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 SEPTEMBER 30, 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.
                        

                       12,134,677 as of October 30, 1998

<PAGE>

                         PART I - FINANCIAL INFORMATION

ITEM 1.  Financial Statements

<TABLE>
<CAPTION>
                      FORTUNE NATURAL RESOURCES CORPORATION
                                 BALANCE SHEETS

                                     ASSETS
                                                     September 30,  December 31,
                                                         1998           1997  
                                                     ------------   ------------
                                                      (Unaudited)     (Audited)
<S>                                                  <C>            <C>         
CURRENT ASSETS:
   Cash and cash equivalents.......................  $  2,385,000   $  1,667,000
   Accounts receivable.............................       266,000        507,000
   Prepaid expenses................................        86,000           --
                                                     ------------   ------------
      Total Current Assets.........................     2,737,000      2,174,000
                                                     ------------   ------------
PROPERTY AND EQUIPMENT:
   Oil and gas properties, accounted for
     using the full cost method....................    26,159,000     27,822,000
   Office and other................................       384,000        383,000
                                                     ------------   ------------
                                                       26,543,000     28,205,000
   Less--accumulated depletion, depreciation 
     and amortization                                 (20,383,000)   (18,403,000)
                                                     ------------   ------------
                                                        6,160,000      9,802,000
                                                     ------------   ------------
OTHER ASSETS:
   Materials, supplies and other ..................        86,000        124,000
   Debt issuance costs (net of accumulated 
     amortization of $446,000 and $93,000 at 
     September 30, 1998 and December 31, 1997, 
     respectively).................................       173,000        526,000
                                                     ------------   ------------
                                                          259,000        650,000
                                                     ------------   ------------

TOTAL ASSETS.......................................  $  9,156,000   $ 12,626,000
                                                     ============   ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

                                                     September 30,  December 31,
                                                         1998           1997  
                                                     ------------   ------------
CURRENT LIABILITIES:
   Current portion of long-term debt...............  $     10,000   $       --
   Accounts payable................................       183,000        279,000
   Accrued expenses................................       378,000        407,000
   Royalties and working interests payable.........        10,000         36,000
   Accrued interest................................          --           76,000
                                                     ------------   ------------
      Total Current Liabilities....................       581,000        798,000
                                                     ------------   ------------

LONG-TERM DEBT.....................................     3,225,000      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 12,134,678 and
        12,118,982 at September 30, 1998 and 
        December 31, 1997, respectively                   121,000        121,000
   Capital in excess of par value..................    30,171,000     30,283,000
   Accumulated deficit.............................   (24,942,000)   (22,313,000)
   Treasury Stock, at cost (9,769 shares at 
     December 31, 1997)                                      --          (38,000)  
                                                     ------------   ------------
NET STOCKHOLDERS' EQUITY...........................     5,350,000      8,053,000
                                                     ------------   ------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.........  $  9,156,000   $ 12,626,000
                                                     ============   ============
</TABLE>
                 See accompanying notes to financial statements.

                                       2
<PAGE>

<TABLE>
<CAPTION>

                      FORTUNE NATURAL RESOURCES CORPORATION
                            STATEMENTS OF OPERATIONS


                                                            For the Nine Months Ended  
                                                           ---------------------------
                                                           September 30,  September 30,
                                                               1998           1997  
                                                           ------------   ------------
                                                                   (Unaudited)
<S>                                                        <C>            <C>         
REVENUES
   Sales of oil and gas, net of royalties ...............  $  1,511,000   $  2,870,000
   Other income .........................................       118,000        137,000
                                                           ------------   ------------
                                                              1,629,000      3,007,000

COSTS AND EXPENSES
   Production and operating .............................       477,000        940,000
   Provision for depletion, depreciation and amortization     1,120,000
                                                                             1,609,000
   Impairment to oil and gas properties .................       860,000      3,200,000
   General and administrative ...........................     1,142,000      1,481,000
   Debt conversion expense ..............................          --          316,000
   Stock offering cost ..................................          --          323,000
   Interest paid in cash ................................       306,000        160,000
   Interest - amortization of deferred financing cost ...       353,000         62,000
                                                           ------------   ------------
                                                              4,258,000      8,091,000
                                                           ------------   ------------

LOSS BEFORE PROVISION FOR INCOME TAXES ..................    (2,629,000)    (5,084,000)
PROVISION FOR INCOME TAXES ..............................          --             --
                                                           ------------   ------------

NET LOSS ................................................  $ (2,629,000)  $ (5,084,000)
                                                           ============   ============

WEIGHTED AVERAGE NUMBER OF
  COMMON SHARES OUTSTANDING .............................    12,130,015     12,074,959
                                                           ============   ============

NET LOSS PER COMMON SHARE (BASIC AND DILUTED) ...........  $      (0.22)  $      (0.42)
                                                           ============   ============


</TABLE>

                     See accompanying notes to financial statements.


                                       3
<PAGE>

<TABLE>
<CAPTION>

                      FORTUNE NATURAL RESOURCES CORPORATION
                            STATEMENTS OF OPERATIONS

                                                           For the Three Months Ended 
                                                           ---------------------------
                                                           September 30,  September 30,
                                                               1998           1997  
                                                           ------------   ------------
                                                                   (Unaudited)
<S>                                                        <C>            <C>         
REVENUES
   Sales of oil and gas, net of royalties ...............  $    388,000   $  1,066,000
   Other income .........................................        42,000         29,000
                                                           ------------   ------------
                                                                430,000      1,095,000
                                                           ------------   ------------

COSTS AND EXPENSES
   Production and operating .............................       118,000        204,000
   Provision for depletion, depreciation and amortization       290,000
                                                                               640,000
   Impairment to oil and gas properties .................       600,000           --
   General and administrative ...........................       328,000        467,000
   Stock offering cost ..................................          --           54,000
   Interest paid in cash ................................        97,000         57,000
   Interest - amortization of deferred financing cost ...       162,000         35,000
                                                           ------------   ------------
                                                              1,595,000      1,457,000
                                                           ------------   ------------

LOSS BEFORE PROVISION FOR INCOME TAXES ..................    (1,165,000)      (362,000)
PROVISION FOR INCOME TAXES ..............................          --             --
                                                           ------------   ------------

NET LOSS ................................................  $ (1,165,000)  $   (362,000)
                                                           ============   ============

WEIGHTED AVERAGE NUMBER OF
  COMMON SHARES OUTSTANDING .............................    12,134,222     12,124,862
                                                           ============   ============

NET LOSS PER COMMON SHARE (BASIC AND DILUTED) ...........  $      (0.10)  $      (0.03)
                                                           ============   ============

</TABLE>

                     See accompanying notes to financial statements.

                                       4
<PAGE>
<TABLE>
<CAPTION>



                      FORTUNE NATURAL RESOURCES CORPORATION
                       STATEMENTS OF STOCKHOLDERS' EQUITY
                      FOR THE YEAR ENDED DECEMBER 31, 1997
                  AND THE NINE MONTHS ENDED SEPTEMBER 30, 1998



                                                             Capital in                                Stock-
                                           Common Stock      Excess of     Accumulated    Treasury     holders'
                                        Shares     Amount    Par Value       Deficit       stock        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  $(22,313,000)  $  (38,000) $ 8,053,000

Common stock issued for
  exercise of warrants and options..       5,512       --         13,000          --           --         13,000
Common stock contributed to
  Company 401(k) Plan...............      10,185       --         24,000          --           --         24,000
Cancellation of treasury stock.....          --        --        (38,000)         --         38,000         --
Voluntary exchange of public
  warrants for private warrants.....         --        --        (59,000)         --           --        (59,000)
Repurchase of outstanding
  private warrants..................         --        --        (52,000)         --           --        (52,000)
Common stock returned to treasury...          (1)      --           --            --           --           --
Net loss............................         --        --           --      (2,629,000)        --     (2,629,000)       
                                      ----------  --------  ------------  ------------   ----------  -----------
BALANCE, September 30, 1998
  (Unaudited).......................  12,134,678  $121,000  $ 30,171,000  $(24,942,000)  $     --    $ 5,350,000  
                                      ==========  ========  ============  ============   ==========  ===========

</TABLE>


                     See accompanying notes to financial statements.

                                       5
<PAGE>
<TABLE>
<CAPTION>

                      FORTUNE NATURAL RESOURCES CORPORATION
                            STATEMENTS OF CASH FLOWS


                                                                 For the Nine Months Ended 
                                                                ---------------------------
                                                                September 30,  September 30,
                                                                    1998           1997  
                                                                ------------   ------------
                                                                        (Unaudited)
<S>                                                              <C>           <C>         
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss ................................................... $ (2,629,000)  $ (5,084,000)
   Adjustments to reconcile net loss to net
     cash provided by (used in) operating activities:
      Depletion, depreciation and amortization ................    1,120,000      1,609,000
      Non-cash compensation expense ...........................       20,000         57,000
      Amortization of deferred financing cost .................      353,000         62,000
      Impairment of oil and gas assets ........................      860,000      3,200,000
      Debt conversion expense .................................         --          316,000
      Stock offering cost .....................................         --          323,000
   Changes in assets and liabilities:
      Accounts receivable .....................................      241,000       (300,000)
      Prepaids ................................................      (86,000)        18,000
      Accounts payable and accrued expenses ...................     (125,000)       713,000
      Royalties and working interest payable ..................      (26,000)       (52,000)
      Accrued interest ........................................      (76,000)       (46,000)
      Other assets ............................................       24,000           --
                                                                ------------   ------------
   Net cash (used in) provided by operating activities ........     (324,000)       816,000
                                                                ------------   ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Expenditures for oil and gas properties ....................   (3,032,000)    (3,414,000)
   Restricted cash used .......................................         --          138,000
   Return of exploration venture restricted cash ..............         --        2,154,000
   Proceeds from sale of properties and equipment .............    4,695,000        203,000
   Net changes in other property and equipment and other assets       17,000        (26,000)
                                                                ------------   ------------
   Net cash provided by (used in) investing activities ........    1,680,000       (945,000)
                                                                ------------   ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from issuance of long-term debt ...................         --           65,000
   Repayment of long term debt ................................     (540,000)      (450,000)
   Proceeds from issuance of common stock .....................       13,000        103,000
   Expenditures for debenture exchange and other offerings ....      (59,000)      (353,000)
   Expenditures for debt refinancing ..........................         --         (171,000)
   Repurchase of private warrants .............................      (52,000)          --
                                                                ------------   ------------
   Net cash used in financing activities ......................     (638,000)      (806,000)
                                                                ------------   ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ..........      718,000       (935,000)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ................    1,667,000      2,174,000
                                                                ------------   -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD ...................... $  2,385,000   $  1,239,000
                                                                ============   ============
Supplemental information:
   Interest paid in cash ......................................  $   382,000   $    160,000
Non-cash transactions
   Common stock issued for conversion of debt .................         --          975,000
   Common stock issued for 401(k) Plan contribution ...........       24,000         14,000

</TABLE>

                      See accompanying notes to financial statements

                                       6
<PAGE>

                      FORTUNE NATURAL RESOURCES CORPORATION

                          NOTES TO FINANCIAL STATEMENTS
                               September 30, 1998

(1)  Line of Business and Summary of Significant Accounting Policies and 
     Procedures

     The condensed financial statements at September 30, 1998, and for the three
months and nine months ended  September 30, 1998 and 1997  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  September  30, 1998 and  December  31,  1997,  the results of its
operations  for the three  months and nine months ended  September  30, 1998 and
1997, and cash flows for the nine months ended  September 30, 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 September 30, 1998, a summary of long-term debt is as follows:

                                                    September  30,  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................           10,000              -
                                                     ----------     ----------

     Long-term debt, excluding current 
       installments...........................       $3,225,000     $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. (See note 7 regarding
transactions  that may trigger  this  option.) 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  determined  at the time of issuance of the Notes that the
value of the potential adjustments to the conversion price was 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 are 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%.


                                       7
<PAGE>

     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.  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; consequently, the
Company does not know how much,  if any, is currently  available  for  borrowing
under this credit facility. Once the borrowing base is redetermined, the Company
may  borrow up to such  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. Primarily as a result of lower oil and gas prices
and lower production after the sale of East Bayou Sorrel, 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 twelve-month  period ended September 30,
1998.  The Company has received a waiver of this  covenant from the bank for the
period ended September 30, 1998.

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

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

(3)  Income Tax Expense

     No  provision  for income  taxes was required for the three months and nine
months ended September 30, 1998.

     At  September  30,  1998,  the  Company  estimates  it had  cumulative  net
operating  loss  carryforwards  for federal  income tax  purposes of $14 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.


                                       8
<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 its 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 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 its Common 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  because 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 was
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  Schwing #1 and #2 wells  began  producing  from  permanent  production
facilities in January 1997 and June 1997, respectively. Although both wells were
shut-in  from March 13, 1998  through the date of the sale to repair  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 was  spudded  October 9, 1997,  was
temporarily plugged and abandoned on March 5, 1998 pending further evaluation of
the well's potential.  During 1997 and 1998, 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:


                                       9
<PAGE>

                                           Year Ended      Nine Months Ended
                                       December 31, 1997   September 30, 1998 **
                                       -----------------   -----------------
     Production
        Oil (Bbls)                            55,000             12,000
        Gas (Mcf)                             78,000             18,000

     Oil and Gas Revenues                 $1,241,000           $231,000
     Production and Operating Expense        205,000             60,000
     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

----------

     *    Represents  the  estimated  reduction in  depreciation,  depletion 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.

     **   Amounts in this column represent 1998 production, revenues and related
          expenses  through  March 31, 1998,  the date of sale of the East Bayou
          Sorrel interests.


     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  have decreased  significantly
since the sale.

     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 was credited to
capitalized oil and gas properties as of March 31, 1998.  Subsequent to charging
these  proceeds  against  capitalized  oil and gas property  costs,  the Company
recorded impairments to oil and gas properties. Consequently, if the Company had
reported  a gain on the sale of this  property,  it would  have been  completely
offset by additional impairments to oil and gas properties.

(7)  Subsequent Events

     On  November  2, 1998,  the  Company  executed a letter of intent  with 3DX
Technologies Inc., a NASDAQ-traded  exploration and production company that uses
state-of-the-art geophysical interpretation and processing technology in its oil
and gas activities. On November 4, 1998, the Company executed a second letter of
intent with  Petro-Guard  Company,  Inc.  and  Petro-Guard  Production  LLC, two
privately-held   operating  and  production  companies  that  operate  producing
properties  and  exploratory  projects  along  the Gulf  Coast.  The  boards  of
directors  of each of the four  entities  have  approved  the letters of intent,
which provide for the merger of both 3DX and the Petro-Guard group into Fortune.
Each  of  the  transactions  is  conditioned  upon,  among  other  things,   the
preparation and approval of definitive merger agreements and the approval of the
shareholders of each of the companies.

     Petro-Guard  Company,  Inc. and Petro-Guard  Production LLC  (collectively,
Petro-Guard)  are both privately  owned  companies held  principally by Dewey A.
Stringer, III, a director of Fortune. Petro-Guard also operates and participates
in Fortune's Espiritu Santo Bay project in Calhoun County, Texas.


                                       10
<PAGE>

     The terms of the 3DX acquisition  provide for the issuance  initially of up
to 6,965,431 shares of Fortune stock. 3DX shareholders  could also receive up to
3,862,605  additional  Fortune  stock on or about two  years  after  closing  if
additional reserves attributable to the exploration properties acquired from 3DX
contribute disproportionately to the total of all reserves added by Fortune from
all exploration  properties.  No such additional shares will be issued, however,
if Fortune's  closing common stock price averages at least $3.50 per share for a
thirty-day consecutive period any time prior to December 31, 2000. The letter of
intent with  Petro-Guard  provides for Fortune to issue three million  shares of
its common stock to the  Petro-Guard  shareholders in exchange for the assets of
those companies. The Company expects to mail proxies by February 1, 1999 seeking
shareholder  approval of these  transactions.  The Company  expects to close the
transactions  before  the end of the first  quarter  of 1999.  Fortune  has also
obtained a conditional  commitment from a private  investor for an additional $5
million  dollars in  capital,  on terms to be agreed  upon,  to  facilitate  the
additional exploration capital requirements of the combined companies. The terms
of this conditional commitment will be reported when they are finalized.

     3DX reported total revenues for the six months ended June 30, 1998, of $2.1
million  and a net loss for the same  period of $6.4  million.  The  Petro-Guard
companies  report  their  financial  results  on  a  tax  basis;   consequently,
accounting  information prepared on a generally accepted accounting basis is not
currently available.

     In the event that the Company  issues  common  stock at a price below $3.00
per share  prior to May 1, 1999,  the  holders of the  Convertible  Subordinated
Notes  discussed  in note 2 have a  one-time  option to  convert  the Notes at a
conversion price lower than $3.00 per share. At the holders option,  the current
$3.00 per share conversion price is reduced by an amount obtained by multiplying
the difference between $3.00 and the price at which new shares are issued by the
ratio of total new shares  issued over total  shares  outstanding  after the new
issuance.  If these proposed  acquisition  transactions are consummated prior to
May 1, 1999, this one-time conversion option may be triggered.


                                       11
<PAGE>

                      FORTUNE NATURAL RESOURCES CORPORATION


ITEM 2.  Management's  Discussion  and  Analysis  of  Financial  Condition  
         and Results of Operations

Comparison of 1998 Operating Results to 1997.

     Third Quarter 1998 vs. 1997

     During  the  third  quarter  of  1998,  Fortune's  net  loss  increased  to
$1,165,000  compared to a net loss of  $362,000  for the same 1997  period.  The
higher 1998 loss was primarily attributable to the $600,000 non-cash impairments
to oil and gas properties recorded in the third quarter of 1998.

     The sale of East Bayou Sorrel as well as significantly lower oil prices and
lower oil and gas production  resulted in net oil and gas revenues decreasing by
$678,000  (64%) in the third quarter of 1998,  compared to the same 1997 period.
The Company's  oil  production  decreased 73% to 7,500 barrels  during the third
quarter of 1998 versus 1997. Gas production  decreased 39% to 142,800 MCF during
the  third  quarter  of 1998  versus  1997.  Oil and  gas  production  decreased
primarily 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.
Additional production declines in 1998 resulted from shutting in South Timbalier
76 for  approximately  one-half of September 1998 because of tropical  storms in
the Gulf of Mexico.

     Gas prices on the Company's production averaged $2.09 per MCF for the third
quarter of 1998 as  compared  to $2.36 per MCF for the same 1997  period (an 11%
decrease).  Oil prices  averaged $11.75 per barrel for the third quarter of 1998
compared to $18.46 per barrel for the same 1997 period (a 36% decrease).

     Production  and  operating  expense  decreased by $86,000  (42%) during the
third  quarter  of 1998 over 1997  primarily  because  of the sale of East Bayou
Sorrel.

     General and  administrative  expense  decreased  $139,000  (30%) during the
third quarter of 1998 versus 1997 primarily because of lower litigation costs in
1998 in connection with the 1995  Regulation S offering  (discussed in note 4 to
the financial statements) and lower personnel costs.

     Interest  expense paid in cash  increased by $40,000 (70%) during the third
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.  Non-cash
amortization  of debt financing  costs increased by $127,000 during 1998 because
of the Company's Notes offering in December 1997 and credit facility refinancing
in July 1997.

     Fortune incurred a $600,000  non-cash  impairment to oil and gas properties
expense  during the third  quarter 1998 as a result of its full cost  accounting
ceiling  test.  The  Company's   provision  for  depletion,   depreciation   and
amortization  (DD&A) decreased by $350,000 (55%) in the third quarter of 1998 as
compared to 1997  primarily  because of the impact of impairments to oil and gas
properties and the sale of East Bayou Sorrel.

     Because the Company is  currently  not  profitable  and has not been so for
over five years, Fortune is below the continued listing requirements of the AMEX
and  there  can be no  assurance  that the  Company  will  remain  listed on the
exchange.  Based upon discussions with AMEX officials,  management believes that
the mergers with 3DX and the Petro-Guard  companies  discussed in Item 5 of Part
II herein will  reflect  favorably  upon future  decisions  regarding  continued
listing.


                                       12
<PAGE>

     Nine Months Ended September 30, 1998 vs. 1997

     During the nine months ended September 30, 1998,  Fortune had a net loss of
$2,629,000  compared to a net loss of $5,084,000  for the same 1997 period.  The
higher  1997 loss was  primarily  attributable  to the  $316,000  non-cash  debt
conversion  expense  incurred in connection with closing the Company's  Exchange
Offer on February 26, 1997,  the $269,000 of stock  offering  costs  incurred in
1997 for the public  offering  which was withdrawn in April 1997, the $3,200,000
non-cash  impairments to oil and gas  properties  recorded in 1997 and increased
depreciation, depletion and amortization expense in 1997.

     Net oil and gas  revenues  in the first nine  months of 1998  decreased  by
$1,359,000  (47%)  compared  to the same 1997  period.  The  decrease  primarily
resulted from significantly  lower oil and gas prices and oil and gas production
in 1998.  1997 revenues  included  revenues from the Company's East Bayou Sorrel
field  that was sold  effective  April 1,  1998.  South  Timbalier  Block 76 was
shut-in for 26 days in 1997 for a workover,  adversely  affecting  1997 revenues
and partially offsetting the decrease from 1997 to 1998.

     Oil production decreased 44% to 35,600 barrels during the first nine months
of 1998 versus 1997 as a result of the sale of East Bayou Sorrel. Gas production
decreased  28% to 462,700 MCF during the first nine months of 1998 versus  1997,
also primarily because of the sale of East Bayou Sorrel.

     For the first  nine  months  of 1998,  the  Company's  natural  gas  prices
averaged  $2.23 per MCF as compared to $2.56 per MCF for the same 1997 period (a
13% decrease).  Oil prices  averaged $13.38 per barrel for the first nine months
of 1998 compared to $19.20 per barrel for the same 1997 period (a 30% decrease).

     Production and operating  expense decreased by $463,000 (49%) for the first
nine months of 1998 over 1997. Production and operating expense in 1997 included
approximately  $400,000 of costs  attributable  to a workover at South Timbalier
Block 76.

     General and  administrative  expense decreased $339,000 (23%) for the first
nine months of 1998 versus 1997 primarily  because of lower  litigation costs in
1998 in connection with the 1995  Regulation S offering  (discussed in note 4 to
the financial statements) and lower personnel costs.

     Interest  expense paid in cash  increased  by $146,000  (91%) for the first
nine  months  of 1998  versus  1997 due to the  higher  debt  balance.  Non-cash
amortization  of debt financing  costs increased by $292,000 during 1998 because
of the Company's Notes offering in December 1997 and credit facility refinancing
in  July  1997.  The  Company's   provision  for  depletion,   depreciation  and
amortization (DD&A) decreased by $489,000 (30%) in the first nine months of 1998
as  compared  to  1997  because  of the  impact  of  impairments  to oil and gas
properties and the sale of East Bayou Sorrel.

     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 September  30, 1998.  Fortune's  operating
activities during the first nine months of 1998 generated  negative cash flow in
the  amount of  $324,000  as  compared  to cash  flow  provided  from  operating
activities of $816,000 for the first nine months of 1997. This decrease  results
primarily from the significant increase in payables in 1997 versus a decrease in
1998.  Before  considering  the effect of  changes  in assets  and  liabilities,
operating  cash flow was a negative  $276,000 for 1998 as compared to a positive
$483,000 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
significantly  higher  working  capital  balance of  $2,156,000 at September 30,
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.


                                       13
<PAGE>

     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.

     Cash Used in Investing Activities - Capital Expenditures

     Cash  expenditures  for oil and gas properties for the first nine months of
1998 were  $3,032,000 as compared to $3,414,000 for the same period in 1997. The
1998 expenditures have been incurred  primarily in connection with the Company's
projects at LaRosa,  Espiritu  Santo Bay, East Bayou Sorrel,  Whiskey Pass,  Sea
Serpent and Southwest Segno.

     The Company has been  involved in two  significant  proprietary  3D seismic
projects along the Texas coast. The LaRosa project, a 24 square mile proprietary
3D seismic survey over one of the Company's existing producing fields in Refugio
County, Texas has been shot and drilling operations have commenced.  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. Seven wells have been drilled based upon the 3D seismic through September
30, 1998.  Four wells have been completed as producers and three wells have been
plugged and abandoned. Additional drilling is expected in 1999. During 1998, the
Company has incurred  $750,000 of seismic  interpretation,  leasing and drilling
and  completion  costs  through the third  quarter.  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 seismic 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 was completed
in 1997 and drilling has commenced. Three wells have been spud based upon the 3D
seismic  through  September  30,  1998.  The  first  well has been  plugged  and
abandoned and the other two wells are being evaluated. A fourth well was spud in
October and is currently being evaluated.  During 1998, the Company has incurred
$725,000 of seismic  interpretation,  leasing costs and drilling and  completion
for this project through the third quarter.

     During the second quarter of 1998, the Company  entered into  agreements to
participate  in  three  wells  on  prospects  in the  transition  zone  offshore
Louisiana. Two of the wells are on the Whiskey Pass prospect and the third is on
the Sea Serpent prospect.  The prospects were identified by another company on a
25 square mile  transition  zone 3D seismic  survey which Fortune also owns. All
three wells have been drilled and plugged and abandoned.  Through  September 30,
1998, the Company has incurred approximately $731,000 of seismic,  leasehold and
drilling costs for these projects. The Company also incurred $166,000 in 1998 in
connection  with its dry hole at the Southwest Segno prospect in Liberty County,
Texas.

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

     Cash Used in Financing Activities

     On March 31,  1998,  the Company  repaid 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  twelve-month
period  ended  September  30,  1998.  The Company has  received a waiver of this
covenant from the bank for the period ended September 30, 1998.


                                       14
<PAGE>

     Oil and Gas Prices

     Conditions outside of the Company's control influence the price it receives
for oil and gas. 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. These fluctuating oil and gas prices have
contributed to  impairments  to oil and gas properties  such as the $3.2 million
impairment  recorded in 1997 and the $860,000 of impairment  recorded during the
first nine months of 1998. As of November 10, 1998, the Company was receiving an
average of approximately  $11.00 per barrel for its oil production and $2.15 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."  The Company  currently  does not
operate  any of its  producing  properties;  accordingly  it  does  not  use any
operating  systems  internally  that  must  be  evaluated  for  compliance.  The
Company's  concerns  regarding year 2000 compliance rests almost solely with its
third party business associates. The Company has been assessing the readiness of
the third  parties that it believes  are  important  to its  business,  such as:
operators of its properties,  its oil and gas product purchasers, its accounting
system providers,  consultants,  communication systems providers, etc. The third
parties  contacted thus far have represented  either to be in compliance or have
communicated their plans and timetables for compliance.  This process,  however,
is ongoing. The Company has begun making contingency plans in the event that its
third  parties  are  unable to  achieve  compliance.  With  respect  to  product
purchasers,  systems  providers,  consultants,  its bank, and its stock transfer
agent,  for example,  the Company does not have any contracts that extend beyond
January 1999 and it will change to goods and service providers who are year 2000
compliant,  if  necessary.  With  respect to operators  of its  properties,  the
Company  believes  that a  failure  to comply by the  operator  or its  critical
suppliers  would  generally not be material  except at South Timbalier Block 76.
CNG Producing  Company ("CNG") operates South Timbalier Block 76 and the Company
is reviewing  CNG's  compliance  efforts.  The Company does not believe that the
direct,  out-of-pocket  cost of its year 2000  compliance  requirements  will be
significant.  There are, however,  numerous parties with whom the Company has no
direct  contact  but who  nonetheless  could  have a  significant  impact on the
Company's business activities if such parties do not achieve  compliance.  These
indirect third parties  include oil and gas refiners,  gas and oil  transmission
companies,  third  party  banking  institutions,  suppliers  of  supplier,  etc.
Although the Company has no practical  way of assessing  the  viability of these
companies,  Fortune  believes  that its risk are no greater in this  regard than
businesses  and the public in general.  The Company will continue to monitor the
status of year 2000  compliance  issues to determine the impact,  if any, on its
operations.


Proposed merger and acquisition transactions

     See note 7 to the financial  statements  and Item 5 of Part II herein for a
discussion  of the  proposed  acquisitions  of 3DX  Technologies  Inc.  and  the
Petro-Guard  companies.  As is  discussed in Item 5, there are  conditions  that
could prevent these mergers from closing. However, if they do close, the Company
expects that its proved reserves,  revenues,  operating costs and overhead costs
will increase significantly after closing.

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,
"Year 2000"  compliance  issues 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.


                                       15
<PAGE>

     Exploration and Development  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 nine months of
1998, over 58% of the Company's oil and gas revenues and cash flow 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. For the three months ended  September 30, 1998,
50% of the  Company's  oil and  gas  revenues  was  accounted  for by the  South
Timbalier 76 well. 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. The well was also shut in for approximately one-half of September 1998
because of tropical storms. 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  regulatory
and  environmental  constraints,   unexpected  drilling  conditions,   equipment
failures,   accidents,  adverse  weather  conditions,   encountering  unexpected
formations  or  pressures in drilling and  completion  operations,  encountering
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;  regulatory and/or  environmental  constraints;  inability to obtain
critical  supplies and equipment,  personnel and  consultants;  and inability to
access capital to pursue the Company's plans.


                                       16
<PAGE>

                      FORTUNE NATURAL RESOURCES CORPORATION
                           PART II - OTHER INFORMATION


ITEM 5.     Other Information

     On  November  2, 1998,  the  Company  executed a letter of intent  with 3DX
Technologies  Inc.,  a  NASDAQ-traded  oil and gas  exploration  and  production
company that uses  state-of-the-art  geophysical  interpretation  and processing
technology  in its oil and gas  activities.  On  November  4, 1998,  the Company
executed  a  second  letter  of  intent  with  Petro-Guard  Company,   Inc.  and
Petro-Guard   Production  LLC,  two  privately-held   operating  and  production
companies that operate producing  properties and exploratory  projects along the
Gulf Coast.  The boards of directors of each of the four  entities have approved
the  letters  of  intent,  which  provide  for the  merger  of both  3DX and the
Petro-Guard  group into Fortune.  Each of the transactions is conditioned  upon,
among other things, the preparation and approval of definitive merger agreements
and the  approval  of the  shareholders  of each of the  companies.  The Company
expects to mail  proxies by February  1, 1999  seeking  shareholder  approval of
these  transactions.  The Company expects closing to occur before the end of the
first quarter of 1999. This summary of the proposed transactions is qualified in
its  entirety  by the  letters of intent  between  the  Company  and the sellers
attached as exhibits hereto.

     Proposed transaction with 3DX -

     Upon closing the acquisition of 3DX, Fortune will:

     (i)    issue to the 3DX shareholders up to 0.75 share of the $.01 par value
            common stock of Fortune (the "Fortune Common") for each share of the
            outstanding  common stock of 3DX, not to exceed  6,965,431 shares of
            Fortune common stock;

     (ii)   reserve up to an additional  923,778  shares of Fortune common stock
            to be issued  upon the  exercise  of  outstanding  3DX  options  and
            warrants; and

     (iii) reserve,  up to 3,862,605  additional shares of Fortune Common, to be
            earned  and  distributed  on or about two years  after  closing,  if
            certain disproportionate contributions to Fortune's proved reserves,
            as established by its independent  petroleum engineers,  are made in
            accordance with the following formula.

          If Fortune  books  proved  reserves  attributable  to the  exploration
     properties  acquired  from 3DX prior to January 1, 2001 that exceed  proved
     reserves Fortune books for other exploration projects,  the difference (the
     "3DX  Exploration  Reserves")  will be  used to  calculate  the  number  of
     additional shares to be issued.  Such shares shall be issued at the rate of
     one (1) share for every nine (9) MCFE of 3DX Exploration Reserves. However,
     no such  shares  will be issued if  Fortune's  closing  common  stock price
     averages $3.50 for any  consecutive  thirty-day  period between closing and
     December 31, 2000.

     3DX reported total revenues for the six months ended June 30, 1998, of $2.1
million and a net loss for the same period of $6.4 million.

     Fortune has also obtained a conditional  commitment from a private investor
for an additional $5 million dollars in capital,  on terms to be agreed upon, to
facilitate the additional  exploration and capital  requirements of the combined
companies.  The terms of this conditional  commitment will be reported when they
are finalized.

     Proposed transaction with the Petro-Guard companies-

     Petro-Guard  Company,  Inc. and Petro-Guard  Production LLC  (collectively,
Petro-Guard)  are both privately  owned  companies held  principally by Dewey A.
Stringer, III, a director of Fortune. Petro-Guard also operates and participates
in Fortune's Espiritu Santo Bay project in Calhoun County, Texas.


                                       17
<PAGE>

     Upon closing the proposed transaction with Petro-Guard,  Fortune will issue
to the owners of  Petro-Guard  three million shares of the $.01 par value common
stock of Fortune (the "Fortune  Stock") in exchange for 100% of Petro-Guard  and
100% of Mr.  Stringer's  interest  in  certain  other  oil and gas  assets.  The
Petro-Guard   companies   report  their  financial   results  on  a  tax  basis;
consequently, accounting information prepared on a generally accepted accounting
basis is not currently available.

     Any  additional  financial  information,  including any necessary pro forma
information,  relating  to  these  transactions  which  may  be  required  under
generally accepted accounting  principles and Securities and Exchange Commission
guidelines will be reported when such information becomes available.

ITEM 6.     Exhibits and Reports on Form 8-K

(a)  EXHIBITS

     Exhibit No. Description

     10.1*    Letter of Intent dated November 2, 1998 between Registrant and 3DX
              Technologies Inc.

     10.2*    Letter  of  Intent  dated  November  4,  1998  between  Registrant
              and Dewey A. Stringer, III, Petro-Guard Company, Inc. and 
              Petro-Guard Production LLC.

     27.1*    Financial Data Schedule.


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

     None.


*Filed herewith.


                                       18
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                      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:  November 12, 1998

                                       19
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