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 JUNE 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.

                         12,133,479 as of July 31, 1998


<PAGE>

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

                                     ASSETS
                                                           June 30,     December 31,
                                                             1998          1997
                                                         ------------   ------------
                                                         (Unaudited)     (Audited)
<S>                                                      <C>            <C>         
CURRENT ASSETS:
     Cash and cash equivalents ......................    $  3,530,000   $  1,667,000
     Accounts receivable ............................         435,000        507,000
     Prepaid expenses ...............................          99,000           --
                                                         ------------   ------------
         Total Current Assets .......................       4,064,000      2,174,000
                                                         ------------   ------------

PROPERTY AND EQUIPMENT:
     Oil and gas properties, accounted for
       using the full cost method ...................      24,838,000     27,822,000
     Office and other ...............................         384,000        383,000
                                                         ------------   ------------
                                                           25,222,000     28,205,000
     Less--accumulated depletion, 
       depreciation and amortization ................     (19,493,000)   (18,403,000)
                                                         ------------   ------------
                                                            5,729,000      9,802,000
                                                         ------------   ------------
OTHER ASSETS:
     Materials, supplies and other ..................          86,000        124,000
     Debt issuance costs (net of accumulated 
       amortization of $285,000 and $93,000 
       at June 30, 1998 and December 31, 
       1997, respectively) ..........................         335,000        526,000
                                                         ------------   ------------
                                                              421,000        650,000
                                                         ------------   ------------

TOTAL ASSETS ........................................    $ 10,214,000   $ 12,626,000
                                                         ============   ============
</TABLE>

<TABLE>
<CAPTION>
                      LIABILITIES AND STOCKHOLDERS' EQUITY

                                                           June 30,     December 31,
                                                             1998          1997
                                                         ------------   ------------
<S>                                                      <C>            <C>         
CURRENT LIABILITIES:
     Accounts payable................................    $    175,000   $    279,000
     Accrued expenses................................         280,000        407,000
     Royalties and working interests payable.........          11,000         36,000
     Accrued interest................................               -         76,000
                                                         ------------   ------------
         Total Current Liabilities...................         466,000        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 June 30, 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..................      30,169,000     30,283,000
     Accumulated deficit.............................     (23,777,000)   (22,313,000)
                                                         ------------   ------------
NET STOCKHOLDERS' EQUITY.............................       6,513,000      8,053,000
                                                         ------------   ------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY...........    $ 10,214,000   $ 12,626,000
                                                         ============   ============
</TABLE>
                       See accompanying notes to financial statements.

                                       2
<PAGE>

<TABLE>
<CAPTION>

                      FORTUNE NATURAL RESOURCES CORPORATION
                            STATEMENTS OF OPERATIONS


                                                           For the Six Months Ended
                                                         ---------------------------
                                                           June 30,       June 30,
                                                             1998           1997
                                                         ------------   ------------
                                                                 (Unaudited)
<S>                                                      <C>            <C>
REVENUES
     Sales of oil and gas, net of royalties..........    $  1,123,000   $  1,804,000
     Other income....................................          76,000        106,000
                                                         ------------   ------------
                                                            1,199,000      1,910,000
                                                         ------------   ------------

COSTS AND EXPENSES
     Production and operating........................         359,000        736,000
     Provision for depletion, depreciation 
       and amortization..............................         830,000        969,000
     Impairment to oil and gas properties............         260,000      3,200,000
     General and administrative......................         813,000      1,012,000
     Debt conversion expense.........................               -        316,000
     Stock offering cost.............................               -        269,000
     Interest paid in cash...........................         209,000        103,000
     Interest - amortization of deferred 
       financing cost................................         192,000         27,000
                                                         ------------   ------------
                                                            2,663,000      6,632,000
                                                         ------------   ------------

LOSS BEFORE PROVISION FOR INCOME TAXES...............      (1,464,000)    (4,722,000)
PROVISION FOR INCOME TAXES...........................               -              -
                                                         ------------   ------------

NET LOSS ............................................    $ (1,464,000)  $ (4,722,000)
                                                         ============   ============

WEIGHTED AVERAGE NUMBER OF
  COMMON SHARES OUTSTANDING..........................      12,127,877     12,049,593
                                                         ============   ============

NET LOSS PER COMMON SHARE............................    $      (0.12)  $      (0.39)
                                                         ============   ============
</TABLE>

                 See accompanying notes to financial statements.

                                       3
<PAGE>

<TABLE>
<CAPTION>


                      FORTUNE NATURAL RESOURCES CORPORATION
                            STATEMENTS OF OPERATIONS

                                                          For the Three Months Ended
                                                         ---------------------------
                                                           June 30,       June 30,
                                                             1998           1997
                                                         ------------   ------------
                                                                 (Unaudited)
<S>                                                      <C>            <C>
REVENUES
     Sales of oil and gas, net of royalties .........    $    417,000   $    691,000
     Other income ...................................          59,000         54,000
                                                         ------------   ------------
                                                              476,000        745,000
                                                         ------------   ------------

COSTS AND EXPENSES
     Production and operating .......................         132,000        543,000
     Provision for depletion, depreciation 
       and amortization .............................         260,000        485,000
     Impairment to oil and gas properties ...........         260,000      3,000,000
     General and administrative .....................         354,000        459,000
     Stock offering cost ............................               -        155,000
     Interest paid in cash ..........................          99,000         49,000
     Interest - amortization of deferred 
       financing cost ...............................          96,000         13,000
                                                         ------------   ------------
                                                            1,201,000      4,704,000
                                                         ------------   ------------

LOSS BEFORE PROVISION FOR INCOME TAXES ..............        (725,000)    (3,959,000)
PROVISION FOR INCOME TAXES ..........................               -              -
                                                         ------------   ------------

NET LOSS ............................................    $   (725,000)  $ (3,959,000)
                                                         ============   ============

WEIGHTED AVERAGE NUMBER OF
  COMMON SHARES OUTSTANDING .........................      12,133,479     12,123,918
                                                         ============   ============

NET LOSS PER COMMON SHARE ...........................    $      (0.06)  $      (0.33)
                                                         ============   ============

</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 SIX MONTHS ENDED JUNE 30, 1998



              
                                                 Common Stock         Capital in                               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              -              -
Voluntary exchange of public
   warrants for private warrants..........           -           -       (59,000)        -              -        (59,000)
Repurchase of outstanding
   private warrants.......................           -           -       (52,000)        -              -        (52,000)
Net loss..................................           -           -             -         -     (1,464,000)    (1,464,000)
                                            ----------   ---------   -----------  --------   ------------   ------------

BALANCE, June 30, 1998
   (Unaudited)............................  12,133,479   $ 121,000   $30,169,000  $      -   $(23,777,000)  $  6,513,000
                                            ==========   =========   ===========  ========   ============   ============

</TABLE>

                 See accompanying notes to financial statements.

                                       5
<PAGE>

<TABLE>
<CAPTION>

                      FORTUNE NATURAL RESOURCES CORPORATION
                            STATEMENTS OF CASH FLOWS


                                                                        For the Six Months Ended
                                                                       --------------------------
                                                                        June 30,       June 30,
                                                                          1998           1997
                                                                       -----------    -----------
<S>                                                                    <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net loss......................................................    $(1,464,000)   $(4,722,000)
     Adjustments to reconcile net loss to net
       cash provided by (used in) operating activities:
         Depletion, depreciation and amortization..................        830,000        969,000
         Non-cash compensation expense.............................         20,000         42,000
         Amortization of deferred financing cost...................        192,000         28,000
         Impairment of oil and gas assets..........................        260,000      3,200,000
         Debt conversion expense...................................              -        316,000
         Stock offering cost.......................................              -        269,000
     Changes in assets and liabilities:
         Accounts receivable.......................................         72,000        225,000
         Prepaids..................................................        (99,000)        18,000
         Accounts payable and accrued expenses.....................       (231,000)     1,227,000
         Royalties and working interest payable....................        (25,000)       (47,000)
         Accrued interest..........................................        (76,000)       (41,000)
         Other assets..............................................         23,000              -
                                                                       -----------    -----------
     Net cash (used in) provided by operating activities...........       (498,000)     1,484,000
                                                                       -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Expenditures for oil and gas properties.......................     (1,711,000)    (2,124,000)
     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       (129,000)
                                                                       -----------    -----------
     Net cash provided by investing activities.....................      3,001,000        242,000
                                                                       -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Repayment of long term debt...................................       (540,000)      (450,000)
     Proceeds from issuance of common stock........................         11,000        103,000
     Expenditures for debenture exchange and other offerings.......        (59,000)      (294,000)
     Repurchase of private warrants................................        (52,000)             -
                                                                       -----------    -----------
     Net cash used in financing activities.........................       (640,000)      (641,000)
                                                                       -----------    -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS..........................      1,863,000      1,085,000

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.....................      1,667,000      2,174,000
                                                                       -----------    -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD...........................    $ 3,530,000    $ 3,259,000
                                                                       ===========    ===========
Supplemental information:
     Interest paid in cash..........................................   $   209,000    $   103,000
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


                                       6
<PAGE>

                      FORTUNE NATURAL RESOURCES CORPORATION
                         PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                          NOTES TO FINANCIAL STATEMENTS
                                  June 30, 1998

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

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

                                                   June 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.............                -               -
                                                ------------    ------------
     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  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.  Under the credit facility,  once the borrowing base
is redetermined,  the Company may 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.  Primarily as a result of the lower
revenues  in 1998 as a result of lower oil and gas  prices  and 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 June 30, 1998.  The Company has requested a waiver of
this  covenant  from the bank for the  period  ended June 30,  1998.  Although a
waiver has not been  received  from the bank as of the date hereof,  the Company
has not  reclassified  the $10,000  outstanding  balance on such debt to current
liabilities because the amount is not material.

     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 and six
months ended June 30, 1998.

     At June 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 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 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     Six Months Ended
                                           December 31, 1997    June 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 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 was credited to
capitalized oil and gas properties as of March 31, 1998.

(7)  WARRANT EXCHANGE OFFER

     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.  $59,000 of costs incurred by the Company in connection with the exchange
offer were charged to Shareholders' Equity during the second quarter of 1998.


                                       10
<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.

     SECOND QUARTER 1998 VS. 1997

     During the second quarter of 1998, Fortune's net loss decreased to $725,000
compared to a net loss of $3,959,000  for the same 1997 period.  The higher 1997
loss was primarily  attributable to the $3,000,000  non-cash  impairments to oil
and gas properties recorded in the second quarter of 1997.

     Significantly lower oil prices and lower oil and gas production resulted in
net oil and gas revenues  decreasing by $274,000  (40%) in the second quarter of
1998,  compared to the same 1997 period. The Company's oil production  decreased
59% to 6,700  barrels  during  the  second  quarter  of 1998  versus  1997.  Gas
production decreased 15% to 151,000 MCF during the second 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.

     Gas  prices  on the  Company's  production  averaged  $2.22 per MCF for the
second  quarter of 1998 as compared to $2.20 per MCF for the same 1997 period (a
1% increase).  Oil prices  averaged  $12.32 per barrel for the second quarter of
1998 compared to $18.33 per barrel for the same 1997 period (a 33% decrease).

     Production  and operating  expense  decreased by $411,000  (76%) during the
second  quarter  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  $105,000  (23%) during the
second 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 $50,000 (102%) during the second
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 $83,000 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 $225,000  (46%) in the second  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.


                                       11
<PAGE>

     SIX MONTHS ENDED JUNE 30, 1998 VS. 1997

     During  the six  months  ended  June 30,  1998,  Fortune  had a net loss of
$1,464,000  compared to a net loss of $4,722,000  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 six  months  of 1998  decreased  by
$681,000 (38%) 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 22% to 28,100 barrels during the first six months
of 1998 versus 1997 as a result of this sale.  Gas  production  decreased 22% to
320,000  MCF during the first six months of 1998  versus  1997,  also  primarily
because of the sale of East Bayou Sorrel, as discussed above.

     For the first six months of 1998, the Company's natural gas prices averaged
$2.30  per MCF as  compared  to $2.67  per MCF for the same  1997  period (a 14%
decrease).  Oil  prices  averaged  $13.82 per barrel for the first six months of
1998 compared to $19.76 per barrel for the same 1997 period (a 30% decrease).

     Production and operating  expense decreased by $377,000 (51%) for the first
six 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 $199,000 (20%) for the first
six 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  increased by $106,000 (103%) for the first six months of
1998 versus 1997 due to the higher debt balance.  Non-cash  amortization of debt
financing costs increased by $165,000 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 $139,000  (14%) in the first six 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 June 30, 1998. Fortune's operating activities
during the first six months of 1998  generated  negative cash flow in the amount
of $498,000  as compared to cash flow  provided  from  operating  activities  of
$1,484,000  for the first six 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  $(163,000)  for 1998 as compared to $102,000 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  $3,598,000  at June 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.


                                       12
<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 six months of
1998 were  $1,711,000 as compared to $2,124,000 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 and
Southwest Segno.

     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 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.  Four wells  have been  drilled  based upon the 3D
seismic  through June 30, 1998. The first well was completed as a producer,  two
wells have been plugged and  abandoned  and a fourth is awaiting  completion.  A
fifth well  drilled  during  July 1998 was  plugged  and  abandoned.  Additional
drilling is expected in 1998.  During 1998, the Company has incurred $502,000 of
seismic  interpretation,  leasing and drilling costs through the second 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 is being interpreted.  The Company is encouraged by the results thus
far and expects to begin drilling  wells by late 1998.  During 1998, the Company
has incurred  $137,000 of seismic  interpretation  and leasing costs through the
second quarter.

     During the second quarter of 1998, the Company  entered into  agreements to
participate in the drilling of 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 sq. mile  transition  zone 3D seismic  survey which Fortune also
owns. Through June 30, 1998, the Company has incurred  approximately $305,000 of
seismic,  leasehold  and drilling  costs.  The first well drilled on the Whiskey
Pass  prospect was plugged and  abandoned in May 1998.  The Sea Serpent well was
drilled in July 1998 and plugged and abandoned on July 22, 1998. The second well
on the Whiskey Pass prospect is planned for the third  quarter of 1998.  Fortune
pays 12.5% of drilling and  completion  costs of these  wells.  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 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 June 30, 1998.  The Company has requested a waiver of this covenant
from the bank for the period  ended June 30, 1998.  The Company has  requested a
waiver  of this  covenant  from the bank for the  period  ended  June 30,  1998.
Although a waiver has not been received from the bank as of the date hereof, the
Company has not  reclassified  the $10,000  outstanding  balance on such debt to
current liabilities because the amount is not material.

                                       13
<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 $260,000  impairment recorded in the second
quarter of 1998. Oil prices have been  particularly  low in recent months;  and,
although they may have recovered  somewhat since June 30, 1998,  there can be no
assurance  that  continued  fluctuations  in oil  and/or  gas  prices  will  not
contribute  to  further  revenue   declines  and  impairments  to  oil  and  gas
properties.  As of July 29,  1998,  the  Company  was  receiving  an  average of
approximately $11.60 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.


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 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 six months of
1998, over 60% 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 June 30, 1998,  over
51% 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.  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.

                                       14
<PAGE>

     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.


                                       15
<PAGE>

                      FORTUNE NATURAL RESOURCES CORPORATION
                           PART II - OTHER INFORMATION

ITEM 4.       SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     The annual meeting of  shareholders of the Company was held April 28, 1998.
The  following  matters were voted on at that  meeting:
<TABLE>
<CAPTION>

                                                                                            Broker
              Matter                    Votes in Favor  Votes Opposed  Abstain Non-Votes  Non-Votes
--------------------------------------  --------------  -------------  -----------------  ---------
<S>                                         <C>              <C>             <C>              <C>
Election of Daniel R. Shaughnessy
   to Board of Directors                     9,651,783            0          671,131          0

Election of Graham S. Folsom
   to Board of Directors                    10,102,383            0          220,531          0

Election of Dewey A. Stringer, III
   to Board of Directors                    10,102,871            0          220,043          0

Ratification of KPMG Peat Marwick LLP
   as Company Auditors                      10,222,868       82,600           17,446          0

</TABLE>

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)     EXHIBITS

        Exhibit No.           Description
        -----------    ----------------------------
            27.1*      Financial Data Schedule.


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

        None.

*Filed herewith.


                                       16
<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:  August 3, 1998


                                       17
<PAGE>