lawsuits  which had been
filed in the Federal  District Court in New York by purchasers of Fortune Common
Stock in an offering in December 1995 under Regulation S. Under the terms of the
subscription  agreement pursuant to which the plaintiffs  acquired their shares,
each was entitled to receive  additional  shares of Fortune  Common Stock if the
market price fell below a stated level during a specified  period  following the
40-day  holding  period  prescribed by  Regulation  S. Fortune  responded to the
suits,  admitting  that the stock price  declined  but alleged  that  suspicious
trading activity in Fortune stock occurred  immediately  prior to and during the
time  period in which the  additional-share  allocation  was  computed.  Fortune
believes that it has discovered  evidence of active market  manipulation  in the
Common Stock by these  plaintiffs;  accordingly,  it has commenced a countersuit
for damages  suffered by the Company and its  shareholders  as a result of these
acts and has also received leave of court to add  third-party  defendants  whose
actions furthered this market manipulation.  Discovery has been stayed pending a
determination  of  objections  filed  by one of  these  third-party  defendants.
Fortune  intends  to resume  both the  defense  of  plaintiffs'  claims  and the
aggressive  prosecution of its own counterclaims as soon as it is entitled to do
so.

(5)    COMPUTATION OF LOSS PER SHARE

       Net loss  per  common  share  is  computed  by  dividing  net loss by the
weighted  average  number of common  shares  outstanding.  Diluted  earnings per
common share are not  presented,  since the issuance or conversion of additional
securities would have an anti-dilutive effect.

(6)    SALE OF EAST BAYOU SORREL

       On March 31, 1998, the Company sold its interest in the East Bayou Sorrel
field,  Iberville  Parish,  Louisiana to National Energy Group, Inc. for cash in
the  amount of  $4,695,000.  The  properties  sold  consisted  of the  Company's
interest  in the  Schwing  #1 and #2  wells  and  all of the  Company's  leases,
facilities  and interests in the East Bayou Sorrel area of mutual  interest,  as
such area is defined in the East Bayou Sorrel operating  agreement.  The sale is
effective  April 1,  1998.  The sale  closed on March 31,  1998,  whereupon  the
Company received $4,535,000, which is net of ordinary closing adjustments.

       The Company's  interest in the two productive  wells at East Bayou Sorrel
were pledged to secure the Company's Credit Facility with Credit  Lyonnais.  The
total  balance  outstanding  under the  Credit  Facility  prior to this sale was
$550,000. Concurrently with closing the sale of the East Bayou Sorrel field, the
Company paid down the  outstanding  balance of the Credit  Facility by $540,000.
The Company plans to reinvest the remaining proceeds from the sale of East Bayou
Sorrel into its exploration,  development and property  acquisition  activities,
including,  for example, future anticipated exploration and development wells at
its Espiritu Santo Bay and LaRosa 3D seismic exploration projects.

       The Schwing #1 and #2 wells began  producing  from  permanent  production
facilities in January 1997 and June 1997, respectively. Although both wells have
been shut-in since March 13, 1998 pending the repair of  production  facilities,
they  accounted for a significant  portion of the Company's oil and gas revenues
during 1997 and proved  reserves as of December  31,  1997.  A third well in the
field,  the Schwing #3, which spud October 9, 1997, was temporarily  plugged and
abandoned on March 5, 1998 pending further  evaluation of the well's  potential.
The Company  incurred  approximately  $1 million in connection with drilling and
attempting  to complete this well as a result of difficult  drilling  conditions
and mechanical  problems.  Selected  financial  information  attributable to the
Company's  interest in the East Bayou  Sorrel  field as reported in its 1997 and
year-to-date operating and financial results is as follows:


                                       8
<PAGE>

                                               Year Ended     Three Months Ended
                                           December 31, 1997    March 31, 1998
                                           -----------------  ------------------
  Production
      Oil (Bbls)                                55,000              12,000
      Gas (Mcf)                                 78,000              18,000

  Oil and Gas Revenues                      $1,241,000            $230,000
  Production and Operating Expense             205,000              55,000
  Provision for Depletion, Depreciation
     and Amortization*                         430,000              54,000

                                        As of December 31, 1997
                                        -----------------------
  Estimated Net Reserve Quantities
  of Total Proved Reserves
      Oil (Bbls)                               152,000
      Gas (Mcf)                                204,000


       This  represents  32% and 30% of the  Company's  oil and gas revenues and
equivalent  oil  production  and 23% of the  Company's  estimated  quantities of
equivalent  proved oil  reserves  as of December  31,  1997.  Consequently,  the
Company's revenues and cash flow from operations will decrease  significantly in
1998  unless the  production  is replaced  through  successful  exploration  and
development activities or through the acquisition of producing properties.

       Under the full  cost  method of  accounting  for oil and gas  operations,
dispositions   of  oil  and  gas  properties  are  recorded  as  adjustments  to
capitalized  costs, with no gain or loss recognized unless such adjustment would
significantly  alter the  relationship  between  capitalized  costs  and  proved
reserves. A significant alteration would not ordinarily be expected to occur for
sales  involving less than 25 percent of the reserve  quantities in a given cost
center.  Because the sale of East Bayou Sorrel  represents  less than 25% of the
Company's  reserve  quantities,  the entire  proceeds  of  $4,695,000  have been
credited to capitalized oil and gas properties as of March 31, 1998.

(7)    SUBSEQUENT EVENT

       On February 12, 1998, the Company commenced a voluntary exchange offer of
its  outstanding  publicly  traded  Common Stock  purchase  warrants and certain
private warrants  (collectively  referred to herein as the old warrants) for new
private warrants.  The old warrants include  1,917,000  publicly traded warrants
and the right to acquire 63,000 private warrants  currently held by unitholders,
all of which expire  September 28, 1998.  Under the terms of the exchange offer,
holders of the old  warrants  had until April 15,  1998,  to exchange  their old
warrants for an equal number of new private  warrants that expire  September 28,
1999. 1,779,713 warrants were tendered and accepted by the Company, representing
93% of the outstanding public warrants. An additional 3,000 public warrants were
exercised by  warrantholders  during the exchange offer period.  The new private
warrants will not be listed for trading, are restricted from transfer and do not
contain the same anti-dilution provisions as the public warrants. Otherwise, the
new private warrants  generally contain the same terms and conditions as the old
warrants.  The Company did not receive any proceeds as a result of this exchange
offer.






-----------------------
* Represents the estimated reduction in depreciation and amortization expense
  reported by the Company in 1997 and 1998 that would have resulted from
  excluding the East Bayou Sorrel production and proved reserves.


                                       9
<PAGE>

                      FORTUNE NATURAL RESOURCES CORPORATION


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


COMPARISON  OF OPERATING  RESULTS FOR FIRST QUARTER OF 1998 TO THE FIRST QUARTER
OF 1997.

       During  the  first  quarter  of 1998,  Fortune's  net loss  decreased  to
$739,000  compared  to a  net  loss  of  $763,000  for  the  same  1997  period.
Significantly  lower oil and gas prices and lower gas production resulted in net
oil and gas revenues  decreasing by $407,000 (37%) in the first quarter of 1998,
compared to the same 1997  period.  The East Bayou  Sorrel field was shut in for
facility   repairs  from  March  13,  1998  through  the  end  of  the  quarter,
contributing  to the  lower  revenues.  Oil and gas  revenues  are  expected  to
decrease in the future as a result of the Company's sale of its entire  interest
in East  Bayou  Sorrel  effective  April 1,  1998.  See note 6 to the  financial
statements  for a  discussion  of this  sale  and the  impact  on the  Company's
operating results.

       The  Company's  oil  production  increased 8% during the first quarter of
1998 versus 1997. Gas production  decreased 26% during the first quarter of 1998
versus 1997 primarily because of normal depletion.

       Gas prices on the  Company's  production  averaged  $2.37 per MCF for the
first  quarter of 1998 as  compared to $3.04 per MCF for the same 1997 period (a
22% decrease).  Oil prices  averaged  $14.28 per barrel for the first quarter of
1998 compared to $20.84 per barrel for the same 1997 period (a 31% decrease).

       Interest  expense  increased by $56,000  (104%) for the first  quarter of
1998 over 1997 due to the higher debt balance.  The higher debt balance  results
from the Company's issuance of subordinated  convertible Notes in December 1997.
A  portion  of the  proceeds  of this  issuance  were  used to repay  all of the
Company's outstanding debentures due December 31, 1997 and to pay down a portion
of its bank debt.  Bank debt was  further  reduced by $540,000 on March 31, 1998
with a portion of the proceeds of the sale of East Bayou  Sorrel.  Consequently,
interest expense is expected to decline in the second quarter of 1998.  Non-cash
amortization  of debt financing  costs  increased by $82,000 for 1998 due to the
Company's 1997 Notes offering in December 1997 and  refinancing  its bank credit
facility in July 1997.

       The Company's  provision for  depletion,  depreciation  and  amortization
(DD&A)  increased by $86,000  (18%) in the first  quarter of 1998 as compared to
1997 primarily because of lower reserves and higher costs in 1998. The DD&A rate
is expected to decrease in the second quarter of 1998 as a result of the sale of
the East Bayou Sorrel property.

LIQUIDITY AND CAPITAL RESOURCES

       Cash Balance, Working Capital and Cash Flows from Operating Activities

       Cash flow from operating  activities declined in 1998;  however,  working
capital  increased   significantly  at  March  31,  1998.   Fortune's  operating
activities  were a net user of cash  during  the  first  quarter  of 1998 in the
amount of $308,000 as compared to cash flow provided from  operating  activities
of $489,000 for 1997.  This  decrease  results  primarily  from the  significant
reduction  in payables in the first  quarter of 1998 as  compared  1997.  Before
considering the effect of changes in assets and liabilities, operating cash flow
was  $(73,000)  for 1998 as  compared to  $370,000  for 1997.  Lower oil and gas
revenues and higher cash interest  expense were the primary  contributors to the
1998 decrease in cash flow.  The  Company's  historically  high working  capital
balance of  $4,639,000  at March 31,  compares to a December 31, 1997 balance of
$1,376,000.  The proceeds  received  from the sale of East Bayou Sorrel were the
primary contributor to this significant increase in working capital.  Management
believes that, even in the face of fluctuating  commodity prices,  this increase
in cash and  working  capital  as a  result  of the  sale of East  Bayou  Sorrel
provides the Company  with  adequate  capital to fully fund its capital  program
during 1998.

       Fortune's  internal liquidity and capital resources in the near term will
consist of working capital and cash flow from its oil and gas operations and its
unused borrowing capacity, if any, under its bank credit facility.


                                       10
<PAGE>

       Cash Used in Investing Activities - Capital Expenditures

       Cash  expenditures  for oil and gas  properties  for the first quarter of
1998 were  $850,000  as compared to  $899,000  for 1997.  The 1998  expenditures
include  primarily  drilling and completion  expenditures  for the third well at
East Bayou Sorrel, which was temporarily plugged and abandoned on March 5, 1998,
drilling and  completion  operations at LaRosa and drilling costs for a dry hole
at the S.W. Segno prospect.

       The Company has been involved in two  significant  proprietary 3D seismic
projects  along  the  Texas  coast.  The  La  Rosa  project,  a 24  square  mile
proprietary  3D survey over one of the Company's  existing  producing  fields in
Refugio  County,  Texas has been shot and is currently  being  interpreted.  The
Company sold one-half of its interest in the non-producing portion of this field
in exchange for the  acquiring  parties  paying 100% of the Company's 3D seismic
costs.  Two wells have been drilled to date.  The first well was  completed as a
producer and the second well was plugged and abandoned.  Additional  drilling is
expected in 1998.  The Company holds a 37.5%  working  interest in the producing
wells and an 18.75% working interest in the prospective projects covered by this
3D survey.

       The  second  project  is  offshore  Texas in the  intracoastal  waters of
Espiritu Santo Bay, Calhoun County.  This involves a 135 square mile proprietary
3D seismic survey in which the Company owns a 12.5% working  interest.  The area
covered by the survey also includes producing fields.  This survey has also been
completed  and is being  interpreted.  The Company is  encouraged by the results
thus far and expects to begin drilling wells by mid 1998.

       The Company continually reviews exploration,  development and acquisition
opportunities and expects to participate in other such projects in 1998.

       Cash Used in Financing Activities

       On March 31,  1998,  the  Company  paid off all but  $10,000  of its bank
credit  facility  using  $540,000  of the  proceeds  from the sale of East Bayou
Sorrel. The Company's other debt, all of which is subordinated convertible debt,
is not due  until  2007.  Primarily  as a result of the  lower  revenues  in the
current  quarter,  the Company  was unable to meet the 3 to 1 coverage  ratio of
cash flow to  fixed-charges  which is  required by the credit  facility  for the
nine-months  period ended March 31,  1998.  The Company has obtained a waiver of
this covenant from the bank for the period ended March 31, 1998.

       Oil and Gas Prices

       Conditions  outside  of the  Company's  control  influence  the  price it
receives  for oil and gas. As of April 30,  1998,  the Company was  receiving an
average of approximately  $13.20 per barrel for its oil production and $2.40 per
MCF for its gas production.

       "Year 2000" Compliance

       The Company is aware of the issues  associated with the inability of many
computer systems  worldwide to recognize dates beyond December 31, 1999 and that
a failure to correct this  problem  could result in  significant  disruption  to
those systems.  The Company has reviewed its internal and accounting systems and
believes that they are "year 2000 compliant." Although the Company believes that
these issues will not adversely impact its operations, there can be no assurance
that  disruption  or expenses will not occur as a result of the inability of the
Company's  vendors or customers to deal with this problem on a timely basis. The
Company will  continue to monitor the status of these  issues to  determine  the
impact, if any, on its operations.


                                       11
<PAGE>

FORWARD LOOKING STATEMENTS

       This Report on Form 10-Q contains  forward-looking  statements within the
meaning of Section  27A of the  Securities  Act of 1933 and  Section  21E of the
Securities  Exchange Act of 1934.  Forward looking statements include statements
regarding:  future oil and gas production  and prices,  future  exploration  and
development spending,  future drilling and operating plans and expected results,
reserve and production  potential of the Company's  properties and prospects and
the Company's  strategy.  Actual events or results could differ  materially from
those discussed in the forward-looking statements as a result of various factors
including, without limitation, the factors set forth below and elsewhere in this
10-Q, and in the Company's annual report on Form 10-K.

       Exploration Risks. The business of exploring for and, to a lesser extent,
of acquiring and developing oil and gas properties is an inherently  speculative
activity that involves a high degree of business and  financial  risk.  Although
available  geological and geophysical  information can provide  information with
respect to a  potential  oil or gas  property,  it is  impossible  to  determine
accurately the ultimate production  potential,  if any, of a particular property
or well.

       Dependence  on a Limited  Number of Wells.  Through the first  quarter of
1998,  over 60% of the Company's oil and gas revenues,  cash flow and proved oil
and gas reserves was accounted for by three wells,  the South Timbalier Block 76
well and the two East Bayou Sorrel  wells.  The Company sold all of its interest
in the East Bayou  Sorrel wells  effective  April 1, 1998.  The South  Timbalier
Block 76 well was  shut-in  for  repairs  for one month in 1997 and for over two
months in 1996 as the result of mechanical failures.  A significant  curtailment
or loss of  production  from the South  Timbalier  well for a  prolonged  period
before the  Company  could  replace the  reserves  through  new  discoveries  or
acquisitions  would have a material  adverse  effect on the Company's  operating
results in 1998.

       Volatility of Oil and Gas Prices. The Company's  revenues,  profitability
and future rate of growth are  substantially  dependent upon  prevailing  market
prices for natural gas and oil,  which can be  extremely  volatile and in recent
years have been depressed by excess domestic and imported supplies.

       Uncertainty  of  Estimates of Proved  Reserves  and Future Net  Revenues.
There are numerous  uncertainties  inherent in  estimating  quantities of proved
reserves and in projecting  future rates of production and timing of development
expenditures,  including  many  factors  beyond  the  control  of the  producer.
Estimating quantities of proved reserves is inherently imprecise. Such estimates
are based upon  certain  assumptions  about  future  production  levels,  future
natural gas and crude oil prices and future operating costs made using currently
available geologic engineering and economic data, some or all of which may prove
to be incorrect over time.

       Operating  and  Weather  Hazards.   The  cost  and  timing  of  drilling,
completing and operating wells is often  uncertain.  Drilling  operations may be
curtailed,  delayed or canceled  as a result of a variety of factors,  including
unexpected drilling conditions,  equipment failures,  accidents, adverse weather
conditions,  encountering  unexpected  formations  or  pressures in drilling and
completion operations, corrosive or hazardous substances,  mechanical failure of
equipment,  blowouts,  cratering  and fires.  These  conditions  could result in
damage or injury to, or  destruction  of,  formations,  producing  facilities or
other property or could result in personal  injuries,  loss of life or pollution
of the environment.

       Additional factors.  Additional factors that could cause actual events to
vary from those  discussed  above and  elsewhere in this report  include,  among
others:   loss  of  key  company  personnel;   adverse  change  in  governmental
regulation;  inability to obtain critical supplies and equipment,  personnel and
consultants; and inability to access capital to pursue the Company's plans.


                                       12
<PAGE>

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(A)      EXHIBITS

         Exhibit No.    Description
         -----------    -----------

             4.1        Warrant Agreement by and between Registrant and U.S.
                        Stock Transfer Corporation, as warrant agent (filed as
                        Exhibit 4.1 to Registrant's Registration Statement on
                        Form S-2 (333-45469) and incorporated herein by
                        reference
             4.2        Form of Warrant Certificate (filed as Exhibit 4.2 to
                        Registrant's Registration Statement on Form S-2
                        (333-45469) and incorporated herein by reference
            27.1*       Financial Data Schedule.

(B)      REPORTS ON FORM 8-K / 8K-A

         A  report  on Form  8-K was  filed  with the  Securities  and  Exchange
Commission on March 31, 1998 to report the Company's sale of East Bayou Sorrel.


*Filed herewith.

                                       13
<PAGE>


                      FORTUNE NATURAL RESOURCES CORPORATION

                                   SIGNATURES


        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.

                                FORTUNE NATURAL RESOURCES CORPORATION



                                By:   /s/ TYRONE J. FAIRBANKS
                                    -------------------------------------
                                    Tyrone J. Fairbanks
                                    President and Chief Executive Officer




                                By:   /s/ J. MICHAEL URBAN
                                    -------------------------------------
                                    J. Michael Urban
                                    Vice President and Chief Financial
                                      and Accounting Officer


Date:  May 8, 1998