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                                UNITED STATES 
                      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 period ended June 30, 1998
                                        
                                       OR
                                        
[  ]        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
                                        
              For the transition period from _________ to ________
                                        
                        Commission File Number 000-24263
                                        
                            CONRAD INDUSTRIES, INC.
             (Exact name of registrant as specified in its charter)
                                        
               DELAWARE                             72-1416999
    (State of other jurisdiction of            (I.R.S. Employer
     incorporation or organization)              Identification No.)

              1501 FRONT STREET
              P.O. BOX 790
              MORGAN CITY, LOUISIANA                    70381
     (Address of principal executive offices)        (Zip Code)

      REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:  (504) 384-3060
                        ______________________________

     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 
                                               ---    ---  

     Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.

     As of August 10, 1998, 7,325,000 shares of the registrant's Common Stock
were outstanding.

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<PAGE>
 
                                   FORM 10-Q
                   CONRAD INDUSTRIES, INC. AND SUBSIDIARIES
                               Table of Contents
                                        

                                                                          Page
                                                                          ----
Part I.  Financial Information

    Item 1. Financial Statements (Unaudited)

        Consolidated Balance Sheets
         June 30, 1998 and December 31, 1997............................    4

        Consolidated Statements of Operations
         Three and Six Months Ended June 30, 1998 and 1997..............    5

        Consolidated Statements of Cash Flows
         Six Months Ended June 30, 1998 and 1997........................    6

        Notes to the Consolidated Financial Statements..................    7

    Item 2. Management's Discussion and Analysis of Financial 
        Condition and Results of Operations.............................   11 

Part II. Other Information

    Item 6. Exhibits and Reports on Form 8-K............................   19

Signature...............................................................   20

FORWARD-LOOKING-STATEMENTS

This Form 10-Q includes "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. All statements contained herein other than statements of
historical fact are forward-looking statements. When used in this Form 10-Q, the
words "anticipate", "believe", "estimate" and "expect" and similar expressions
are intended to identify forward-looking statements. Such statements reflect the
Company's current views with respect to future events and are subject to certain
risks, uncertainties and assumptions, including the Company's reliance on
cyclical industries, the Company's reliance on principal customers and
government contracts, the Company's ability to perform contracts at costs
consistent with estimated costs utilized in bidding for the projects covered by
such contracts, variations in quarterly revenues and earnings resulting from the
percentage of completion accounting method, the possible termination of
contracts included in the Company's backlog at the option of customers,
operating risks, competition for marine vessel contracts, the Company's ability
to retain key management personnel and to continue to attract and retain skilled
workers, state and

                                       2
<PAGE>
 
federal regulations, the availability and cost of capital, and general industry
and economic conditions. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those anticipated, believed, estimated or expected. The
Company does not intend to update these forward-looking statements. Although the
Company believes that the expectations reflected in such forward-looking
statements are reasonable, no assurance can be given that such expectations will
prove correct.

                                       3
<PAGE>
                        PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
 
CONRAD INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
--------------------------------------------------------------------------------

                                                        JUNE 30,    DECEMBER 31,
ASSETS                                                    1998          1997

CURRENT ASSETS:
 Cash and cash equivalents                              $ 3,851       $ 7,551
 Accounts receivable, net                                 4,331         4,467
 Costs and estimated earnings in excess of 
  billings on uncompleted contracts                       4,202         2,499
 Inventories                                                248           139
 Other current assets                                     1,216           638
                                                         ------        ------
        Total current assets                             13,848        15,294 

PROPERTY, PLANT AND EQUIPMENT, net                       18,674        18,304 

COST IN EXCESS OF NET ASSETS ACQUIRED                    14,904        15,294 

OTHER ASSETS                                                323            53
                                                         ------        ------
TOTAL ASSETS                                            $47,749       $48,945  
                                                         ======        ======
LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
 Accounts payable                                       $ 1,888       $ 1,997   
 Accrued employee costs                                     572           448
 Accrued expenses                                         1,291           725
 Current maturities of long-term debt                     3,027         1,801
 Billing in excess of costs and estimated 
  earnings on uncompleted contracts                         382         2,563
 Revolving credit facility                                   --            --   
                                                         ------        ------
        Total current liabilities                         7,160         7,534

LONG-TERM DEBT, less current maturities                   9,968        23,537 

DEFERRED INCOME TAXES                                     3,211         2,595
                                                         ------        ------
        Total liabilities                                20,339        33,666
                                                         ------        ------
COMMITMENTS AND CONTINGENCIES (Note 4)                       --            --

STOCKHOLDERS' EQUITY:
 Common stock, $0.01 par value, 20,000,000 shares 
  authorized, 7,200,000 shares outstanding in 
  1998 and 4,660,486 shares outstanding in 1997              72            47
 Additional paid-in capital                              30,391           156
 Unearned stock compensation                             (3,957)           --
 Retained earnings                                          904        15,076
                                                         ------        ------
        Total stockholders' equity                       27,410        15,279
                                                         ------        ------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY              $47,749       $48,945  
                                                         ======        ======


See notes to unaudited consolidated financial statements.

 
                                       4
<PAGE>
 
<TABLE> 
<CAPTION> 

CONRAD INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
-----------------------------------------------------------------------------------------------------------------------------------

                                                                      THREE MONTHS ENDED        SIX MONTHS ENDED
                                                                           JUNE 30,                 JUNE 30,     
                                                                      -------------------     -------------------
                                                                        1998       1997         1998       1997
<S>                                                                   <C>        <C>          <C>         <C>            
REVENUE                                                               $12,418    $ 5,005      $23,987     $10,551     

COST OF REVENUE                                                         8,669      3,475       16,809       7,285  
                                                                      -------    -------      -------     ------- 
GROSS PROFIT                                                            3,749      1,530        7,178       3,266

SELLING, GENERAL AND
 ADMINISTRATIVE EXPENSES                                                  885        523        1,773       1,016               

EXECUTIVE COMPENSATION EXPENSE                                            359         --        4,675          --  
                                                                      -------    -------      -------     ------- 
INCOME FROM OPERATIONS                                                  2,505      1,007          730       2,250    

INTEREST EXPENSE                                                         (502)        (7)      (1,005)        (18)      

OTHER INCOME                                                               86         28          179          28         
                                                                      -------    -------      -------     ------- 
INCOME (LOSS) BEFORE INCOME TAXES                                       2,089      1,028          (96)      2,260      

PROVISION FOR INCOME TAXES                                                410         --          703          --  

PROVISION FOR CUMULATIVE DEFERRED TAXES                                   675         --          675          --   
                                                                      -------    -------      -------     ------- 
NET INCOME (LOSS)                                                     $ 1,004    $ 1,028      $(1,474)    $ 2,260   
                                                                      =======    =======      =======     ======= 
Net income (loss) per common share:
 Basic and diluted                                                    $  0.18    $  0.22      $ (0.29)    $  0.48    
                                                                      =======    =======      =======     ======= 
Weighted average common shares
 outstanding:
   Basic and diluted                                                    5,662      4,660        5,167       4,660 
                                                                      =======    =======      =======     ======= 
Pro forma data (Note 3):
 Income (loss) before income taxes reported above                     $ 2,089    $ 1,028      $   (96)    $ 2,260    
 Pro forma provision for income taxes                                   1,009        380        1,427         836   
                                                                      -------    -------      -------     ------- 
 Pro forma net income (loss)                                          $ 1,080    $   648      $(1,523)    $ 1,424  
                                                                      =======    =======      =======     ======= 
 Pro forma net income (loss) per share                                $  0.17    $  0.12      $ (0.25)    $  0.26    
                                                                      =======    =======      =======     ======= 
 Common and equivalent shares outstanding                               6,367      5,577        5,977       5,577      
                                                                      =======    =======      =======     ======= 
</TABLE> 

See notes to unaudited consolidated financial statements.
 
                                       5
<PAGE>
 
CONRAD INDUSTRIES, INC. AND SUBSIDIARIES

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

                                                             SIX MONTHS ENDED
                                                                  JUNE 30,
                                                            -------------------
                                                               1998      1997

CASH FLOWS FROM OPERATING ACTIVITIES:
 Net income (loss)                                          $ (1,474)  $ 2,260
 Adjustments to reconcile net income (loss) to net
  cash provided by operating activities:
    Depreciation and amortization                              1,108       422
    Deferred income tax expense                                  589        --
    Executive compensation expense                             4,675        -- 
    Changes in assets and liabilities:
     Accounts receivable                                         136       (52)
     Net change in billings related to cost and                 
      estimated earnings on uncompleted contracts             (3,884)     (964)
     Inventory and other assets                                 (966)     (107)
     Accounts payable and accrued expenses                       608      (269)
                                                            --------   -------
        Net cash provided by operating activities                792     1,290
                                                            --------   -------
CASH FLOWS FROM INVESTING ACTIVITIES:
 Capital expenditures for plant and equipment                 (1,485)     (223)
                                                            --------   -------
        Net cash used in investing activities                 (1,485)     (223)
                                                            --------   -------

CASH FLOWS FROM FINANCING ACTIVITIES:
 Proceeds from issuance of debt                               10,687        --  
 Principal repayments of debt                                (23,030)     (867)
 Distributions to stockholders                               (12,292)   (1,557)
 Proceeds from sale of common stock, net                      21,628        --  
                                                            --------   -------
        Net cash used in financing activities                 (3,007)   (2,424)
                                                            --------   -------
NET DECREASE IN CASH AND CASH EQUIVALENTS                     (3,700)   (1,357)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                 7,551     3,209
                                                            --------   -------
CASH AND CASH EQUIVALENTS, END OF PERIOD                    $  3,851   $ 1,852
                                                            ========   =======
SUPPLEMENTAL DISCLOSURES CASH FLOW INFORMATION:
 Interest paid                                              $  1,111   $    18
                                                            ========   =======
 Taxes paid                                                 $    340   $    --
                                                            ========   =======
NONCASH ACTIVITIES:
 Issuance of stock to executives                            $  4,675   $    --
                                                            ========   =======
 Distributions of assets to stockholders                    $    406   $    --
                                                            ========   =======



See notes to unaudited consolidated financial statements.

 
                                       6
<PAGE>
 
CONRAD INDUSTRIES, INC. AND SUBSIDIARIES


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------------------------------

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

   The accompanying unaudited consolidated financial statements include the
   accounts of Conrad Industries, Inc. and its wholly-owned subsidiaries (the
   "Company").  In the opinion of the management of the Company, the interim
   financial statements included herein have been prepared in accordance with
   generally accepted accounting principles and Rule 10-01 of Regulation S-X.
   Accordingly, they do not include all of the information and disclosures
   required by generally accepted accounting principles for complete financial
   statements.  In the opinion of management, all adjustments (such adjustments
   consisting only of a normal recurring nature) considered necessary for a fair
   presentation have been included in the interim financial statements.  These
   interim financial statements should be read in conjunction with the Company's
   audited financial statements and related notes for the year ended December
   31, 1997, which were included as part of the Company's Registration Statement
   on Form S-1 (Registration No. 333-49773), as declared effective by the
   Securities and Exchange Commission on June 10, 1998.

   The results of operations for the three-month and six-month periods ended 
   June 30, 1998 are not necessarily indicative of the results that may be
   expected for the year ending December 31, 1998.

   The Company was incorporated in March 1998 to serve as the holding company
   for Conrad Shipyard, Inc. ("Conrad") and Orange Shipbuilding, Company, Inc.
   ("Orange Shipbuilding"). The shareholders of Conrad entered into an exchange
   agreement pursuant to which they have exchanged their shares of common stock
   of Conrad for shares of Common Stock of the Company (the "Reorganization").
   In accordance with the terms of the Exchange Agreement, the shareholders of
   Conrad received a number of shares of Common Stock in direct proportion to
   their relative shareholdings in Conrad. As a result of the Reorganization,
   the Company is a holding company whose only assets consist of all of the
   outstanding shares of capital stock of Conrad. Conrad continues to own all of
   the outstanding stock of Orange Shipbuilding.

   On December 12, 1997, Conrad acquired all of the outstanding shares of Orange
   Shipbuilding for $25,817,000. The acquisition has been accounted for by the
   purchase method. Accordingly, the operations of Orange Shipbuilding are
   included in the Company's operations for the three-month and six-month 
   periods ended June 30, 1998. The acquisition was funded with a $25.0 million
   short-term promissory note and existing cash.

   Subsequent to December 31, 1997, Conrad refinanced the $25.0 million
   promissory note into a term loan. The term loan bears interest at LIBOR rate
   plus 2.0% until September 18, 1998. Conrad will then have the option to
   convert the interest rate to either the lender's prime rate less 0.5% or
   LIBOR rate plus 2.0%. Interest only is payable until May 1998. Thereafter,
   the term loan will be payable in seventy monthly principal payments of
   $209,000 plus interest with a final payment due in April 2004.

   Prior to the Reorganization and the completion of its initial public
   offering, Conrad made an election to terminate their S corporation status and
   became subject to federal and state income tax thereafter. As a result of its
   conversion from an S corporation to a C corporation, Conrad was required to
   record a one-time charge to earnings a deferred tax liability of $675,000 in
   the second quarter of 1998. Prior to the completion of the Offering, Conrad
   made a $10.0 million distribution to its stockholders, which represented
   undistributed earnings of Conrad, estimated through the date of the
   termination of the S

                                      7 
<PAGE>
 
   corporation status, on which Conrad's current stockholders have incurred
   federal and state income taxes. The distribution was funded with borrowings
   under a $10.0 million revolving credit facility. The facility bears interest
   on the same terms as the term loan referred to above and matures on April 30,
   1999.

   On June 15, 1998, the Company completed its initial public offering (the
   "Offering") in which it sold 2.0 million shares of common stock, increasing
   the total shares outstanding to 7.2 million. The Company received net
   proceeds from the Offering of $22.3 million. The net proceeds were used to
   repay $12.3 million of indebtedness under the term loan and $10.0 million of
   indebtedness under the revolving credit facility.

   On July 13, 1998, the underwriters of the Offering exercised 125,000 shares
   of common stock of their over-allotment option.  The net proceeds from the
   over-allotment exercise of $1,395,000 were used to repay indebtedness on the
   term loan.


2. RECEIVABLES

   Receivables consisted of the following at June 30, 1998 and December 31, 1997
   (in thousands):

                                                         1998      1997
                                                       -------    ------
     U.S. Government:   
       Amounts billed                                  $ 2,213    $   26 
       Unbilled costs and estimated earnings on          
        uncompleted contracts                            1,529       542   
                                                        ------     -----

                                                         3,742       568    

     Commercial:   
       Amounts billed                                    2,118     4,441 
       Unbilled costs and estimated earnings on          
        uncompleted contracts                            2,673     1,957   
                                                        ------     -----

     Total                                             $ 8,533    $6,966
                                                        ======     =====


   Included above in amounts billed is an allowance for doubtful accounts of
   $11,000 and $16,000 at June 30, 1998 and December 31, 1997, respectively.
   During 1998 and 1997 there were no significant transactions recorded in the
   allowance for doubtful accounts.

   Unbilled costs and estimated earnings on uncompleted contracts were not
   billable to customers at the balance sheet dates under terms of the
   respective contracts.  Of the unbilled costs and estimated earnings at June
   30, 1998, substantially all is expected to be collected within the next
   twelve months.

   Information with respect to uncompleted contracts as of June 30, 1998 and
   December 31, 1997 is as follows (in thousands):


                                                         1998      1997
                                                      --------  --------
      Costs incurred on uncompleted contracts         $ 18,747  $ 11,040  
      Estimated earnings                                 7,850     4,633
                                                       -------   -------
                                                        26,597    15,673
      Less billings to date                             22,777    15,737
                                                       -------   ------- 
                                                      $  3,820  $    (64)
                                                       =======   ======= 
 
                                       8
<PAGE>
 
   The above amounts are included in the accompanying balance sheets under the
   following captions (in thousands):

                                                       1998        1997
                                                      -------     -------
     Costs and estimated earnings in excess of
      billings on uncompleted contracts               $ 4,202     $ 2,499   
     Billings in excess of cost and estimated
      earnings on uncompleted contracts                   382       2,563
                                                      -------     -------
     Total                                            $ 3,820     $   (64)
                                                      =======     ======= 
3. INCOME PER SHARE

   In 1997 the Financial Accounting Standards Board issued Statement of
   Financial Accounting Standard No. 128, "Earnings Per Share" ("SFAS 128").
   SFAS 128 requires the replacement of previously reported primary and fully
   diluted earnings per share required by Accounting Principles Board Opinion
   No. 15 with basic earnings per share and diluted earnings per share.  The
   calculation of basic earnings per share excludes any dilutive effect of stock
   options, while diluted earnings per share includes the dilutive effect of
   stock options.  Per share and weighted average share amounts for all prior
   periods presented have been restated to conform to the requirements of SFAS
   128.  The number of weighted average shares outstanding for "basic" and
   "diluted" income per share was 5,661,538 and 4,660,486 for the three months
   ended June 30, 1998 and 1997, respectively and 5,166,758 and 4,660,486 for
   the six months ended June 30, 1998 and 1997, respectively.

   Proforma net income per share consists of the Company's historical income as
   an S corporation, adjusted for income taxes that would have been recorded had
   the Company operated as a C corporation and excludes the one-time charge of
   $675,000 to record the cumulative deferred income tax provision. This amount
   is divided by the weighted average shares of common stock outstanding which
   are increased to reflect sufficient additional shares to pay the $10.0
   million distribution of estimated undistributed earnings to shareholders
   (916,591 shares). All such additional shares are based on the offering price
   of $12.00 per share, net of offering expenses.

4. COMMITMENTS AND CONTINGENCIES

   At June 30, 1998, the Company had outstanding a contract performance bond
   issued by a third party in the amount of $3,660,000.

   The Company has employment agreements with certain of its executive officers
   which generally provide for an initial term of three years and minimum annual
   total compensation of $851,000.

   The Company is a party to various legal proceedings primarily involving
   commercial claims and workers' compensation claims.  While the outcome of
   these claims and legal proceedings cannot be predicted with certainty,
   management believes that the outcome of all such proceedings, even if
   determined adversely, would not have a material adverse effect on the
   Company's financial statements.

5. NEW ACCOUNTING PRONOUNCEMENTS

   During 1997, the Financial Accounting Standards Board issued Statement of
   Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
   ("SFAS 130") and Statement of Financial Accounting Standards No. 131,
   "Disclosures about Segments of an Enterprise and Related Information" ("SFAS
   131").  SFAS 130 provides guidance for the presentation and display of
   comprehensive income.  SFAS 131 establishes standards for disclosure of
   operating segments, products, services, geographic

                                       9
<PAGE>
 
   areas and major customers.  The Company is required to adopt both standards
   for its fiscal year ending December 31, 1998.  Management believes that the
   implementation of SFAS 130 and SFAS 131 will not have a material impact on
   the presentation of the Company's financial statements, but may require
   additional disclosure.

   In February 1998, the Financial Accounting Standards Board issued Statement
   of Financial Accounting Standards Number 132, "Employers' Disclosures about
   Pensions and Other Postretirement Benefits" ("SFAS 132").  SFAS 132 revises
   the standards for disclosure of pension and other postretirement benefit
   plans by standardizing the disclosure requirements, requiring additional
   information on changes in the benefit obligations and fair values of plan
   assets and eliminating certain disclosures requirements no longer considered
   to be useful.  These new disclosure requirements are designed to improve the
   understandability of benefit disclosures for financial analysis.  The Company
   is required to adopt this standard for its fiscal year ending December 31,
   1998.  Management believes that the implementation of SFAS 132 will not have
   a material impact on the presentation of the Company's financial statements
   but may require additional disclosure.

                                      10
<PAGE>
 
ITEM 2:  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

The following discussion and analysis should be read in conjunction with the
unaudited financial statements and the related disclosures included elsewhere
herein and Management's Discussion and Analysis of Financial Condition and
Results of Operations included as part of Conrad Industries, Inc. (the
"Company") Registration Statement on Form S-1 (Registration No. 333-49773), as
declared effective by the Securities and Exchange Commission on June 10, 1998.

OVERVIEW

The Company was incorporated in March 1998 to serve as the holding company for
Conrad Shipyard, Inc. ("Conrad") and Orange Shipbuilding, Co., Inc. ("Orange
Shipbuilding"). The shareholders of Conrad entered into an exchange agreement
pursuant to which they have exchanged their shares of common stock of Conrad for
shares of Common Stock of the Company (the "Reorganization"). In accordance with
the terms of the Exchange Agreement, the shareholders of Conrad received a
number of shares of Common Stock in direct proportion to their relative
shareholdings in Conrad. As a result of the Reorganization, the Company is a
holding company whose only assets consist of all of the outstanding shares of
capital stock of Conrad. Conrad continues to own all of the outstanding stock of
Orange Shipbuilding.

Conrad has operated since 1948 at its shipyard in Morgan City, Louisiana, and
specializes in the construction, conversion and repair of large and small deck
barges, single and double hull tank barges, lift boats, push boats, tow boats
and offshore tug boats. In December 1997, Conrad acquired Orange Shipbuilding to
increase its capacity to serve Conrad's existing markets and to expand its
product capability into the construction of additional types of marine vessels,
including offshore tug boats, push boats and double hull barges, and the
fabrication of modular components for offshore drilling rigs and floating,
production, storage and offloading vessels ("FPSOs"). In February 1998, Conrad
commenced operations at a conversion and repair facility in Amelia, Louisiana,
thereby expanding its capacity to provide conversion and repair services for
marine vessels.

The Company completed its initial public offering (the "Offering") on June 15,
1998 in which it sold 2.1 million shares of common stock for net proceeds of
$23.7 million ($1.4 million was received in July 1998) after underwriting
discounts of $1.8 million. The Company used all of the proceeds to repay $10
million of indebtedness under the Company's Revolving Credit Facility and the
remaining net proceeds were used to repay $13.7 million of the approximately $25
million of indebtedness under the term loan.

The demand for the Company's products and services is dependent upon a number of
factors, including the economic condition of the Company's customers and
markets, the age and state of repair of the vessels operated by the Company's
customers and the relative cost to construct a new vessel as compared with
repairing an older vessel. Demand for the Company's products and services has
been favorably impacted recently by increased activity in the offshore oil and
gas industry and by determinations by commercial and government customers to
construct new

                                      11
<PAGE>
 
vessels to replace older vessels and upgrade the capacity or functionality of
existing vessels. In particular, the Company is experiencing significant demand
for the construction of lift boats and barges employed in the offshore oil and
gas industry and, as a result of the Orange Acquisition, for the fabrication of
modular components for offshore drilling rigs and FPSOs. In addition, the Orange
Acquisition has enabled the Company to capitalize on the demand for new vessel
construction by government customers such as the U.S. Army, U.S. Navy, U.S.
Coast Guard and Corps of Engineers. The age of barges and other vessels operated
by the Company's customers has also led to an increase in repair activities.

The Company is engaged in various types of construction under contracts that
generally range form one month to 36 months in duration. The Company uses the
percentage-of-completion method of accounting and therefore, takes into account
the estimated cost; estimated earnings and revenue to date on fixed-price
contracts not yet completed. The amount of revenue recognized is equal to the
portion of the total contract price that the labor hours incurred to date bears
to the estimated total labor hours, based on current estimates to complete. This
method is used because management considers expended labor hours to be the best
available measure of progress on these contracts. Revenues from cost-plus-fee
contracts are recognized on the basis of cost incurred during the period plus
the fee earned.

Most of the contracts entered into by the Company for new vessel construction,
whether commercial or governmental, are fixed-price contracts under which the
Company retains all cost savings on completed contracts but is liable for all
cost overruns. The Company develops its bids for a fixed price project by
estimating the amount of labor hours and the cost of materials necessary to
complete the project and then bids such projects in order to achieve a
sufficient profit margin to justify the allocation of its resources to such
project. The company's revenues therefore may fluctuate from period to period
based on, among other things, the aggregate amount of materials used in projects
during a period and whether the customer provides materials and equipment. For
projects in which the customer provides material or equipment, the Company
generally charges material handling and warehousing fees, resulting in higher
profit margins than for projects in which the Company provides the materials and
equipment. The company generally performs conversion and repair services on the
basis of cost-plus-fee arrangements pursuant to which the customer pays a
negotiated labor rate for labor hours spent on the project as well as the cost
of materials plus a margin on materials purchased.

RECENT EVENTS

On December 12, 1997, Conrad acquired all of the outstanding shares of common
stock of Orange Shipbuilding, a shipyard located in Orange, Texas, for a cash
purchase price and related acquisition cost of  $25.8. The cash purchase price
and related acquisition cost were funded with $25.0 million of borrowings and
the remainder with existing cash. At the purchase date, Orange Shipbuilding had
$3.0 million in cash, resulting in a net purchase price of $22.8 million. The
Orange Acquisition has been accounted for under the purchase method. The
purchase price was allocated based on estimated fair market values at the date
of acquisition. This resulted in an excess of purchase price over fair value of
assets acquired of approximately $15.3 million, which excess amount will be
amortized over 20 years on a straight-line basis. Due to the close proximity of
the acquisition date to Conrad's fiscal year end, results of operations
subsequent to

                                      12
<PAGE>
 
the acquisition of Orange Shipbuilding are not included in Conrad's operating
results for the year ended December 31, 1997. The results of operation of Orange
Shipbuilding from the date of acquisition to the end of Conrad's fiscal year
were insignificant.

Conrad has operated as an S corporation for federal and state income tax
purposes since April 1, 1990. As a result, Conrad was not subject to federal or
state income tax until after May 1998, and the entire earnings of Conrad were
subject to tax directly at the shareholder level. In May 1998, Conrad's S
election was terminated and thereafter Conrad became subject to corporate level
income taxation. A one-time deferred tax liability charge to earnings of
$675,000 was made during the second quarter of 1998 in connection with the
termination of its S Corporation status. Orange Shipbuilding was also taxed as
an S corporation from April 1, 1995 to October 1, 1997, when it elected to
terminate its S corporation status, and as a result became subject to corporate
income taxes for periods commencing on or after such date. Orange Shipbuilding
recorded a one time net deferred tax liability of approximately $200,000 in the
fourth quarter ended December 31, 1997.

In the past, Conrad made distributions to its shareholders in order to fund
their federal and state income tax liabilities that resulted from Conrad's S
corporation status. In accordance with this practice, during the first quarter
of 1998, Conrad distributed approximately $506,000 to its current shareholders
and distributed and additional $1.8 million prior to the effective date of the
Offering to fund the shareholders' federal and state income tax liabilities
estimated through the date of termination of its S corporation status.

On May 22, 1998, prior to the Reorganization, Conrad made an additional $10
million distribution ("Shareholder Distribution") to its shareholders which
amount represents undistributed earnings of Conrad, estimated through the date
of the termination of Conrad's S corporation status, on which Conrad's current
shareholders have incurred federal and state income taxes. Conrad also made a
distribution of certain nonoperating assets with a fair market value of
approximately $406,000 to its shareholder prior to the completion of the
Offering. The distributions of cash and non-operating assets were made prior to
the completion of the Offering, and Conrad funded the Shareholder Distributions
with borrowings under its Revolving Credit Facility, which borrowing were repaid
with proceeds of the Offering.

In the first quarter of 1998, Conrad issued shares of common stock to William H.
Hidalgo, the President and Chief Executive Officer, and Cecil A. Hernandez, the
Vice President-Finance and Administration and Chief Financial Officer, in
consideration of past services rendered. Fifty percent of the shares of common
stock issued to each such executive are subject to forfeiture in the event of
the voluntary termination of employment by such executive for other than "good
reason" prior to the expiration of the initial three-year term of employment
specified in the employment agreement of such executive, provided that such
restriction will laps in the event of (i) the termination by the Company of such
executive's employment for reasons other than "cause" (as defined) or (ii) the
death, disability or retirement (at or after the age of 65) of such executive
and will also lapse with respect to 33 1/3% of such restricted shares on each of
the first three anniversaries of the completion of the Offering. The shares of
common stock of Conrad issued to Mr. Hidalgo and Mr. Hernandez were exchanged,
respectively, for 385,695 and

                                      13
<PAGE>
 
153,819 shares of Common Stock of the Company pursuant to the Reorganization. In
connection with the issuance of shares of Conrad common stock, Mr. Hidalgo and
Mr. Hernandez, executed promissory notes in the amounts of $239,870 and $97,400,
respectively, representing their tax liabilities paid by the Company. These tax
notes were repaid in full by Mr. Hidalgo and Mr. Hernandez in July 1998. In
connection with the issuance of these shares to Messrs. Hidalgo and Hernandez,
the Company estimates it will recognize aggregate compensation expense of $8.6
million, of which $4.3 million was recognized in the first quarter of 1998 and
the remainder will be recognized over a three-year vesting period, of which
$359,000 was expensed in the second quarter of 1998.

RESULTS OF OPERATIONS

The following table sets forth certain historical data of Conrad and percentage
of revenues for the periods presented.
 

                                      14
<PAGE>
 
<TABLE>
<CAPTION>

                                             THREE MONTHS ENDED JUNE 30,                     SIX MONTHS ENDED JUNE 30,
                                      ---------------------------------------------------------------------------------------
                                             1998                 1997                   1998                   1997
                                      ------------------    -------------------    --------------------    ------------------
FINANCIAL DATA:                                                          (IN THOUSANDS)
<S>                                   <C>          <C>      <C>           <C>      <C>            <C>        <C>         <C>
Revenues
  Vessel construction                 $  7,112     57.3%    $  2,467      49.3%    $  14,091       58.7%     $  5,454     51.7%
  Modular component fabrication            832      6.7%           -       0.0%        2,457       10.2%            -      0.0%
  Repair and conversions                 4,474     36.0%       2,538      50.7%        7,439       31.0%        5,097     48.3%
                                      --------              --------                --------                 --------
    Total revenues                      12,418    100.0%       5,005     100.0%       23,987      100.0%       10,551     100.%
                                      --------              --------                --------                 --------
Cost of revenue                          8,669     69.8%       3,475      69.4%       16,809       70.1%        7,285     69.0%
                                      --------              --------                --------                 --------
Gross profit                             3,749     30.2%       1,530      30.6%        7,178       29.9%        3,266     31.0%
S G & A expenses                           885      7.1%         523      10.4%        1,773        7.4%        1,016      9.6%
Non-Cash Executive Compensation            359      2.9%           -       0.0%        4,675       19.5%            -      0.0%
                                      --------              --------                --------                 --------
Income (loss) from operations            2,505     20.2%       1,007      20.1%          730        3.0%        2,250     21.3%
Interest Expense                           502      4.0%           7       0.1%        1,005        4.2%           18      0.2%
Other expenses (income), net               (86)    -0.7%         (28)     -0.6%         (179)      -0.7%          (28)    -0.3%
                                      --------              --------                --------                 --------
Income (loss) before income taxes        2,089     16.8%       1,028      20.5%          (96)      -0.4%        2,260     21.4%
Income taxes                               410      3.3%           -       0.0%          703        2.9%            -      0.0%
Cumulative deferred tax provision          675      5.4%           -       0.0%          675        2.8%            -      0.0%
                                      --------              --------                --------                 --------
Net Income (loss)                     $  1,004      8.1%    $  1,028      20.5%     $ (1,474)      -6.1%     $  2,260     21.4%
                                      ========              ========                ========                 ========
                                                                                                           
PRO FORMA DATA:                                                                                            
Income before income taxes            $  2,089     16.8%    $  1,028      20.5%     $    (96)      -0.4%     $  2,260     21.4%
Pro forma provision for income taxes     1,009      8.1%         380       7.6%        1,427        5.9%          836      7.9%
                                       -------              --------                --------                 --------
Pro forma net income (loss)           $  1,080      8.7%    $    648      12.9%     $  (1,523)     -6.3%     $  1,424     13.5%
                                       =======              ========                =========                ========
                                                                                                           
EBITDA (1)                            $  3,422     27.6%    $  1,216      24.3%     $   6,513      27.2%     $  2,672     25.3%
                                       =======              ========                =========                ========
 
OPERATING DATA:
Labor Hours                                181                    85                      332                     182
</TABLE>

(1) Represents income from operations before deduction of depreciation,
amortization and non-cash compensation expense related to the issuance of stock
and stock options to employees. EBITDA is not a measure of cash flow, operating
results or liquidity as determined by generally accepted accounting principles.
The Company has included information concerning EBITDA as supplemental
disclosure because management believes that EBITDA provides meaningful
information regarding a company's historical ability to incur and service debt.
EBITDA as defined and measured by the Company may not be comparable to similarly
titled measures reported by other companies. EBITDA should not be considered in
isolation or as an alternative to, or more meaningful than, net income or cash
flow provided by operations as determined in accordance with generally accepted
accounting principles as an indicator of the Company's profitability or
liquidity.
 
                                      15
<PAGE>
 
Three Months and Six Months Ended June 30, 1998 Compared with Three Months and
Six Months Ended June 30, 1997

The Company's results of operations for the three and six months ended June 30,
1997 does not include information relative to Orange Shipbuilding and thus only
presents Conrad's result of operations for that period.

The Company's revenues for the three months and six months ended June 30, 1998,
were $12.4 and $24 million, respectively, an increase of 148.1% and 127.3%
compared to $5 million and $10.6 million in revenues for the three months and
six months ended June 30, 1997. The increase for the three months was due to a
$3.3 million increase in vessel construction and a $832,000 increase in modular
component fabrication attributable to the inclusion of the activities of Orange
Shipbuilding in the results of operations of the Company for such period, and a
$1.3 million increase in vessel construction and a $1.9 increase in repair and
conversion revenue at Conrad for such period. The increase for the six months
was due to a $6.8 million increase in vessel construction and a $2.5 million
increase in modular component fabrication attributable to the inclusion of the
activities of Orange Shipbuilding in the results of operations of the Company
for such period and a $1.8 million increase in vessel construction and a $2.3
increase in repair and conversion revenue at Conrad for such period.

Gross profit increased $2.2 million, or 145.0%, to $3.7 million (30.2% of
revenue) for the three months ended June 30, 1998 as compared to $1.5 million
(30.6% of revenue) for the three months ended June 30, 1997. Gross profit
increased $3.9 million, or 120.0%, to $7.2 million (29.9% of revenue) for the
six months ended June 30, 1998 as compared to $3.3 million (31.0% of revenue)
for the six months ended June 30, 1997. The increases were due primarily to the
increase in revenue items described above.

Selling, general and administrative expenses increased $362,000 to $885,000
(7.1% of revenue) for the three months ended June 30, 1998 as compared to
$523,000 (10.4% of revenue) for the three months ended June 30, 1997 primarily
due to $199,000 increase in goodwill and loan cost amortization in connection
with the Orange acquisition, $114,000 increase in salary and wages attributable
to additional personnel and an increase of $59,000 in legal and accounting fees.
Selling, general and administrative expenses increased $757,000 to $1.8 million
(7.4% of revenue) for the six months ended June 30, 1998 as compared to $1.0
million (9.6% of revenue) for the six months ended June 30, 1997 primarily due
to $397,000 increase in goodwill and loan cost amortization, $201,000 increase
in salary and wages and an increase of $90,000 in legal and accounting fees.

Income before income taxes increased $1.1 million to $2.1 million for the three
months ended June 30, 1998 as compared to $1.0 million for the three months
ended June 30, 1997. This increase resulted primarily from the factors discussed
above. Income before income taxes decreased $2.4 million to a loss of $96,000
for the six months ended June 30, 1998 as compared to $2.3 million for the six
months ended June 30, 1997 primarily due to the non cash executive compensation
charge of $4.7 million (described in "Recent Events") and interest expense of
$1.0 million.
 
                                      16
<PAGE>
 
The Company had net income of $1.0 million for the three months ended June 30,
1998 compared to $1.0 million for the three months ended June 30, 1997. Net
income for the three months was impacted by a one time deferred income tax
charge of $675,000 for such period related to the Company's conversion from an S
corporation to a C corporation and income tax expense of $410,000 for the
period. The Company had a net loss of $1.5 million for the six months ended June
30, 1998 compared to net income of $2.3 million for the six months ended June
30, 1997. The net loss for the six months ended June 30, 1998 was due to the
non-cash compensation charge of $4.7 million, interest expense of $1.0 million,
the one-time deferred tax provision of $675,000 and income taxes of $703,000.
The Company was an S corporation during 1997 and not subject to income taxes at
the corporate level.

Pro forma net income increased $432,000 to $1.1 million for the three months
ended June 30, 1998 as compared to $648,000 for the three months ended June 30,
1997. This increase resulted primarily form the factors discussed above. Pro
forma net income decreased $2.9 million to a loss of  $1.5 million for the six
months ended June 30, 1998 as compared to pro forma net income of $1.4 million
for the six months ended June 30, 1997 primarily due to the non cash executive
compensation charge of $4.7 million (described in "Recent Events") and interest
expense of $1.0 million. Pro forma net income gives effect to the application of
federal and state income taxes to the Company as if it were a C corporation for
tax purposes during all the periods presented. Pro forma net income excludes the
one-time charge of $675,000 to record the cumulative deferred income tax
provision.

LIQUIDITY AND CAPITAL RESOURCES

The Company completed the Offering on June 15, 1998 in which it sold 2.1 million
shares of common stock for net proceeds of $23.7 million ($ 1.4  million of
which was received in July, 1998) after underwriting discounts of $1.8 million.
The Company used all of the proceeds to repay $10 million of indebtedness under
the Company's Revolving Credit Facility and the remaining net proceeds were used
to repay $13.7 million of the approximately $25 million of indebtedness under
the term loan.

Historically, the Company has funded its business through funds generated from
operations. Net cash provided by operations was $792,000 for the six months
ended June 30, 1998.

The Company net cash used in investing activities of $1.5 million for the six
months ended June 30, 1998 was for improvements to facilities and equipment of
which approximately $887,000 was for a major improvement to a drydock.

The Company has entered into the Loan Agreement, which specifies the terms of
the Term Loan and the Revolving Credit Facility. The Revolving Credit Facility
permits the Company to borrow up to $10.0 million for working capital and other
general corporate purposes, including funding of acquistions. The Revolving
Credit Facility bears interest on the same terms as the Term Loan and matures on
April 30, 1999. A fee of 0.25% per annum on the unused portion of the credit
facility will be charged quarterly. The Company borrowed $10.0 million under the
Revolving Credit Facility prior to the Reorganization in order to fund part of
the Shareholder Distributions
 
                                      17
<PAGE>
 
as further described in Recent Events. The $10.0 indebtedness was paid from the
proceeds as detailed above and thus the $10 million Revolving Credit Facility
remains available for future use. The Loan Agreement contains customary
restrictive covenants and financial ratio test, including a current ratio
requirement of 1.5 to 1.0, that could limit the Company's use of available
capacity under the Revolving Credit Facility. The Loan Agreement prohibits the
Company from paying dividends without the consent of the lender and restricts
the ability of the Company to incur additional indebtedness.

In December 1997, Conrad borrowed $25.0 million on a term loan basis to fund the
purchase price of the Orange Acquisition. Interest on the Term Loan accrues at
LIBOR plus 2.0% until September 18, 1998, and thereafter at the option of the
Company either at the lender's prime rate minus 0.5% or LIBOR plus 2.0%. The
Company is currently utilizing the LIBOR rate option and the interest rate at
June 30, 1998 was 7.68% per annum. The Term Loan required the payment of
interest only until May 1998 and thereafter the Term Loan is payable in 70
monthly principal payments of $209,000 plus interest, with a final payment due
on April 2004. The Term Loan is secured by substantially all of the Company's
assets. The Company repaid $12.3 million, during June 1998, of the outstanding
indebtedness under the Term Loan with a portion of the net proceeds of the
Offering. The Company additionally commenced principal repayments in June,
resulting in a balance due under the Term Loan of $12.5 million at June 30,
1998. The Term Loan was reduced by an additional $1.4 million in July 1998 with
additional proceeds of the Offering.

Net cash used in financing activities was $3.0 million. This net decrease was
composed of cash provided from borrowings of the Revolving Credit Facility of
$10.0 million, borrowings on insurance finance notes of $687,000 and net
proceeds from sale of common stock of $21.6 million less cash used in the
principal repayment of debt of $23.0 million and distribution of shareholders of
$12.3 million.

Management believes that the Company's existing working capital, cash flows from
operations and available borrowing under the Revolving Credit Facility will be
adequate to meet its working capital needs and planned capital expenditures for
property and equipment through 1998. The Company may pursue attractive
acquisition opportunities if and when such opportunities arise. The timing, size
or success of any acquisition effort and the associated potential capital
commitments cannot be predicted.

YEAR 2000 COMPLIANCE

The Company has assessed both the cost of addressing and the costs or
consequences of incomplete or untimely resolution of the Year 2000 issue. The
Company has determined that its estimated costs related to the Year 2000 issue
are not anticipated to be material to the Company's business, operations or
financial condition. In addition, the Company is in the process of initiating
communications with its significant suppliers and large customers to determine
the extent to which the Company is vulnerable to those third parties failure to
remediate their own Year 2000 issues. The Company can give no guarantee that the
systems of other companies on which the Company's systems rely will be converted
on time or that a failure to convert by another company would not have a
material adverse effect on the Company.
 
NEW ACCOUNTING PRONOUNCEMENTS

During 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130") and Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 130
provides guidance for the presentation and display of comprehensive income. SFAS
131 establishes standards for disclosure of operating segments, products,
services, geographic areas and major customers. The Company is required to adopt
both standards for its fiscal year ending December 31, 1998. Management believes
that the implementation of SFAS 130 and SFAS 131 will not have a material impact
on the presentation of the Company's financial statements, but may require
additional disclosure.

In February 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards Number 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits" ("SFAS 132"). SFAS 132 revises the
standards for disclosure of pension and other postretirement benefit plans by
standardizing the disclosure requirements, requiring additional information on
changes in the benefit obligations and fair values of plan assets and
eliminating certain disclosures requirements no longer considered to be useful.
These new disclosure requirements are designed to improve the understandability
of benefit disclosures for financial analysis. The Company is required to adopt
this standard for its fiscal year ending December 31, 1998. Management believes
that the implementation of SFAS 132 will not have a material impact on the
presentation of the Company's financial statements but may require additional
disclosure.

                                      18
<PAGE>
 
PART II. OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits

 27    -  Financial Data Schedule

(b)  Reports on Form 8-K

  The Company has not filed any Current Reports on Form 8-K since the Filing of
the Company's Final prospectus pursuant to Rule 424(b) in connection with its
initial public offering on June 10, 1998.

                                      19
<PAGE>
 
                                   SIGNATURE

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

Date:  August 13, 1998

                                    CONRAD INDUSTRIES, INC.

                                    By: /s/ Cecil A. Hernandez
                                       ------------------------------- 
                                       Cecil A. Hernandez
                                       Senior Vice President and
                                       Chief Financial Officer
 

                                      20