UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    Form 10-Q

                   Quarterly Report under Section 13 or 15(d)
                     of the Securities Exchange Act of 1934

For quarter ended September 30, 2000                 Commission File No. 0-6764
                  ------------------                                     ------

                            Fortune Financial, Inc.
                           -------------------------
             (Exact name of registrant as specified in its charter)


              Florida                                  59-1218935
--------------------------------               --------------------------------
(State or other jurisdiction of                (IRS Employer Identification No.)
 incorporation or organization)


10475-103 Fortune Parkway, Jacksonville, Florida                     32256
--------------------------------------------------------------------------------
(Address of principal executive offices)                           (Zip Code)

Registrant's telephone number, including area code       (904) 363-6339
                                                   -----------------------------



Former name, former address and former fiscal year, if changed since last report


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                                  Yes X . No _.
                                     ---    ---

                     (Applicable only to corporate issuers)

There  were  7,467,542  shares  of common  stock,  par  value  $.025 per  share,
outstanding as of the close of business on November 10, 2000.
<PAGE>

                             Fortune Financial, Inc.

                                      Index

                                                                           Page

Part I.  Financial Information
------------------------------

Item 1.  Financial Statements
           Consolidated Balance Sheets                                        3
           Unaudited Consolidated Statements of Operations                    4
           Unaudited Consolidated Statements of Comprehensive Income          5
           Unaudited Consolidated Statements of Cash Flows                    6
           Unaudited Consolidated Statements of Changes
               in Stockholders' Equity                                        7
           Notes to Financial Statements                                   8-12

Item 2.  Management's Discussion and Analysis
               of Financial Condition and Results of Operations           13-17

Item 3.  Quantitative and Qualitative Disclosures about Market Risk          17


Part II.  Other Information
---------------------------

Item 6.  Exhibits and Reports on Form 8-K
           (a) List of Exhibits                                              18


Signatures                                                                   19
----------


Exhibits                                                                     20
--------







                                       -2-

<PAGE>


                    Fortune Financial, Inc. and Subsidiaries
                           Consolidated Balance Sheets
              September 30, 2000 (Unaudited) and December 31, 1999

                      Assets                        2000             1999
--------------------------------------------------------------------------------

Investments:
   Securities available for sale at fair value
       (amortized cost $14,349,480
       and $32,553,832)                          $14,328,119       $32,567,745

   Short-term investments                          1,618,375         9,033,284
                                                -------------------------------
     Total investments                            15,946,494        41,601,029
                                                -------------------------------

Cash                                               2,563,146         1,178,791


Receivables:

   Insurance premiums                                145,962           789,274
   Accrued investment income                         261,599           515,636
   Reinsurance, paid losses and other             16,089,575        12,314,049
   Reinsurance recoverable, unpaid losses          5,779,773        13,706,562
   Other receivables                                 190,688           238,258
   Current income taxes                            1,505,633         1,979,781
                                                -------------------------------

      Total receivables                           23,973,230        29,543,560
                                                -------------------------------

Deferred income tax                               10,617,579         6,724,450

Ceded unearned premium                             8,538,075         8,320,995

Deferred policy acquisition costs                   (215,807)         (598,592)

Property  and equipment                            1,804,685         2,038,187

Equity in pools and associations                     943,131           943,130

Other assets                                         356,480           400,124
                                                -------------------------------

                                                 $64,527,013       $90,151,674
                                                ===============================

                                                                     (continued)

<PAGE>
           Liabilities and Stockholders' Equity           2000             1999
--------------------------------------------------------------------------------

    Insurance loss reserves, including
       life insurance policy benefits of $10,032
       and $18,477                                    $14,839,403   $26,024,918
     Unearned premium                                  20,366,233    18,376,039
     Unearned service fees                                  1,816        93,305
     Contractholders funds                              1,411,466     1,550,109
     Reinsurance funds withheld and
         balances payable                               2,475,259     7,129,761
     Claim payments outstanding                         2,623,301     3,039,004
     Accrued expenses and other liabilities             1,462,001     2,307,233
     Notes payable                                      3,294,835     7,200,000
                                                     ---------------------------

             Total liabilities                         46,474,314    65,720,369
                                                     ---------------------------

     Stockholders' equity:
     Common stock, $.025 par value per share
        Authorized - 18,000,000 shares
        Issued - 7,944,414 shares                         198,610       198,610


     Preferred stock, $.10 par value per share
        Authorized - 500,000 shares

        Issued and outstanding - none                           0             0

     Capital in excess of par value                     5,185,092     5,185,092

Accumulated other comprehensive income (loss):
Net unrealized appreciation (depreciation)
     on securities available for sale net of
     deferred income taxes of $0 and $4,730               (21,361)        9,182

     Treasury stock at cost, 476,872 shares            (1,233,069)   (1,233,069)

     Shareholders' notes, 300,000 shares                 (843,750)     (843,750)


     Retained earnings                                 14,767,177    21,115,240
                                                     ---------------------------

               Total stockholders' equity              18,052,699    24,431,305
                                                     ---------------------------

                                                      $64,527,013   $90,151,674
                                                     ===========================

See notes to consolidated financial statements

                                       -3-

<PAGE>
<TABLE>

                    Fortune Financial, Inc. and Subsidiaries
                 Unaudited Consolidated Statements of Operations
             Quarters Ended September 30, 2000 and 1999, Nine Months
                       Ended September 30, 2000 and 1999

                                                    Quarters Ended September 30            Nine Months Ended September 30
                                                       2000            1999                     2000            1999
                                                  --------------------------------         --------------------------------
Revenues:
   <S>                                                 <C>             <C>
   Insurance premiums earned net of
      premiums ceded of $4,857,567, $8,096,408,
      $14,964,836 and $28,789,575                      $5,340,628      $7,035,914              $16,638,227     $23,033,849
   Service fees earned                                    572,366         729,638                2,223,026       4,040,039
   Investment income                                      333,678         820,034                1,250,248       2,740,692
   Other                                                    8,428           8,669                  126,848          23,598
   Net realized gains (losses) on investments              34,084          90,227                 (233,745)        147,533
                                                  --------------------------------         --------------------------------

         Total revenues                                 6,289,184       8,684,482               20,004,604      29,985,711
                                                  --------------------------------         --------------------------------


Expenses:
   Losses and loss adjustment expenses,  net of
      reinsurance recoveries of $2,012,840,
      $8,184,229, $10,942,880 and $29,663,651           4,706,202       5,853,756               15,911,658      22,360,102
   Policy acquisition costs                               327,443       2,131,792                2,885,391       5,518,173
   Salaries and wages                                   1,560,546       1,667,747                4,839,511       5,018,313
   General and administrative expenses                  1,888,913       2,667,650                6,263,522       6,330,270
   Interest expense                                        83,607         157,214                  340,985         499,597
                                                  --------------------------------         --------------------------------

         Total expenses                                 8,566,711      12,478,159               30,241,067      39,726,455
                                                  --------------------------------         --------------------------------


Loss before provision for income taxes                 (2,277,527)     (3,793,677)             (10,236,463)     (9,740,744)
                                                  --------------------------------         --------------------------------

Provision and (benefit) for income taxes:
   Current                                                      0      (1,528,944)                       0      (3,460,855)
   Deferred                                              (843,147)         32,249               (3,888,400)       (480,567)
                                                  --------------------------------         --------------------------------

         Total provision (benefit) for income
            taxes                                        (843,147)     (1,496,695)              (3,888,400)     (3,941,422)
                                                  --------------------------------         --------------------------------


Net loss                                              ($1,434,380)    ($2,296,982)             ($6,348,063)    ($5,799,322)
                                                  ================================         ================================

Basic and diluted loss per share:
Net loss                                                   ($0.19)         ($0.32)                  ($0.85)         ($0.81)
                                                  ================================         ================================


Dividends per share                                         $0.00           $0.00                    $0.00           $0.11
                                                  ================================         ================================


         See notes to consolidated financial statements.

</TABLE>

                                       -4-
<PAGE>
<TABLE>

                    Fortune Financial, Inc. and Subsidiaries
                  Unaudited Statements of Comprehensive Income
           Quarters Ended September 30, 2000 and 1999 and Nine Months
                       Ended September 30, 2000 and 1999

                                                 Quarters Ended September 30        Nine Months Ended September 30
                                                 ---------------------------        ------------------------------
                                                     2000            1999              2000               1999
                                                     ----            ----              ----               ----


<S>                                               <C>             <C>                <C>                 <C>
Net loss                                          ($1,434,380)    ($2,296,982)       ($6,348,063)        ($5,799,322)
                                                  ------------    ------------       ------------        ------------

Other comprehensive income (loss):

Unrealized gains (loss) on securities:
        Unrealized holding gains (losses)
        arising during period net of taxes $54,336,
        $(70,173), $(132,552) and $(222,134)           84,114        (140,973)          (278,669)           (435,954)
Reclassification adjustment for
        (gains) losses included in net
        income (loss) net of tax
        $54,336, ($1,210), ($127,822) and $8,883      (37,628)         (2,349)          (248,125)             17,244
                                                      --------         -------          ---------             ------

Other comprehensive income (loss)                     121,742        (138,624)           (30,544)           (453,198)
                                                      --------       ---------           --------           ---------

Comprehensive loss                                ($1,312,638)    ($2,435,606)       ($6,378,607)        ($6,252,520)
                                                  ============    ============       ============        ============


See notes to consolidated financial statements.
</TABLE>





                                       -5-


<PAGE>

<TABLE>


                    Fortune Financial, Inc. and Subsidiaries
                 Unaudited Consolidated Statements of Cash Flows
                  Nine Months Ended September 30, 2000 and 1999

                                                                           2000             1999
                                                                     ----------------------------------
              <S>                                                          <C>              <C>
              Cash flows from operating activities:
                 Net loss                                                 ($6,348,063)     ($5,799,322)
                 Adjustments to reconcile net loss to
                  Net cash used in operating activities:
                   Provision for depreciation                                 395,516          432,953
                   Loss (gain) on sale of investments                         233,745         (147,533)
                   Change in assets and liabilities:
                     Insurance premiums receivable                            643,312        1,741,235
                     Accrued investment income and other receivables          301,607          755,440
                     Deferred policy acquisition costs                       (382,785)      (1,833,619)
                     Prepaid expenses and other assets                         43,644           59,644
                     Insurance loss reserves                              (11,185,515)       1,029,862
                     Unearned premium                                       1,990,194       (4,183,910)
                     Contractholder funds                                    (138,643)     (10,274,466)
                     Reinsurance funds held and balances payable           (4,654,502)      (7,473,823)
                     Claim payments outstanding                              (415,703)       1,008,064
                     Accrued expenses                                        (845,232)       1,535,358
                     Current income taxes                                     474,148       (2,765,270)
                     Deferred income taxes                                 (3,893,129)        (480,567)
                     Ceded unearned premium                                  (217,080)       6,049,422
                     Reinsurance receivable                                 4,151,263       (1,272,462)
                     Unearned service fees                                    (91,489)        (300,169)
                                                                     ----------------------------------
                          Net cash used in operating activities           (19,938,712)     (21,919,163)
                                                                     ----------------------------------

              Cash flows from investing activities:
                 Net change in short term investments                       7,414,909        9,305,026
                 Purchase of investments                                  (13,496,387)      (6,870,827)
                 Proceeds from sale and maturity of investments            31,471,724       22,447,408
                 Purchase of property and equipment                          (162,014)        (390,339)
                                                                     ----------------------------------
                          Net cash provided by investing activities        25,228,232       24,491,268
                                                                     ----------------------------------

              Cash flows from financing activities:
                 Principal payment, note payable                           (4,000,000)      (1,800,000)
                 Principal, note payable, net                                  94,835                0
                 Dividends paid to stockholders                                     0         (807,140)
                                                                     ----------------------------------
                          Net cash used in financing activities            (3,905,165)      (2,607,140)
                                                                     ----------------------------------

              Net change in cash                                            1,384,355          (35,035)

              Cash, beginning of period                                     1,178,791        1,082,422
                                                                     ----------------------------------

              Cash, end of period                                          $2,563,146       $1,047,387
                                                                     ==================================
              See notes to consolidated financial statements.
</TABLE>

                                       -6-

<PAGE>


                    Fortune Financial, Inc. and Subsidiaries
      Unaudited Consolidated Statements of Changes in Stockholders' Equity
                  Nine Months Ended September 30, 2000 and 1999

                                                      2000              1999
                                                 ------------------------------
Common stock:
              No change during period                $198,610         $191,110
                                                 ------------------------------

Preferred stock:
              No change during period                       0                0
                                                 ------------------------------

Capital in excess of par value:
              No change during period               5,185,092        4,348,842
                                                 ------------------------------

Accumulated other comprehensive loss:
Net unrealized gain (loss) on securities
 available for sale:
             Balance at beginning of period             9,182          448,444
             Increase (decrease)                      (35,273)        (684,215)
             Deferred taxes                             4,730          231,017
                                                 ------------------------------

             Balance at end of period                 (21,361)          (4,754)
                                                 ------------------------------

Treasury stock:
              No change during period              (1,233,069)      (1,233,069)
                                                 ------------------------------

Shareholders' notes:
              No change during period                (843,750)               0
                                                 ------------------------------

Retained earnings:
             Balance at beginning of period,
                 restated for 1999                 21,115,240       31,807,815
             Net loss                              (6,348,063)      (5,799,322)
             Cash dividends $.0 and $.11
                 per share                                  0         (807,140)
                                                 ------------------------------

             Balance at end of period              14,767,177       25,201,353
                                                 ------------------------------


Total stockholders' equity at end of period       $18,052,699      $28,503,482
                                                 ==============================

See notes to consolidated financial statements.


                                       -7-

<PAGE>


                    Fortune Financial, Inc. and Subsidiaries
              Notes to Unaudited Consolidated Financial Statements


Note 1.  Basis of Presentation
------------------------------

In the  opinion of  management,  the  accompanying  balance  sheets and  related
interim  statements of operations,  comprehensive  income and cash flows include
all  adjustments   (which  include   reclassifications   and  normal   recurring
adjustments)  necessary to present fairly the financial  position and results of
operations  and cash flows at September 30, 2000 and for all periods  presented.
Preparing  financial  statements  requires  management  to  make  estimates  and
assumptions  that affect the reported amounts of assets,  liabilities,  revenues
and expenses.  Actual results may differ from these  estimates.  Interim results
are not  necessarily  indicative  of results  for a full year.  The  information
included  in this Form  10-Q  should be read in  conjunction  with  Management's
Discussion and Analysis and financial  statements and notes thereto  included in
the Fortune Financial, Inc. 1999 10-K.

Certain amounts in prior years' financial  statements have been  reclassified to
conform to the 2000 presentation.


Note 2.  Prior Period Adjustment
--------------------------------

Beginning  retained  earnings for the period ended  September  30, 1999 has been
reduced by  $996,283  from its  previously  reported  amount of  $32,804,098  to
correct  an error in  applying  the  minimum  ceding  commission  rate on one of
Fortune Insurance Company's quota share reinsurance  agreements during 1996. The
impact of this adjustment was reported in the Company's 1999 10-K Report.


Note 3  Credit Agreement
------------------------

The  Company  has a Credit  Agreement  with  SouthTrust  Bank  with a  remaining
principal  balance at September 30, 2000 of $3.2 million.  The Company  resolved
its  issues  with  SouthTrust  Bank  through  September  30,  2000 over  certain
financial covenants, with the Company agreeing to pay down the principal balance
by $200,000 per month  instead of by $600,000  per  quarter.  The balance of the
loan as of November 10, 2000 is $2.8 million.

                                       -8-
<PAGE>

                    Fortune Financial, Inc. and Subsidiaries
              Notes to Unaudited Consolidated Financial Statements

Note 4.  Earnings (Loss) Per Share
----------------------------------

Basic earnings (loss) per share is computed based on the weighted average number
of common shares  outstanding  during the period.  Diluted  earnings  (loss) per
share presents the dilutive effect of options using the treasury stock method.

<TABLE>

                                               Quarters Ended September 30                Nine Months Ended September 30
                                               ---------------------------                ------------------------------
                                                2000                 1999                   2000                 1999
                                                ----                 ----                   ----                 ----
<S>                                            <C>                  <C>
Numerator:
Loss available to common
    shareholders                              ($1,434,380)         ($2,296,982)           ($6,348,063)         ($5,799,322)
                                              ============         ============           ============         ============

Denominator:
  Basic per share
  weighted average shares                       7,467,542            7,167,542              7,467,542            7,167,542

Effect of dilution:
  Employee stock options                                0                    0                      0                    0
                                                        -                    -                      -                    -


Diluted per share adjusted weighted
average shares and assumed conversions          7,467,542            7,167,542              7,467,542            7,167,542
                                                ==========          ===========            ===========           ==========

Basic loss per share                               ($0.19)              ($0.32)                ($0.85)              ($0.81)
                                                   =======              =======                =======              =======

Diluted loss per share                             ($0.19)              ($0.32)                ($0.85)              ($0.81)
                                                   =======              =======                =======              =======

</TABLE>
                                       -9-
<PAGE>

                    Fortune Financial, Inc. and Subsidiaries
              Notes to Unaudited Consolidated Financial Statements

Note 5.  Business Segments
--------------------------

The  Company  and  its  subsidiaries   operate  exclusively  in  Florida  within
principally  six business  segments:  automobile  insurance,  excess and surplus
lines  property  insurance,  fee for service  administration,  premium  finance,
corporate  and other  miscellaneous.  The  automobile  insurance  segment  sells
personal  lines  automobile  insurance  through  independent   insurance  agents
primarily  in south  Florida.  The  excess  and  surplus  lines  segment  writes
specialized  property  insurance  coverage.  The Company has not written any new
excess and surplus  line  policies  during 2000 due to the current  high cost of
reinsurance.  The fee for service segment  contracts as a servicing  carrier for
the Florida  Residential  Property and Casualty Joint Underwriting  Association,
the Florida Automobile Joint Underwriting Association and as a subcontractor for
Policy Management Systems Corporation performing various underwriting and claims
administration  services for a fee.  This  segment is currently in run-off.  The
premium  finance  segment  finances   policies  written  through  the  Company's
insurance  subsidiaries;  the  operating  activities  of this  segment have been
transferred  to a third party under a joint  venture  agreement.  The  corporate
segment  includes  home office  revenues and assets that are not specific to any
particular  segment.  The other  category is  attributable  to a life  insurance
company and other small  inactive  companies  that do not meet the  quantitative
thresholds for a separate segment.

Management  evaluates  performance  and  allocates  assets based on the separate
entities owned by the Company.  The reportable  segments are business units that
offer different products or services.  The reportable  segments are each managed
separately.  The following  schedule presents segment revenues and profit (loss)
before taxes for the three and nine months ended September 30, 2000 and 1999 and
assets by  operating  segment at September  30, 2000 and December 31, 1999.  The
reconciling items for assets include adjusting  available for sale securities to
market value and the  reclassification of reinsurance  recoverable  balances and
the elimination of intercompany holdings.


                                      -10-


<PAGE>
<TABLE>


                    Fortune Financial, Inc. and Subsidiaries
              Notes to Unaudited Consolidated Financial Statements


Note 5.  Business Segments (continued)
-------------------------------------

                                              Quarters Ended September 30         Nine Months Ended September 30
                                              ---------------------------         ------------------------------
                                               2000               1999                 2000              1999
                                               ----               ----                 ----              ----
Segment revenues:

<S>                                           <C>                  <C>                 <C>             <C>
Automobile insurance                          $5,759,088           $7,416,065          $17,430,639     $25,074,967

Excess and surplus lines insurance               492,136            1,641,896            2,002,060       3,594,251

Fee for service                                   17,910              384,631              102,243       1,412,015

Corporate                                        (11,934)             151,629              170,472         496,989

Premium finance                                   (1,758)            (971,600)              68,019        (834,006)

Other                                             35,611               61,630              200,439         170,116
                                           --------------  -------------------  -------------------  --------------

     Total segment revenues                   $6,291,053           $8,684,251          $19,973,872     $29,914,332

Intercompany eliminations                         (1,869)                 231               30,732          71,379
                                           --------------  -------------------  -------------------  --------------

     Total consolidated revenues              $6,289,184           $8,684,482          $20,004,604     $29,985,711
                                           ==============  ===================  ===================  ==============

Segment profit (loss) before taxes:

Automobile insurance                         ($2,875,645)         ($2,863,380)         ($9,978,051)    ($8,991,851)

Excess and surplus lines insurance               388,818              327,937              305,774         967,661

Fee for service                                  (25,030)             (45,589)            (243,869)        296,733

Corporate                                        177,822             (188,742)            (446,640)       (987,525)

Premium finance                                  (16,789)          (1,051,545)             (35,767)     (1,093,781)

Other                                             73,297               27,642              162,090          68,019
                                           --------------  -------------------  -------------------  --------------
     Total consolidated profit(loss)
        before tax                           ($2,277,527)         ($3,793,677)        ($10,236,463)    ($9,740,744)
                                           ==============  ===================  ===================  ==============
</TABLE>

                                      -11-
<PAGE>


                    Fortune Financial, Inc. and Subsidiaries
              Notes to Unaudited Consolidated Financial Statements

Note 5.  Business Segments (continued)
-------------------------------------

                                          September 30,2000    December 31,1999
                                          --------------------------------------
Segment assets:

Automobile insurance                            $58,847,593         $52,065,243

Excess and surplus lines insurance                7,466,067          10,316,250

Fee for service                                     105,063           3,863,040

Corporate                                        21,507,869          30,258,990

Premium finance                                     295,333           1,030,189

Other                                             1,776,850           3,468,619
                                          ------------------  ------------------

     Total segment assets                       $89,998,775        $101,002,331

GAAP adjustments & reclassifications             19,775,746          38,992,962

Intercompany eliminations                       (45,247,508)        (49,843,619)
                                          ------------------  ------------------

     Total consolidated segment assets          $64,527,013         $90,151,674
                                          ==================  ==================

Note 6.  Regulatory Restrictions
--------------------------------

The Company's  Fortune Insurance  Company  subsidiary  ("Fortune") had statutory
surplus at September 30, 2000 of $0.7 million.  Under Florida statutes,  Fortune
must maintain minimum surplus in 2000 of $2.5 million.  The Company  anticipates
contributing  funds in the form of a surplus note  sufficient to bring Fortune's
surplus above the minimum prior to filing Fortune's third quarter statement with
the  Department  of  Insurance.  In addition, the Company continues to work on a
capital plan to significantly increase Fortune's surplus prior to year-end.  The
components of that plan include the potential sale of its Fortune Life Insurance
Company and Pegasus Insurance Company subsidiaries, as well as a potential
additional equity investment by one or more strategic investment partners.  The
Company expects to successfully conclude its capital plan prior to year-end.

                                      -12-
<PAGE>


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

Forward-Looking Statements
--------------------------

Statements made in this Form 10-Q, including those relating to future cash flow,
management of the Company's investment portfolio,  arbitration proceedings,  the
adequacy of loss reserves,  increasing  earned premium and the Company's capital
plan are  forward-looking  within the meaning of Section  21E of the  Securities
Exchange  Act of 1934,  as  amended,  and are made  pursuant  to the safe harbor
provisions  of the  Private  Securities  Litigation  Reform  Act of  1995.  Such
statements  may use  words  such as  "believes",  "expects",  "intends",  "may",
"will",  "should",  "anticipates",  or the negative  forms of those  words,  and
describe  strategies,  goals and expectations of future results  involving risks
and uncertainties which may cause actual results to differ materially from those
set forth.  Among  other  things,  an increase in future cash flow is based upon
expectations  that current  trends in new  business  volume / pricing and claims
settlement that the Company is experiencing will continue; the Company's opinion
on the settlement of arbitration proceedings is based upon facts as it knows and
interprets them; the adequacy of loss reserves is based upon  extrapolations  of
current experience which may or may not be repeated in the future;  estimates of
increasing earned premium are based upon the Company's  expectation that it will
be  able  to  maintain  its  volume  momentum,   pricing  structure  and  policy
cancellation   patterns;   and  estimates  of  increased   capital  through  the
implementation  of the capital plan are based upon the  Company's  assessment of
the level of investor  interest in the  Company.  In addition to the factors set
forth  elsewhere in this Form 10-Q,  the  economic,  competitive,  governmental,
weather-related  and other factors  identified  in the Company's  1999 Form 10-K
filed with the  Securities  and  Exchange  Commission  could  affect the forward
looking statements contained in this Form 10-Q. The Company disclaims any intent
or obligation to update publicly these forward-looking statements,  whether as a
result of new information, future events or otherwise.


Financial Condition
-------------------

Cash flow from  operations  continued to be negative  during the third  quarter.
During the quarter the Company paid $3.7 million to  reinsurers  under the terms
of its reinsurance treaties.  The Company's new treaties effective April 1, 2000
are not  structured on a funds  withheld  basis.  As a result,  cash flow in the
third  quarter  remained  negatively  impacted  as  premiums  were  remitted  to
reinsurers in advance of remittance  back to the Company for losses paid.  While
the  Company  will  continue to remit  ceded  premiums  in advance of  receiving
reimbursements  for ceded losses,  the heaviest net cash drain on the Company is
subsiding as reimbursements for ceded losses begin to be received. Similar to
the first six months of the year, the third quarter's cash inflow from new

                                      -13-
<PAGE>

Item 2.  Management's Discussion and Analysis
         of Financial Condition and Results of Operations (continued)
         ------------------------------------------------------------

policies (net of cancellations)  continued to average $3.2 million per month and
cash outflow to pay claims  continued to average $4.3 million per month.  Claims
payment  outflows are  outpacing  new policy  inflows as the inventory of claims
continues  to  shrink.  Claims  inventory  is down 6% from the end of the second
quarter to the end of the third quarter, and is down 27% since the end of 1999.

The Company's investment portfolio consists almost entirely of high-grade bonds.
During the third quarter the Company outsourced the management of its investment
portfolio to a company that  specializes in managing  investment  portfolios for
insurance  companies.  The Company  believes that the quality and consistency of
the management of its portfolio,  as well as the  investment  returns  achieved,
will be enhanced by this outsourcing.

The Company has  historically  reinsured  a  substantial  portion of its private
passenger  automobile  insurance business,  including  approximately 75% of such
business in 1998 and 60% of such business in 1999 and the first quarter of 2000.
Effective April 1,2000 the Company  reduced the amount of its private  passenger
automobile  insurance  business  reinsured  to 40%.  The  Company  is  currently
involved  in an  arbitration  proceeding  with a  reinsurer  who  reinsured  the
Company's private passenger  automobile business under quota share treaties from
1985 to 1998.  The Company has a receivable  from the reinsurer in the amount of
$8.8  million,  and,  along  with its legal  and  reinsurance  advisors,  firmly
believes  that it is owed the full  amount of the  receivable.  The  Company  is
vigorously  pursuing  recovery  of the  amount  owed,  as well as  interest  and
damages. The organizational meeting for the arbitration took place in September,
and the arbitration panel has set a hearing date of May 2001.

Private passenger automobile reserve  strengthening in the third quarter related
to prior  accident  quarters  amounted to less than $0.4 million.  This was down
significantly  from the first two  quarters of the year,  which  included  prior
quarters' reserve  strengthening of over $3.7 million. The Company believes that
adverse loss  development has now begun to abate, as policies  written by agents
the Company canceled over the past year begin to expire.

The  Company  has a Credit  Agreement  with  SouthTrust  Bank  with a  remaining
principal  balance at September 30, 2000 of $3.2 million.  The Company  resolved
its  issues  with  SouthTrust  Bank  through  September  30,  2000 over  certain
financial covenants, with the Company agreeing to pay down the principal balance
by $200,000 per month  instead of by $600,000  per  quarter.  The balance of the
loan as of November 10, 2000 is $2.8 million.


                                      -14-
<PAGE>

Item 2.  Management's Discussion and Analysis
         of Financial Condition and Results of Operations (continued)
         ------------------------------------------------------------

The Company's  Fortune Insurance  Company  subsidiary  ("Fortune") had statutory
surplus at September 30, 2000 of $0.7 million.  Under Florida statutes,  Fortune
must maintain minimum surplus in 2000 of $2.5 million.  The Company  anticipates
contributing  funds in the form of a surplus note  sufficient to bring Fortune's
surplus above the minimum prior to filing Fortune's third quarter statement with
the  Department  of  Insurance.  In addition, the Company continues to work on a
capital plan to significantly increase Fortune's surplus prior to year-end.  The
components of that plan include the potential sale of its Fortune Life Insurance
Company and Pegasus Insurance Company subsidiaries, as well as a potential
additional equity investment by one or more strategic investment partners.  The
Company expects to successfully conclude its capital plan prior to year-end.


Results of Operations
---------------------

The Company recorded net earned premiums of $5.3 million in the third quarter of
2000, down 24% from the third quarter of 1999.  Year-to-date net earned premiums
of $16.6 million exhibited a similar decline from the first nine months of 1999.
The decline in net earned  premium in 2000  reflects in large part the result of
the  Company's   initiative  to  terminate  the  unprofitable   portion  of  its
independent   agency  base.   Policies  are  currently   being  written  through
approximately 500 independent  agents,  less than one-third the number of agents
in place a year  ago.  The  Company  terminated  relationships  with  the  other
two-thirds  primarily  as a result  of  unacceptable  loss  ratios  incurred  on
business  written by those  agents.  During  the first  nine  months of 2000 the
Company wrote  approximately  74,000 new private passenger  automobile  policies
compared with approximately 139,000 during the comparable period of 1999.

The impact on earned premium from the decline in the number of policies  written
was offset  somewhat by a reduction  in the amount of business  reinsured  under
quota  share  agreements;  effective  April 1, 2000,  the  Company  reduced  the
percentage of its private passenger auto business ceded from 60% to 40%. Between
September 1999 and September 2000, the Company's average written premium per new
business private passenger auto policy increased by 50%, further  mitigating the
impact of the decline in the number of policies  written.  Most of this increase
in rate has occurred as a result of rate increases implemented March 1, 2000 and
June 1, 2000, and will positively impact earned premium more  substantially over
the next several  quarters.  The Company has  implemented  another rate increase
effective November 1, 2000, which, given the Company's current mix of coverages,
raises average rates on new business private  passenger  automobile  policies by
almost 19%.

Fee income  equaled  $2.2  million in the first nine  months of 2000,  down $1.8
million from the same period last year.  The  Company's  fee income is generated
primarily  from  policy  fees  assessed  at the  time of  policy  issuance,  and
therefore varies in direct


                                      -15-
<PAGE>

Item 2.  Management's Discussion and Analysis
         of Financial Condition and Results of Operations (continued)
         ------------------------------------------------------------

relation to the number of policies written.  During the fall of 1999 the Company
stopped  servicing new policies for both the Florida  Residential and Auto Joint
Underwriting  Associations  as  those  books of  business  became  too  small to
profitably  service.  Income for servicing  remaining  existing policies totaled
only $15,000 in the third quarter of 2000 and will cease by the end of the year.

Investment income declined to $333,000 in the third quarter of 2000, compared to
$820,000 for the comparable period a year earlier.  The Company recorded $34,000
in net gains on investments during the third quarter of 2000.

The Company's loss and loss adjustment  expenses for the third quarter and first
nine months of 2000 were down $1.1 million and $6.4 million, respectively,  from
the same periods a year ago,  both  declines  reflecting  the reduced  volume of
business.  In July 2000 the Company  settled a reinsurance  dispute with Everest
Re, resulting in a write-off of $1.9 million in ceded reinsurance receivables in
the second  quarter.  Without the impact of the Everest Re settlement,  loss and
loss adjustment expenses for the nine months ended September 30, 2000 would have
been down $8.3 million from the same period in 1999.

For the third quarter of 2000 policy  acquisition  costs were $1.8 million lower
than the third quarter of 1999,  and for the first nine months of 2000 were $2.6
million lower than 1999's  comparable  period.  The decrease was a result of the
decreased volume of business,  as well as the changes made to ceding commissions
in  the  new  reinsurance  treaties.  Policy  acquisition  costs  represent  the
commissions  paid by the  Company  to its  agents,  offset by ceding  commission
credits  received by the Company from its  reinsurers.  Under the  Company's old
reinsurance  treaties,  which  terminated on March 31, 2000,  ceding  commission
credits  adjusted  over  time  depending  upon  changes  in loss  ratios  of the
underlying business ceded. Under the new reinsurance treaties ceding commissions
are not adjusted based upon loss ratios. As changes in loss ratios under the old
treaties  stabilize through  development,  the sizeable  quarterly  fluctuations
reported for these costs will not reoccur.

Salaries  and  wages of $4.8  million  in the  first  nine  months  of 2000 were
$179,000  lower than during the same period in 1999,  and were $107,000 lower in
the third quarter of 2000  compared to the third quarter of 1999.  Voluntary and
involuntary  staff reductions over the course of the last 12 months have reduced
expenses, offset by general salary and wage increases for remaining employees.




                                      -16-
<PAGE>

Item 2.  Management's Discussion and Analysis
         of Financial Condition and Results of Operations (continued)
         ------------------------------------------------------------

Third quarter 2000 general and administrative expenses of $1.9 million were down
$779,000 from the third quarter of 1999,  primarily due to a $500,000  write-off
of premium  receivable  balances  reported during the third quarter of 1999. For
the first nine months of 2000, general and administrative  expenses totaled $6.3
million, approximately equal to last year's first nine months.

Interest  expense  continued to decline as the Company  made  further  principal
payments on its loan with SouthTrust Bank.


Item 3.  Quantitative and Qualitative Disclosures about Market Risk
         ----------------------------------------------------------

Market risk is the risk of potential loss in fair value of financial instruments
arising from adverse  fluctuations in interest  rates,  market rates and prices,
foreign  currency  exchange  rates,  and  other  relevant  market  rate or price
changes.

The Company's  exposure to market risk in interest rates is  concentrated in its
investment  portfolio and to a lesser extent in its debt obligation.  There have
been no material changes in the Company's exposure to market risk since December
31, 1999.


                                      -17-


<PAGE>


                                     Part II

                                Other Information
                                -----------------


Item 6.  Exhibits and Reports on Form 8-K
-----------------------------------------

(a) Exhibits:

11.  Unaudited computations of earnings per share.
27.  Financial Data Schedule (electronic filing only)










                                      -18-


<PAGE>


                                   Signatures


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



                                               Fortune Financial, Inc.
                                               Registrant


November 14, 2000                              By  /s/ Mark P. Brockelman
-----------------                                  ----------------------------
       Date                                            Mark P. Brockelman
                                                   Vice President and Chief
                                                       Financial Officer















                                      -19-