FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549

           (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                   For the quarterly period ended May 31, 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 1-7924


                             VALLEY RESOURCES, INC.
             (Exact name of Registrant as specified in its charter)
 
                Rhode Island                            05-0384723
      (State or other jurisdiction                  (I.R.S.  Employer
     incorporation or organization)                 Identification No.)
 
           1595 Mendon Road                               02864
        Cumberland, Rhode Island                        (Zip Code)
(Address of principal executive offices)

                                 (401) 334-1188
              (Registrant's telephone number, including area code)
 
                                 Not Applicable

              (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,  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  issuer's  classes of
Common Stock, as of the latest practicable date.

                                                               Outstanding at
     Class of Common Stock                                      May 31, 1998
     ---------------------                                      ------------

         1 Par Value                                               4,978,247

<PAGE>



                             VALLEY RESOURCES, INC.


                                    FORM 10-Q

                                  MAY 31, 1998

                                                                      Page of
                                                                     Form 10-Q

PART    I:    FINANCIAL INFORMATION

Item    1.    Financial Statements

              Consolidated Condensed Statements of Income--for
              the three and nine months ended May 31, 1998
              and 1997................................................     3

              Consolidated Condensed Balance Sheets--May 31,
              1998 and August 31, 1997................................ 4 & 5

              Consolidated Condensed Statements of Cash Flows--for
              the nine months ended May 31, 1998 and 1997.............     6

              Notes to Consolidated Condensed Financial Statements....     7

Item    2.    Management's Discussion and Analysis of Financial
              Condition and Results of Operations.....................     8

Item 6(a)     Exhibits................................................    10

 
PART   II:    OTHER INFORMATION

Item    6.    Exhibits and Reports on Form 8-K........................    11

                                                         
<PAGE>

                          PART I: FINANCIAL INFORMATION

                          ITEM 1 - FINANCIAL STATEMENTS



VALLEY RESOURCES, INC. AND SUBSIDIARIES

Consolidated Condensed Statements of Income
(Unaudited)
<TABLE>
<CAPTION>

                                        3 Months Ended        9 Months Ended
                                      May 31,    May 31,    May 31,     May 31,
                                       1998       1997       1998       1997
                               (in thousands except share and per share numbers)
<S>                                 <C>        <C>        <C>        <C>
Operating Revenues:
Utility Gas Revenues                $  17,207  $  21,289  $  52,120  $  57,412
Nonutility Revenues                     5,380      4,992     16,719     16,141
                                    ---------  ---------  ---------  ---------
         Total                         22,587     26,281     68,839     73,553
                                    ---------  ---------  ---------  ---------

Operating Expenses:
   Cost of Gas Sold                     8,726     12,568     28,008     33,146
   Cost of Sales - Nonutility           3,786      3,414     11,613     11,134
   Operations                           4,309      4,405     13,842     13,659
   Maintenance                            431        426      1,246      1,253
   Depreciation and Amortization          826        778      2,476      2,333
   Taxes - Other Than Federal Income    1,120      1,176      3,340      3,400
         - Federal Income                 870        847      1,938      1,969
                                    ---------  ---------  ---------  ---------
         Total                         20,068     23,614     62,463     66,894
                                    ---------  ---------  ---------  ---------
Operating Income                        2,519      2,667      6,376      6,659
Other Income - Net of Tax                  36        111        158        268
                                    ---------  ---------  ---------  ---------
Total Income                            2,555      2,778      6,534      6,927
                                    ---------  ---------  ---------  ---------
Interest Charges:
   Long-Term Debt                         629        492      1,862      1,457
   Other                                   97        330        373      1,026
                                    ---------  ---------  ---------  ---------
             Total                        726        822      2,235      2,483
                                    ---------  ---------  ---------  ---------
Net Income                          $   1,829  $   1,956  $   4,299  $   4,444
                                    =========  =========  =========  =========
Average Number of Common
Shares Outstanding                  4,976,848  4,264,660  4,962,375  4,262,679

Basic Earnings Per Average Common
  Share Outstanding                     $0.37      $0.46      $0.87      $1.04
 
Dividends Declared on Common Stock    $0.1875     $0.185    $0.5575      $0.55


</TABLE>


The accompanying Notes are an integral part of these statements.


<PAGE>


VALLEY RESOURCES, INC. AND SUBSIDIARIES

Consolidated Condensed Balance Sheets
<TABLE>
<CAPTION>
 
 
                                                        (Unaudited)
                                                          May 31,       Aug. 31,
                                                           1998           1997   
                                                         --------       -------- 
                                                             (in thousands)
<S>                                                      <C>            <C>
ASSETS
Utility Plant - Net                                      $ 50,936       $50,447
                                                         --------       -------
Leased Property - Net                                       1,901         2,377
                                                         --------       -------
Nonutility Property-Net                                     4,090         3,712
                                                         --------       -------
Other Investments                                           1,615         1,592
                                                         --------       -------
Current Assets:
  Cash                                                      2,707           820
  Accounts Receivable - Net                                12,414        11,183
  Deferred Unbilled Gas Costs                                 525           440
  Fuel and Other Inventories (Note 3)                       4,866         6,120
  Prepayments                                                 592         1,290
  Common Stock held for Dividend Reinvestment-amounting
    to 14,781 and 31,179 shares respectively (Note 4)         180           352
                                                         --------       -------
           Total                                           21,284        20,205
                                                         --------       -------
Deferred Debits:
   Recoverable Postretirement Benefits                        289           462
   Recoverable Vacations Accrued                              827           596
   Unamortized Debt Discount and Expense                    1,729         1,745
   Prepaid Pensions                                         8,392         7,095
   Recoverable Deferred FIT                                 6,034         6,044
   Recoverable Transition Obligation                          373           373
   Other                                                    3,058         3,049
                                                         --------       -------
                                                           20,702        19,364
                                                         --------       -------
Total                                                    $100,528       $97,697
                                                         ========       =======
</TABLE>


The accompanying Notes are an integral part of these statements.


<PAGE>

VALLEY RESOURCES, INC. AND SUBSIDIARIES

Consolidated Condensed Balance Sheets (Cont'd)
<TABLE>
<CAPTION>

 
                                                     (Unaudited)
                                                       May 31,          Aug. 31,
                                                        1998              1997   
                                                      ---------         -------- 
                                                            (in thousands)
<S>                                                  <C>                <C>
CAPITALIZATION & LIABILITIES
Capitalization:
  Common Stock                                       $  4,993           $ 4,900
  Paid In Capital                                      24,819            24,035
  Retained Earnings                                     9,792             8,279
  Less: Accounts Receivable from ESOP                  (2,813)           (2,907)
                                                     --------           ------- 
          Total Common Stock Equity                    36,791            34,307
                                                     --------           -------
Long-Term Debt (Less Current Maturities):
  8% First Mortgage Bonds, Series Due 2022             20,039            20,090
  7.7% Debentures, Due 2027                             7,000             7,000
  9% Notes Payable, Due 1999                            2,139             2,139
  Notes Payable                                         2,636             2,757
                                                     --------           -------
          Total Long-Term Debt                         31,814            31,986
                                                     --------           -------
                 Total Capitalization                  68,605            66,293
                                                     --------           -------
Revolving Credit Arrangement                            2,400             2,300
                                                     --------           -------
Obligation Under Capital Lease                          1,256             1,541
                                                     --------           -------
Current Liabilities:
  Current Maturities of Long-Term Debt                    150               150
  Obligation Under Capital Lease                          645               836
  Notes Payable                                           -0-             1,900
  Accounts Payable                                      4,375             4,298
  Security Deposits & Refund Obligations                  991             1,035
  Taxes Accrued                                         2,260               362
  Deferred Fuel Costs                                     658               793
  Accrued Interest                                      1,032               541
  Other                                                   927               697
                                                     --------           -------
          Total                                        11,038            10,612
                                                     --------           -------
Deferred Credits                                        5,005             5,130
                                                     --------           -------
Deferred Federal Income Taxes                          12,224            11,821
                                                     --------           -------
                                                     $100,528           $97,697
                                                     ========           =======
</TABLE>

The accompanying Notes are an integral part of these statements.

<PAGE>

VALLEY RESOURCES, INC. AND SUBSIDIARIES

Consolidated Condensed Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>

                                                               For the 9 Months
                                                                    Ended
                                                               May 31,   May 31,
                                                                1998      1997   
                                                               -------   ------- 
                                                                (in thousands)
<S>                                                           <C>       <C>
Cash Flows from Operating Activities:
  Net Income                                                  $ 4,299   $ 4,444
  Adjustments to Reconcile Net Income to Net Cash provided by
  Operating Activities:
    Depreciation and Amortization                               2,476     2,333
    Provision for Uncollectibles                                1,553     1,159
    Deferred Federal Income Taxes                                 404       108
    Amortization of ITC                                           (36)      -0-
  Change in Assets and Liabilities:
    Accounts Receivable                                        (2,783)   (6,011)
    Deferred Fuel Costs                                          (135)    2,131
    Unbilled Gas Costs                                            (85)      (57)
    Fuel and Other Inventories                                  1,254     1,950
    Other Current Assets                                         (427)      103
    Accounts Payable, Accrued Expenses and Current Liabilities  1,931     1,590
    Other - Net                                                   685       809
                                                              -------   -------
          Net Cash Provided by Operating Activities             9,136     8,559
                                                              -------   -------
Cash Flows from Investing Activities:
  Utility Capital Expenditures                                 (2,519)   (2,457)
  Nonutility Capital Expenditures                                (825)     (530)
  Other Investments                                               (24)      (67)
                                                              -------   ------- 
          Net Cash Used in Investing Activities                (3,368)   (3,054)
                                                              -------   ------- 
Cash Flows from Financing Activities:
  Dividends Paid                                               (2,786)   (2,344)
  Capital Stock Transactions                                      877       (45)
  Issuance of Long Term Debt                                      100       100
  Retirement of Long-Term Debt                                   (172)      (82)
  Decrease in Notes Payable                                    (1,900)   (2,900)
                                                              -------   ------- 
          Net Cash Used in Financing Activities                (3,881)   (5,271)
                                                              -------   ------- 
 
Net Increase in Cash                                            1,887       234
Cash - Beginning                                                  820       507
                                                              -------   -------
Cash - Ending                                                 $ 2,707   $   741
                                                              =======   =======

Supplemental Disclosures of Cash Flow Information
  Cash Paid During the Period for:
    Interest                                                  $ 1,744   $ 2,092
                                                              =======   =======
    Federal Income Taxes                                      $   -0-   $   386
                                                              =======   =======
  Capital Lease Obligations Incurred                          $   224   $   314
                                                              =======   =======
</TABLE>

The accompanying Notes are an integral part of these statements.




<PAGE>

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

Note 1
------

     The  Corporation  computes  basic  earnings  per  average  common  share in
accordance  with  SFAS  128,  based on the  weighted  average  number  of shares
outstanding during the period.

Note 2
------

     In the opinion of the Corporation,  the accompanying unaudited consolidated
condensed  financial  statements  contain all  adjustments  (consisting  of only
normal recurring accruals and matters discussed in "Management's  Discussion and
Analysis of Financial Condition and Results of Operations") necessary to present
fairly the financial  position as of May 31, 1998 the results of operations  for
the three and nine  months  ended May 31, 1998 and 1997 and  Statements  of Cash
Flows for the nine months ended May 31, 1998 and 1997.

     The results of operations for the three- and  nine-month  periods ended May
31, 1998 and 1997 are not  necessarily  indicative of the results to be expected
for the full year.

Note 3
------

Inventories - Fuel and Other Inventories: 
              (in Thousands)         
<TABLE>
<CAPTION>
                                                        (Unaudited)
                                                          May 31,     August 31,
                                                            1998         1997   
                                                        -----------   ----------
<S>                                                       <C>           <C>
  Fuels (at average cost)                                 $2,465        $3,809
  Merchandise and Other (at average cost)                  1,189         1,253
  Merchandise (at LIFO)                                    1,212         1,058
                                                          ------        ------
                                                          $4,866        $6,120
                                                          ======        ======
</TABLE>

Note 4
------

     Pursuant to the  dividend  reinvestment  plan,  stockholders  can  reinvest
dividends  and make limited  additional  investments  in shares of Common Stock.
Shares issued through  dividend  reinvestment can be acquired on the open market
or original issue.







<PAGE>

                                PART I - ITEM II

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
  CONDITION AND RESULTS OF OPERATIONS

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

For the three months ended May 31, 1998 versus 1997

     Utility gas revenues  for the three  months  ended May 31, 1998,  the third
fiscal quarter,  totaled  $17,207,000,  a decrease of 19.2 percent from the same
period in fiscal  1997.  The revenue  decrease  resulted  from a decline in base
revenues, lower collections through the PGPA and lower seasonal revenues, offset
slightly by an  increase  in  transportation  revenues.  Warmer  weather and the
transfer of sales customers to transportation are responsible for a 10.5 percent
decrease in revenues  generated from regulated base tariffs when compared to the
same  quarter  last year.  The majority of the PGPA decline was due to the lower
cost of gas the Utilities  recovered  from customers when compared to last year.
Revenues  generated  from the PGPA rate do not impact the  profitability  of the
company.  Seasonal  revenues are  dependent on the  availability  of natural gas
supplies and the price of alternate fuels.
 
     Total firm gas throughput,  firm gas sales and firm transportation,  during
the third fiscal quarter  totaled  2,267,200 Mcf, a decrease of 9.0 percent from
the prior year third quarter.  The decrease in gas throughput is the result of a
decline in usage by all  categories of firm gas sales.  Weather during the third
quarter,  as  measured by degree  days,  was 14.6  percent  warmer than the same
period last year.  The weather during the third fiscal quarter does not have the
same impact on gas sales as the second fiscal quarter, the winter period.

     Valley  Gas   transports   natural  gas  owned  by  customers  on  both  an
interruptible  and  firm  basis if  delivered  to  Valley  Gas's  gate  station.
Transportation  revenues for the quarter  increased $75,300 over the same period
in  fiscal  1997  due  to  the   transfer  of  firm  sales   customers  to  firm
transportation.  The firm transportation  tariffs, which became effective during
the first fiscal quarter of 1998, generate approximately the same margin as firm
gas  sales  tariffs.  From  a  margin  perspective,  this  makes  the  Utilities
indifferent to whether a customer buys gas or just transports it.

     Nonutility  revenues totaled  $5,380,000 for the three months ended May 31,
1998, an increase of 7.8 percent over the third  quarter in fiscal 1997.  During
the third quarter,  increased  wholesale and AEC sales were  responsible for the
improvement  over the prior  fiscal  year.  Wholesale  operations  continued  to
improve due to the expansion of an existing product line. AEC revenues increased
as a result of natural gas vehicle  conversions.  Retail  merchandise sales were
impacted by the warm  weather as it  experienced  declines of heating  equipment
sales in the replacement  market.  Propane  revenues  decreased also due to warm
weather impact on volumes of propane sold.  However,  propane  margins  remained
strong as a result of pricing strategies developed in fiscal 1997.

     The primary  contributor to the decrease in operating  expenses  during the
third fiscal  quarter was a 30.6 percent  decrease in the cost of gas sold.  The
average cost of gas  distributed to firm customers  during the quarter was $3.92
per Mcf for the three  months ended May 31, 1998 versus $3.38 per Mcf during the
third  quarter  of  fiscal  1997.  Changes  in gas  costs,  both  increases  and
decreases,  are recovered from customers through the PGPA in subsequent periods.
The increase in nonutility sales is responsible for the 10.9 percent increase in
cost of sales.  Other  operation  and  maintenance  expenses  remained flat when
compared to the prior fiscal year.

     Other income decreased $74,600 for the quarter compared to the same quarter
last year. The decrease is the result of a decline in interest  associated  with
the PGPA and a decline in income associated with other investments.

<PAGE>

     For the three months ended May 31, 1998,  interest  expense  decreased 11.6
percent from the same quarter  last year. A reduction in  short-term  borrowings
continues  to be  responsible  for the  decrease in interest  expense.  Interest
expense for the third fiscal quarter of 1998 continues to be positively impacted
by the corporate  refinancing and equity offering completed at the end of fiscal
1997.

For the nine months ended May 31, 1998 versus 1997

     For the  nine  months  ended  May  31,  1998,  utility  gas  revenues  were
$52,120,200,  a decrease of 9.2 percent  from the same period in fiscal  1997. A
decrease in base revenues generated from firm gas sales customers,  a decline in
the collections  through the PGPA, and lower seasonal revenues,  offset slightly
by an increase in  transportation  revenues,  were  responsible  for the revenue
decrease.

     Base revenues  generated from the regulated tariffs declined 4.8 percent as
a result of  decreased  natural  gas sales  resulting  from  warmer  than normal
weather.  PGPA revenues  decreased  $1,902,300  over the prior year's nine month
period due to decreased  firm gas sales and a reduction in the PGPA rate charged
to customers.

     Decreased  demand  for  natural  gas from  customers  with  alternate  fuel
capabilities produced a decrease of 43 percent in seasonal revenues versus 1997.
Sales to seasonal  customers are dependent upon the  availability of natural gas
and the  price of  alternate  fuels.  Margins  earned  from  seasonal  sales are
returned to firm customers  through the PGPA and do not impact the profitability
of the company.

     Firm gas  throughput to sales and  transportation  customers  decreased 3.0
percent from the prior year from the affect of warmer than normal  weather which
was slightly offset by an increase in customers.  Weather, as measured by degree
days,  was 5.2 percent  warmer than the prior nine month period and 12.3 percent
warmer than normal for the nine months  ended May 31. At May 31, 1998 there were
62,684 utility customers versus 62,181 at May 31, 1997.

     Transportation  revenues for the nine month period increased  $168,900 over
the same  period  in  fiscal  1997.  The  increase  in  transportation  revenues
continues to be the result of large commercial and industrial customers choosing
their own natural gas supplier under the Utilities firm transportation tariff.
 
     Nonutility  revenues  for  the  nine  months  ended  May 31,  1998  totaled
$16,719,000  an increase  of 3.6  percent  over  fiscal  1997.  The  increase in
nonutility  revenues  was the  result  of  increases  in  retail  and  wholesale
merchandise  sales,  offset by revenue declines from propane and AEC operations.
Conversions from electric heating, sales in the commercial markets and increases
in the  wholesale  operation  contributed  to the  increased  revenues.  Propane
revenues for the nine month period  decreased  from the prior year period,  as a
result of  weather  despite  increased  gallons  sold.  The  propane  operations
benefited  by offering  customers  fixed price  contracts  which  generated  the
increased gallons sold.

     Operating  expenses for the 1998 nine month period were primarily  impacted
by decreases in the cost of gas sold when  compared to the prior year.  The cost
of gas sold  decreased when compared to the same period last year as a result of
a decline in natural  gas and peak shave  usage  during the warmer  winter.  The
average cost of gas distributed to firm customers was $3.90 per Mcf for the nine
months  ended May 31, 1998  compared to $3.98 per Mcf in the prior year  period.
Nonutility cost of sales increased 4.3 percent which is directly attributable to
the increase in nonutility revenues.

     Other income decreased  $110,900 for the nine month period when compared to
last year. The decrease is the result of a decline in interest  associated  with
the PGPA and a decline in income associated with other investments.
 
     Interest  expense  decreased  10.0 percent for the nine month  period.  The
primary  contributor  to the  decrease  was a decline in  short-term  borrowings
offset  slightly by increased  long-term debt resulting from the debt and equity
offering which was completed at the end of the prior fiscal year.


<PAGE>

Liquidity and Capital Resources 
------------------------------- 

     During the third fiscal quarter the liquidity  position of the  Corporation
improved  over the second  quarter  as a result of the  collection  of  accounts
receivable  and the timing of tax payments .  Management  believes the available
financing  arrangements  are  sufficient  to  meet  cash  requirements  for  the
foreseeable  future.  The available  borrowings under lines of credit at May 31,
1998, were $37,000,000.
 
     Cash flows were  favorably  impacted  during the third  quarter  due to the
collection of accounts  receivable  from winter heating sales.  Sales during the
third quarter were less than anticipated due to warmer than normal weather which
negatively impacted liquidity.  Additionally, the warmer weather resulted in the
holding of supplemental fuel inventories which were anticipated to be sold.

     On September 24, 1997,  Valley Resources issued 93,000 additional shares of
common stock in fulfillment of the over-allotment option exercised in connection
with the August 1997  offering.  This common stock issuance  favorably  impacted
liquidity.

     Construction  expenditures  increased  during the third fiscal quarter,  as
planned, due to more favorable weather, thereby adversely affecting liquidity.

     The  liquidity  position of the  Corporation  will be  seasonally  affected
during the fourth quarter when gas  inventories  are  replenished for use during
winter  months and  revenues  decline as a result of the lack of  heat-sensitive
sales in the utility companies.

     Planned cash expenditures on the construction  program will increase during
the fourth fiscal quarter and will also negatively impact cash flow.


                               PART I - ITEM 6(a)

Item 6(a) - Exhibits
--------------------

27.  Financial Data Schedule (in electronic format only)



                           PART II - OTHER INFORMATION

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

(a)  The Company did not file a Form 8-K.







<PAGE>

                                   SIGNATURES


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


                                       VALLEY RESOURCES, INC. AND SUBSIDIARIES



                                                 S/K. W. Hogan   
                                  ----------------------------------------------
                                                   K. W. Hogan
                                  Senior Vice President, Chief Financial Officer
                                                        and Secretary


July 14, 1998