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 February 28, 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 of                          (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                                   February 28, 1998
      ---------------------                                   -----------------

          $1 Par Value                                             4,972,822
<PAGE>


                             VALLEY RESOURCES, INC.


                                    FORM 10-Q

                                FEBRUARY 28, 1998

                                                                        Page of
                                                                       Form 10-Q
                                                                       ---------

PART   I:  FINANCIAL INFORMATION

Item   1.  Financial Statements

           Consolidated Condensed Statements of Operations--for
           the three- and six-months ended February 28, 1998
           and 1997......................................................     3

           Consolidated Condensed Balance Sheets--February 28,
           1998 and August 31, 1997...................................... 4 & 5

           Consolidated Condensed Statements of Cash Flows--for
           the six-months ended February 28, 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..............................    10

                                     - 2 -
<PAGE>

                                                         
                          PART I: FINANCIAL INFORMATION

                          ITEM 1 - FINANCIAL STATEMENTS



VALLEY RESOURCES, INC. AND SUBSIDIARIES

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

                                        3 Months Ended            6 Months Ended
                                      Feb. 28,    Feb. 28,     Feb. 28,    Feb. 28,
                                        1998        1997         1998        1997
                                   (in thousands except share and per share numbers)
<S>                                   <C>         <C>         <C>         <C>
Operating Revenues:                   
   Utility Gas Revenues               $  24,830   $  25,177   $  34,913   $  36,123
   Nonutility Revenues                    5,598       5,755      11,339      11,149
                                      ---------   ---------   ---------   ---------
         Total                           30,428      30,932      46,252      47,272
                                      ---------   ---------   ---------   ---------

Operating Expenses:
   Cost of Gas Sold                      13,688      14,175      19,281      20,578
   Cost of  Sales - Nonutility            3,800       3,894       7,827       7,720
   Operations                             4,818       4,698       9,533       9,255
   Maintenance                              417         388         815         826
   Depreciation and Amortization            825         778       1,651       1,555
   Taxes - Other Than Federal Income      1,368       1,352       2,220       2,224
         - Federal Income                 1,593       1,631       1,068       1,122
                                      ---------   ---------   ---------   ---------
         Total                           26,509      26,916      42,395      43,280
                                      ---------   ---------   ---------   ---------
   Operating Income                       3,919       4,016       3,857       3,992
   Other Income - Net of Tax                 72          93         122         158
                                      ---------   ---------   ---------   ---------
   Total Income                           3,991       4,109       3,979       4,150
                                      ---------   ---------   ---------   ---------
Interest Charges:
   Long-Term Debt                           611         477       1,233         964
   Other                                    149         372         276         698     
                                      ---------   ---------   ---------   ---------     
         Total                              760         849       1,509       1,662
                                      ---------   ---------   ---------   ---------
Net Income                            $   3,231   $   3,260   $   2,470   $   2,488        
                                      =========   =========   =========   =========        
Average Number of Common
   Shares Outstanding                 4,970,959   4,261,726   4,955,018   4,261,672

Basic Earnings Per Average Common
  Share Outstanding                       $0.65       $0.76       $0.50       $0.58
 
Dividends Declared on Common Stock        $0.185      $0.1825     $0.37       $0.365

</TABLE>


The accompanying Notes are an integral part of these statements.

                                     - 3 -

<PAGE>


VALLEY RESOURCES, INC. AND SUBSIDIARIES

Consolidated Condensed Balance Sheets
<TABLE>
<CAPTION>
 
 
                                                        (Unaudited)
                                                         Feb. 28,       Aug. 31,
                                                           1998           1997   
                                                         ---------      -------- 
                                                             (in thousands)
<S>                                                     <C>              <C>    
ASSETS
Utility Plant - Net                                     $ 51,109         $50,447
                                                        --------         -------
Leased Property - Net                                      2,046           2,377
                                                        --------         -------
Nonutility Property-Net                                    4,056           3,712
                                                        --------         -------
Other Investments                                          1,609           1,592
                                                        --------         -------
Current Assets:
  Cash                                                       966             820
  Accounts Receivable - Net                               16,515          11,183
  Deferred Unbilled Gas Costs                              1,414             440
  Fuel and Other Inventories (Note 3)                      4,565           6,120
  Prepayments                                                722           1,290
  Common Stock held for Dividend Reinvestment-amounting
    to 20,206 and 31,179 shares respectively (Note 4)        229             352
                                                        --------         -------
           Total                                          24,411          20,205
                                                        --------         -------
Deferred Debits:
  Recoverable Postretirement Benefits                        346             462
  Recoverable Vacations Accrued                              754             596
  Unamortized Debt Discount and Expense                    1,746           1,745
  Prepaid Pensions                                         7,960           7,095
  Recoverable Deferred FIT                                 6,034           6,044
  Recoverable Transition Obligation                          373             373
  Other                                                    2,980           3,049
                                                        --------         -------
                                                          20,193          19,364
                                                        --------         -------
           Total                                        $103,424         $97,697
                                                        ========         =======
</TABLE>



The accompanying Notes are an integral part of these statements.

                                     - 4 -
<PAGE>

VALLEY RESOURCES, INC. AND SUBSIDIARIES

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

 
                                                       (Unaudited)
                                                       Feb. 28,        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                                      8,900           8,279
   Less: Accounts Receivable from ESOP                   (2,856)         (2,907)
                                                       --------         ------- 
           Total Common Stock Equity                     35,856          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                                          2,674           2,757
                                                       --------        --------
           Total Long-Term Debt                          31,852          31,986
                                                       --------        --------
                  Total Capitalization                   67,708          66,293
                                                       --------        --------
Revolving Credit Arrangement                              2,300           2,300
                                                       --------         -------
Obligation Under Capital Lease                            1,402           1,541
                                                       --------         -------
Current Liabilities:
   Current Maturities of Long-Term Debt                     150             150
   Obligation Under Capital Lease                           644             836
   Notes Payable                                          3,900           1,900
   Accounts Payable                                       5,066           4,298
   Security Deposits & Refund Obligations                 1,007           1,035
   Taxes Accrued                                          1,377             362
   Deferred Fuel Costs                                      729             793
   Accrued Interest                                         788             541
   Other                                                    867             697
                                                       --------         -------
           Total                                         14,528          10,612
                                                       --------         -------
Deferred Credits                                          5,089           5,130
                                                       --------         -------
Deferred Federal Income Taxes                            12,397          11,821
                                                       --------         -------
                                                       $103,424         $97,697
                                                       ========         =======
</TABLE>

The accompanying Notes are an integral part of these statements.


                                     - 5 -
<PAGE>

VALLEY RESOURCES, INC. AND SUBSIDIARIES

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

                                                                  For the 6 Months
                                                                       Ended
                                                               Feb. 28,     Feb. 28,
                                                                 1998         1997   
                                                               --------     --------   
                                                                   (in thousands)
<S>                                                            <C>           <C>
Cash Flows from Operating Activities:
  Net Income                                                   $ 2,470       $ 2,488
  Adjustments to Reconcile Net Income to Net Cash used in
  Operating Activities:
    Depreciation and Amortization                                1,651         1,555
    Provision for Uncollectibles                                 1,081           778
    Deferred Federal Income Taxes                                  578         1,410
    Amortization of ITC                                            (24)          -0-
  Change in Assets and Liabilities:
    Accounts Receivable                                         (6,412)       (7,578)
    Deferred Fuel Costs                                            (64)       (2,381)
    Unbilled Gas Costs                                            (974)       (1,164)
    Fuel and Other Inventories                                   1,555         1,332
    Other Current Assets                                          (174)          200
    Accounts Payable, Accrued Expenses and Current Liabilities   1,755           998
    Other - Net                                                    485           392   
                                                               -------       -------   
          Net Cash Provided (Used) by Operating Activities       1,927        (1,970)
                                                               -------       ------- 
  Cash Flows from Investing Activities:
  Utility Capital Expenditures                                  (2,016)       (1,708)
  Nonutility Capital Expenditures                                 (641)         (371)
  Other Investments                                                (17)          (20)
                                                               -------       ------- 
          Net Cash (Used) by Investing Activities               (2,674)       (2,099)
                                                               -------       ------- 
  Cash Flows from Financing Activities:
    Dividends Paid                                              (1,850)       (1,555)
    Capital Stock Transactions                                     877           (34)
    Issuance of Long Term Debt                                     -0-           100
    Retirement of Long-Term Debt                                  (134)          (57)
    Increase in Notes Payable                                    2,000         5,800
                                                               -------       -------
          Net Cash Provided by Financing Activities                893         4,254
                                                               -------       -------

  Net Increase in Cash                                             146           185
  Cash - Beginning                                                 820           507
                                                               -------       -------
  Cash - Ending                                                $   966       $   692
                                                               =======       =======

Supplemental Disclosures of Cash Flow Information
  Cash Paid During the Period for:
    Interest                                                   $ 1,262       $ 1,658 
                                                               =======       ======= 
    Federal Income Taxes                                       $   -0-       $   -0- 
                                                               =======       =======  
    Capital Lease Obligations Incurred                         $   177       $   201    
                                                               =======       =======    
</TABLE>

The accompanying Notes are an integral part of these statements.


                                     - 6 -
<PAGE>


NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

Note 1
------

New Accounting Standard
-----------------------

     The Company has adopted  Statement of Financial  Accounting  Standards  No.
128,  "Earnings per Share" ("SFAS 128"),  effective  quarter ended  February 28,
1998 and has reflected basic earnings per share on the face of the  consolidated
condensed  statements  of  operations.  Accordingly,  EPS data  for all  periods
presented  reflects the  computation of EPS in accordance with the provisions of
SFAS 128. The adoption of SFAS 128 had no effect on earnings per share.

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 February 28, 1998 the results of operations
for the three- and six-months  ended February 28, 1998 and 1997 and Statement of
Cash Flows for the six-months ended February 28, 1998 and 1997.

     The  results  of  operations  for the three- and  six-month  periods  ended
February 28, 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)
                                                  February 28,        August 31,
                                                     1998                1997        
                                                  ------------        ----------        
<S>                                                 <C>                 <C>   
    Fuels (at average cost)                         $2,042              $3,809
    Merchandise and Other (at average cost)          1,141               1,253
    Merchandise (at LIFO)                            1,382               1,058
                                                    ------              ------
                                                    $4,565              $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.


                                     - 7 -
<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 February 28, 1998 vs. 1997

     Utility gas  revenues for the three  months  ended  February 28, 1998,  the
second fiscal quarter,  totaled $24,829,600,  a decrease of one percent from the
same period in fiscal  1997.  The revenue  decrease is  primarily  the result of
lower  collections  through  the  PGPA  and a  decrease  in base  revenues  only
partially offset by increased  transportation  revenues. PGPA revenues decreased
due to lower firm gas sales;  this decrease does not impact the profitability of
the company because it is a pass-through of gas cost changes. Revenues generated
from the regulated base tariffs  declined less than one percent when compared to
the prior year as a result of the transfer of industrial firm sales customers to
firm transportation.

     Total firm gas throughput, firm gas sales and firm transportation,  for the
second quarter totaled 3,385,600 Mcf compared to 3,367,400 Mcf during the second
quarter of fiscal 1997.  Throughput increased as a result of increased gas usage
by commercial  and industrial  customers,  primarily for  non-heating  purposes.
Weather  during the second  quarter,  as measured by degree days,  was 2 percent
warmer than the same period last year and 8 percent warmer than a normal year.

     Valley Gas transports natural gas owned by customers if delivered to Valley
Gas'  gate  station  on both an  interruptible  and firm  basis.  Transportation
revenues for the quarter  increased  $95,000 over the same period in fiscal 1997
due to the availability of a firm transportation tariff for large commercial and
industrial customers.  The firm transportation  tariffs,  which became effective
during the first fiscal quarter of 1998, generate  approximately the same margin
as firm gas sales customers.

     Nonutility  revenues totaled $5,598,200 for the three months ended February
28, 1998, a decrease of 3 percent  from the second  quarter in fiscal 1997.  The
decrease in nonutility  revenues was spread across all nonutility  subsidiaries,
except wholesale operations.  Wholesale revenues were positively effected by the
expansion of an existing product line and a stronger  regional  economy.  Retail
merchandising  sales  declined due to the warm winter  weather and its impact on
the replacement  heating market.  Propane revenues were also reduced by the warm
winter  weather but margins and gallons sold  continued to be strong as a result
of pricing strategies developed in fiscal 1997.

     The average cost of gas  distributed  to firm  customers  was $3.54 per Mcf
versus $4.46 per Mcf during the second  fiscal  quarter of 1997.  Changes in gas
costs are recovered from customers through the PGPA.

     The reduction in nonutility  revenues gave rise to decreases in the cost of
sales. Other operation and maintenance expenses increased during the period as a
result of normal wage increases.
 
     For the three months ended February 28, 1998, interest expense decreased 11
percent from the same quarter last year. A reduction in short-term borrowings is
responsible for the decrease in interest  expense.  Interest  expense during the
second  fiscal  quarter  of 1998  continues  to be  positively  impacted  by the
corporate refinancing and equity offering completed at the end of fiscal 1997.

                                     - 8 -
<PAGE>

For the six months ended February 28, 1998 Vs 1997

     For the six months  ended  February 28,  1998,  utility gas  revenues  were
$34,913,200,  a  decrease  of 4 percent  from the same  period  in fiscal  1997.
Utility gas revenues  decreased due to lower  revenues  generated from regulated
base  tariffs,  a  reduction  in PGPA  revenues  and a decline in  interruptible
revenues, slightly offset by an increase in transportation revenues.

     Base revenues  generated  from  regulated  tariffs  declined 2 percent as a
result of decreased  natural gas sales. The reduction in gas sales was primarily
due to the  transfer of sales  customers  to  transportation.  The PGPA  revenue
reduction is the result of  decreased  gas sales to firm  customers  and a lower
average PGPA factor than in the prior year.
 
     Decreased  demand  for  natural  gas from  customers  with  alternate  fuel
capabilities  produced a decrease of 39% in interruptible  revenues versus 1997.
Sales to interruptible  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  increased
slightly less than one percent over the prior year despite warmer  weather.  The
increased throughput is due to an increase in the number of customers.  Weather,
as measured by degree days, was one percent warmer than the prior year six month
period,  but 5 percent warmer than a normal  period.  At February 28, 1998 there
were 63,069 utility customers versus 62,603 at February 28, 1997.

     Transportation revenues increased $93,600 for the six months ended February
28,  1998 when  compared  to the same  period in fiscal  1997.  The  increase in
transportation  revenues is a direct result of large  commercial  and industrial
customers  choosing  their own natural gas  supplier  under the  Utilities  firm
transportation tariff.

     Nonutility  revenues  for the six months  ended  February  28, 1998 totaled
$11,339,000,  an  increase  of 2 percent  over  fiscal  1997.  The  increase  in
nonutility  revenues came from an increase in retail and  wholesale  merchandise
sales,  moderated  by a  decline  in  propane  and AEC  revenues.  Sales  in the
commercial  retail  market  and  the  wholesale  operations  contributed  to the
increased  revenues.  Propane revenues  decreased despite an increase in gallons
sold as a result of offering  customers  fixed price contracts and lower product
pricing due to the warm winter weather.

     Operating  expenses for the six month period were  impacted by decreases in
the cost of gas sold and nonutility  cost of sales.  Decreases in the demand for
natural gas and a decline in supplemental  fuel use were the contributors to the
decrease in the cost of gas sold.  The average cost of gas  distributed  to firm
customers  was $3.90 per Mcf for the six months  ended  February 28, 1998 versus
$4.43 per Mcf in the prior year. Nonutility cost of sales decreased,  despite an
increase  in  nonutility  revenues,  due to  reductions  in the cost of propane.

     Interest expense decreased  $153,000 for the six month period when compared
to the prior year.  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.


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

     During the second fiscal quarter the liquidity  position of the Corporation
improved  over the first  quarter as a result of increased  revenues from winter
period sales. Management believes the available financing are sufficient to meet
cash  requirements for the foreseeable  future.  The available  borrowings under
lines of credit at February 28, 1998, were $33,100,000.

                                     - 9 -
<PAGE>
 
     Cash flows were negatively  impacted during the second quarter by increases
in the cost of natural  gas.  Sales  during the second  quarter,  despite  being
greater than the first quarter,  were less than  anticipated  due to warmer than
normal winter weather which also 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  declined during the second fiscal  quarter,  as
planned,  due to  constraints  caused by winter period  weather,  thereby adding
favorably to liquidity.

     The liquidity  position of the Corporation is anticipated to improve in the
third quarter as winter bills are collected.

     Cash expended on the  construction  program will increase  during the third
fiscal quarter which will negatively impact cash flows;  however, this increased
cash requirement should be offset by the improved cash flows.



                               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)   None.
(b)  The Company did not file a Form 8-K.


                                     - 10 -
<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


April 14, 1998