FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549

          (X) QUARTERLY REPORT PURSUANT TO SECTION 13 1OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                   For the quarterly period ended May 31, 2000

                                       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)

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, 2000
                  ---------------------           --------------

                      $1 Par Value                   4,987,607


<PAGE>



                             VALLEY RESOURCES, INC.


                                    FORM 10-Q

                                  MAY 31, 2000

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

PART    I:    FINANCIAL INFORMATION

Item    1.    Financial Statements

              Consolidated Condensed Statements of Earnings--for
              the three- and nine-months ended May 31, 2000 and
              May 31, 1999...................................................  3

              Consolidated Condensed Balance Sheets--May 31,
              2000 and August 31, 1999...................................  4 & 5

              Consolidated Condensed Statements of Cash Flows--for
              the nine-months ended May 31, 2000 and May 31, 1999............  6

              Notes to Consolidated Condensed Financial Statements...........  7

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


PART   II:    OTHER INFORMATION

Item    4.    Submission of Matters to a Vote of Security Holders............ 13

Item    6.    Exhibits and Reports on Form 8-K............................... 13


<PAGE>

                          PART I: FINANCIAL INFORMATION

                          ITEM 1 - FINANCIAL STATEMENTS



VALLEY RESOURCES, INC. AND SUBSIDIARIES

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

                                              3 Months Ended               9 Months Ended
                                              --------------               --------------
                                          May 31,         May 31,      May 31,        May 31,
                                           2000            1999         2000           1999
                                          -------         -------      -------        -------
                                           (in thousands except share and per share numbers)
<S>                                     <C>            <C>           <C>            <C>
Operating Revenues:
   Utility Gas Revenues                 $   18,989     $   18,303    $   55,961     $   51,471
   Nonutility Revenues                       6,806          5,278        19,077         16,581
                                        ----------     ----------    ----------     ----------
       Total                                25,795         23,581        75,038         68,052
                                        ----------     ----------    ----------     ----------

Operating Expenses:
   Cost of Gas Sold                          9,913          9,332        30,704         27,200
   Cost of Sales - Nonutility                4,421          3,587        12,929         10,996
   Operations                                4,267          4,326        13,401         13,429
   Maintenance                                 467            437         1,384          1,274
   Depreciation and Amortization               914            854         2,741          2,563
   Taxes - Other Than Federal Income         1,165          1,149         3,491          3,344
         - Federal Income                    1,271            926         2,693          2,252
                                        ----------     ----------    ----------     ----------
         Total                              22,418         20,611        67,343         61,058
                                        ----------     ----------    ----------     ----------
   Operating Income                          3,377          2,970         7,695          6,994
   Other Income - Net of Tax                    89             53           268            203
   Merger-related (Expenses)                   (90)            -0-         (494)            -0-
                                        ----------     ----------    ----------     ----------
Total Income                                 3,376          3,023         7,469          7,197
                                        ----------     ----------    ----------     ----------
Interest Charges:
   Long-Term Debt                              567            588         1,707          1,818
   Other                                       178            115           590            403
                                        ----------     ----------    ----------     ----------
       Total                                   745            703         2,297          2,221
                                        ----------     ----------    ----------     ----------
Net Income                              $    2,631     $    2,320    $    5,172     $    4,976
                                        ==========     ==========    ==========     ==========
Average Number of Common
  Shares Outstanding                     4,985,111      4,975,467     4,983,720      4,978,924

Basic & Diluted Earnings Per Average
  Common Share Outstanding                   $0.53          $0.47         $1.04          $1.00

Dividends Declared on Common Stock         $0.1875        $0.1875       $0.5625        $0.5625

</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)
                                                            May 31,    Aug. 31,
                                                             2000        1999
                                                            -------    --------
                                                              (in thousands)
<S>                                                        <C>         <C>
ASSETS
Utility Plant - Net                                        $ 53,081    $ 52,334
                                                           --------    --------
Leased Property - Net                                           994       1,556
                                                           --------    --------
Nonutility Property-Net                                       4,247       4,163
                                                           --------    --------
Other Investments                                             1,674       1,740
                                                           --------    --------
Current Assets:
   Cash                                                         644         750
   Accounts Receivable - Net                                 13,247       9,817
   Deferred Unbilled Gas Costs                                  506         432
   Fuel and Other Inventories (Note 3)                        3,307       5,959
   Prepayments                                                1,042       1,511
   Common Stock held for Dividend Reinvestment-amounting
     to 5,421 and 10,116 shares, respectively (Note 4)          124         143
                                                           --------    --------
           Total                                             18,870      18,612
                                                           --------    --------
Deferred Debits:
   Recoverable Vacations Accrued                                848         611
   Unamortized Debt Discount and Expense                      1,592       1,643
   Prepaid Pensions                                          11,709      10,388
   Recoverable Deferred FIT                                   5,950       6,062
   Recoverable Transition Obligation                             11          11
   Other                                                      3,709       3,103
                                                           --------    --------
           Total                                             23,819      21,818
                                                           --------    --------
                                                           $102,685    $100,223
                                                           ========    ========
</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)
                                                      May 31,         Aug. 31,
                                                       2000             1999
                                                      -------         --------
                                                          (in thousands)
<S>                                                  <C>             <C>
CAPITALIZATION & LIABILITIES
Capitalization:
   Common Stock                                      $  4,993        $  4,993
   Paid In Capital                                     24,758          24,756
   Retained Earnings                                   11,021           8,650
   Less: Accounts Receivable from ESOP                 (2,447)         (2,594)
                                                     --------        --------
           Total Common Stock Equity                   38,325          35,805
                                                     --------        --------
Long-Term Debt (Less Current Maturities):
   8% First Mortgage Bonds, Series Due 2022            19,899          20,029
   7.7% Debentures, Due 2027                            6,935           7,000
   Notes Payable                                        2,297           2,444
                                                     --------        --------
           Total Long-Term Debt                        29,131          29,473
                                                     --------        --------
                  Total Capitalization                 67,456          65,278
                                                     --------        --------
Revolving Credit Arrangement                            2,400           2,400
                                                     --------        --------
Obligation Under Capital Lease                            552             775
                                                     --------        --------
Current Liabilities:
   Current Maturities of Long-Term Debt                   150             150
   Obligation Under Capital Lease                         442             781
   Notes Payable                                        4,400           4,800
   Accounts Payable                                     4,088           5,386
   Security Deposits & Refund Obligations                 988             968
   Taxes Accrued                                        1,852             609
   Deferred Fuel Costs                                    705             427
   Accrued Interest                                       988             761
   Other                                                  879             716
                                                     --------        --------
           Total                                       14,492          14,598
                                                     --------        --------
Commitment and Contingencies
Deferred Credits                                        4,514           4,304
                                                     --------        --------
Deferred Federal Income Taxes                          13,271          12,868
                                                     --------        --------
                                                     $102,685        $100,223
                                                     ========        ========
</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 9 Months
                                                                         Ended
                                                                   ------------------
                                                                   May 31,    May 31,
                                                                    2000       1999
                                                                   -------    -------
                                                                    (in thousands)
<S>                                                               <C>        <C>
Cash Flows from Operating Activities:
   Net Income                                                     $ 5,172    $ 4,976
   Adjustments to Reconcile Net Income to Net Cash used in
   Operating Activities:
     Depreciation and Amortization                                  2,741      2,563
     Provision for Uncollectibles                                     934        937
     Deferred Federal Income Taxes                                    402        183
     Amortization of ITC                                              (36)       (36)
   Change in Assets and Liabilities:
     Accounts Receivable                                           (4,306)    (3,743)
     Deferred Fuel Costs                                              278      2,086
     Unbilled Gas Costs                                               (74)       (87)
     Fuel and Other Inventories                                     2,652      1,194
     Other Current Assets                                            (832)      (527)
     Accounts Payable, Accrued Expenses and Current Liabilities       (93)     2,251
     Other - Net                                                      106         40
                                                                  -------    -------
           Net Cash Provided by Operating Activities                6,944      9,837
                                                                  -------    -------
Cash Flows from Investing Activities:
     Utility Capital Expenditures                                  (3,017)    (2,624)
     Nonutility Capital Expenditures                                 (557)      (512)
     Other Investments                                                 67        (31)
                                                                  -------    -------
           Net Cash Used by Investing Activities                   (3,507)    (3,167)
                                                                  -------    -------
Cash Flows from Financing Activities:
     Dividends Paid                                                (2,802)    (2,790)
     Capital Stock Transactions                                         1        (70)
     Retirement of Long-Term Debt                                    (342)    (2,262)
     Decrease in Notes Payable                                       (400)    (1,400)
                                                                  -------    -------
           Net Cash Used by Financing Activities                   (3,543)    (6,522)
                                                                  -------    -------
   Net (Decrease) Increase in Cash                                   (106)       148
   Cash - Beginning                                                   750        813
                                                                  -------    -------
   Cash - Ending                                                  $   644    $   961
                                                                  =======    =======
Supplemental Disclosures of Cash Flow Information
   Cash Paid During the Period for:
     Interest                                                     $ 2,069    $ 2,026
                                                                  =======    =======
     Federal Income Taxes                                         $ 1,325    $   750
                                                                  =======    =======
   Capital Lease Obligations Incurred                             $    -0-   $    30
                                                                  =======    =======

</TABLE>

The accompanying Notes are an integral part of these statements.


                                       6



<PAGE>

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

Note 1
------

     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 at May 31, 2000, the results of operations for the
three- and nine-months  ended May 31, 2000 and May 31,1999 and Statement of Cash
Flows for the nine-months ended May 31, 2000 and May 31, 1999.

     The results of operations for the three- and  nine-month  periods ended May
31, 2000 and May 31, 1999 are not  necessarily  indicative  of the results to be
expected for the full year.

Note 2
------

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

                                                  (Unaudited)                   (Unaudited)
                                                3 Months Ended                9 Months Ended
                                           ------------------------      ------------------------
                                             May 31,       May 31,         May 31,       May 31,
                                              2000          1999            2000          1999
                                           ----------    ----------      ----------    ----------

<S>                                        <C>           <C>             <C>           <C>
Net Income                                 $2,631,050    $2,320,303      $5,172,139    $4,975,811
Weighted average shares outstanding         4,985,111     4,975,467       4,983,720     4,978,924
Basic and diluted earnings per share            $0.53         $0.47           $1.04         $1.00
</TABLE>


Note 3
------

Inventories - Fuel and Other Inventories:
                     (in Thousands)
<TABLE>
<CAPTION>

                                                    (Unaudited)
                                                      May 31,     August 31,
                                                       2000          1999
                                                      -------     ----------
<S>                                                   <C>           <C>
       Fuels (at average cost)                        $  546        $3,462
       Merchandise and Other (at average cost)         1,247         1,234
       Merchandise (at LIFO)                           1,514         1,263
                                                      ------        ------
                                                      $3,307        $5,959
                                                      ======        ======
</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.

Note 5
------

     On December 1, 1999,  Southern  Union  Company and Valley  Resources,  Inc.
announced that they have signed a definitive merger agreement under which Valley
Resources,  Inc.  will  ultimately  merge  into  Southern  Union  Company  in  a
transaction which is valued at approximately $160 million,  including assumption
of debt. See the section in  "Management's  Discussion and Analysis of Financial
Condition and Results of Operations"  entitled "Valley  Resources  Inc./Southern
Union Company Merger" for further details.




                                       7
<PAGE>


                                 PART I - ITEM 2

Management's Discussion and Analysis of Financial
  Condition and Results of Operations

OVERVIEW

     The  discussion  and analysis  that follows  reflect the  operations of the
Corporation and its six active "subsidiaries":  Valley Gas Company and Bristol &
Warren  Gas  Company  (collectively  the  "Utilities"),  regulated  natural  gas
distribution companies;  Valley Appliance and Merchandising Company ("VAMCO"), a
merchandising,  appliance  rental,  and service  company;  Valley Propane,  Inc.
("Valley Propane"), a propane sales and service company; Morris Merchants,  Inc.
("Morris  Merchants")  (d/b/a the Walter F. Morris  Company),  a  representative
distributor of franchised lines; and Alternate Energy Corporation ("AEC"), which
sells,  designs and  installs  natural  gas  refueling  facilities,  natural gas
conversion systems and energy use control devises.

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

For the three months ended May 31, 2000 compared to
the three months ended May 31, 1999

     The  consolidated  net income of Valley  Resources for the third quarter of
fiscal  2000 was  $2,631,000  or $0.53  per  share  compared  to net  income  of
$2,320,300  or $0.47 per share for the year earlier  third  quarter.  Net income
from utility  operations  totaled  $2,042,700  as compared to  $2,135,800 in the
fiscal 1999 third quarter.  Increased interest charges was primarily responsible
for the decline in utility earnings.  Nonutility operations contributed $588,300
to  consolidated  net income in the third  quarter of fiscal 2000 as compared to
$184,500  in  the  prior  year's  third  quarter.  The  increase  in  nonutility
operations were primarily  attributable  to the earnings  generated from VAMCO's
completion  of  commercial  and  institutional  projects  and the  Corporation's
weather insurance product.

Utility Gas Operations
----------------------

     Utility gas  revenues  and volumes in Mcf's  (thousand  cubic feet) for the
third quarters of fiscal 2000 and fiscal 1999 were as follows:
<TABLE>
<CAPTION>

                                            Revenues                              Volumes (Mcf's)
                                            --------                              ---------------
                                      2000             1999                     2000             1999
                                      ----             ----                     ----             ----

<S>                                 <C>              <C>                     <C>               <C>
Base Firm Sales Service             $16,535,500      $16,792,900             2,275,800         2,326,400
Base Firm Transportation                142,700          173,700               140,100           143,100
                                    -----------      -----------             ---------         ---------
   Base Firm Gas Sales               16,678,200       16,966,600             2,415,900         2,469,500

Interruptible Service                 1,244,500          581,200             1,445,900         1,096,300
PGPA Revenues                           988,400          662,000                  ----              ----
Other Revenues                           77,300           92,900                  ----              ----
                                    -----------      -----------             ---------         ---------
   Total Utility Gas Revenues       $18,988,400      $18,302,700             3,861,800         3,565,800
                                    -----------      -----------             ---------         ---------
</TABLE>


     Base firm sales service and  transportation  are sales to utility customers
under  regulated  tariff  schedules.  Base firm gas sales  revenues  and volumes
decreased  as a result of warmer  weather in the third  quarter of fiscal  2000.
Weather during this period was 4.2 percent warmer than the comparable  period in
the prior year and 9 percent warmer than a normal year.

     Interruptible  service,  seasonal  and  dual-fuel,  is  provided  on both a
bundled  sales basis as well as a  transportation  only  service.  Revenues from
interruptible  customers  are  benchmarked  to  competitive  fuel prices and gas
supply  availability.  Interruptible  sales service revenues  increased $542,900
over the year-earlier quarter level.


                                       8
<PAGE>

Interruptible  gas sales improved during the third fiscal quarter as a result of
the cost of competitive  fuel pricing and increased  demand for natural gas. The
margin on  interruptible  bundled  sales is  passed  through  to firm  customers
through the PGPA (Purchased Gas Price Adjustment) and has no impact on operating
income.

     Cost of gas sold increased 6.2 percent over the prior year period primarily
as a result of increased  wholesale natural gas prices. The average cost per Mcf
of gas distributed was $4.11 during the third fiscal quarter of 2000 as compared
to $3.61 during the third quarter of fiscal 1999.

     Other  operating  expenses  remained  flat when  compared to the prior year
period.

     For the three months ended May 31, 2000,  interest  expense  increased 13.6
percent over the prior year as a result of increased  short-term  borrowings and
higher interest rates.

Nonutility Operations
---------------------

     The  nonutility   operations  are  comprised  of  the  sales  and  cost  of
sales-nonutility for the Corporation's other subsidiaries and are segmented into
two categories, Contract Sales and All Other Operations. Contract Sales consists
of the Morris Merchants operations.  All Other Operations is comprised of VAMCO,
Valley Propane, AEC, corporate and eliminations.

Contract Sales
--------------

     Contract  revenues  totaled  $3,798,600,  an increase of 5 percent over the
prior year period.  A slight  increase in unit pricing was  responsible  for the
revenue increase.

     Cost of sales -  nonutility  increased  6.9 percent  over fiscal 1999 third
quarter levels as a direct result of the unit price increases mentioned above.

     Other  operating  expenses  remained  flat during the quarter when compared
with the prior year period.

All Other Operations
--------------------

     Nonutility   revenues   associated  with  this  business   segment  totaled
$3,007,400 for the three months ended May 31, 2000, as compared with  $1,659,600
during the third quarter in fiscal 1999.  The  completion of VAMCO's  commercial
and  institutional  projects and the revenues  related to the weather  insurance
product were primarily  responsible for the increase over the prior year period.
Warmer than normal weather during the period was primarily  responsible  for the
weather  insurance product payout.  Propane revenues  increased during the third
quarter of fiscal 2000 as a result of increased  retail pricing when compared to
the prior year period. However, propane gross profit margins declined, despite a
slight increase in propane gallons sold, due to competitive pricing of its sales
and fixed price contracts.  AEC revenues  increased slightly over the prior year
as a result of projects completed during the quarter.

     Cost of sales -  nonutility  for VAMCO,  AEC and  propane  operations  were
$1,322,200 as compared to $688,900 for the prior year period.  This increase was
the direct  result of the  increased  VAMCO  sales and propane  sales  mentioned
above.

     Other operating expenses totaled $606,900,  a 3.2 percent increase over the
third fiscal quarter of 1999. An increase in normal wage and commission expenses
was responsible for the increase.

Merger-Related Expenses
-----------------------

     The  Corporation  incurred  merger-related  expenses  comprised  of  legal,
regulatory,  and  shareholder  expenses during the third quarter of fiscal 2000.
See "Valley  Resources  Inc./Southern  Union  Company  Merger" below for further
details.


                                       9

<PAGE>

For the nine months ended  May 31, 2000 compared to
the nine months ended May 31, 1999

     For the nine months ended May 31,  2000,  the  consolidated  net income for
Valley  Resources was  $5,172,100  or $1.04 per share  compared to net income of
$4,975,800  or $1.00  per share for the  comparable  period in the prior  fiscal
year.  The utility  operations  provided  net income of  $4,542,900  compared to
$4,189,600  in the  comparable  period  in the  prior  fiscal  year.  Nonutility
operations  contributed  $629,200 to consolidated  net income for the nine month
period of fiscal  2000  compared  to  $786,200  in the prior  year's  nine month
period.  Net  income  for the nine  months  ended  May 31,  2000 was  positively
impacted by increased  firm natural gas sales and the payment  received from the
weather insurance product, offset by merger-related expenses of $494,000.

Utility Gas Operations
----------------------

     Utility  gas  revenues  and  volumes for the nine months of fiscal 2000 and
fiscal 1999 were as follows:
<TABLE>
<CAPTION>

                                               Revenues                           Volumes (Mcf's)
                                               --------                           ---------------
                                      2000                1999                  2000             1999
                                      ----                ----                  ----             ----

<S>                                 <C>                <C>                   <C>               <C>
Base Firm Sales Service             $49,006,600        $47,134,200           6,780,600         6,523,100
Base Firm Transportation                485,500            509,600             425,300           428,900
                                    -----------        -----------           ---------         ---------
   Base Firm Gas Sales               49,492,100         47,643,800           7,205,900         6,952,000

Interruptible Service                 2,899,900          1,637,900           4,007,400         3,684,400
PGPA Revenues                         3,413,100          1,871,400                ----              ----
Other Revenues                          156,100            318,300                ----              ----
                                    -----------        -----------          ----------        ----------
   Total Utility Gas Revenues       $55,961,200        $51,471,400          11,213,300        10,636,400
                                    -----------        -----------          ----------        ----------
</TABLE>

     Base firm gas sales revenues and volumes,  sold through regulated  tariffs,
increased  for the nine month  period of fiscal  2000  primarily  as a result of
weather,  which was one percent  colder than the prior year period  although 7.5
percent warmer than normal.

     Increased  demand and the  availability  of natural gas for customers  with
alternate fuel  capabilities  produced a 23.5 percent  increase in interruptible
Mcf's sold in the fiscal 2000  period as  compared  to the fiscal  1999  period.
Sales to interruptible  customers are dependent upon the availability of natural
gas and the price of alternate fuels. Margins earned from interruptible  bundled
sales are  returned  to firm  customers  through  the PGPA and do not impact the
profitability of the Corporation.

     Cost of natural gas sold  increased 12.9 percent over the prior year period
as a result of  increased  natural gas demand and higher  wholesale  natural gas
prices.  The average cost per Mcf of natural gas  distributed  was $4.04 for the
nine months ended May 31, 2000 as compared to $3.52 during the nine months ended
May 31, 1999.

     Other  operating  expenses  declined  3.1 percent  from the prior year nine
month  period,  primarily  due to  decreased  expenses  relating  to  funding of
post-retirement  benefits and general  operating  expenses,  offset  slightly by
increased  overtime labor  resulting from the colder weather during the critical
heating period.

     Interest  expense  increased  12.6 percent over the prior year's nine month
period stemming from increased short-term borrowings and higher interest rates.




                                       10

<PAGE>

Contract Sales
--------------

     Contract  revenues  totaled  $11,224,300  for the nine months ended May 31,
2000, a one percent  decline from the prior year's nine month period.  A decline
in unit  sales  and  customers  building  inventory  at the end of  fiscal  1999
accounted for the revenue decline.

     Cost of sales - nonutility  declined  less than one percent  when  compared
with the prior fiscal year nine month period.  The decline was the direct result
of lower unit sales as mentioned above.

     Other operating expenses increased 1.8 percent when compared with the prior
fiscal year's  comparable nine month period.  Normal wage and benefit  increases
were responsible for the increase.

All Other Operations
--------------------

     The nonutility revenues for this business segment for the nine months ended
May 31, 2000 totaled  $7,852,100,  as compared to  $5,240,700 in the fiscal 1999
corresponding  period.  Retail and commercial  sales and  installations  and AEC
sales were  primarily  responsible  for the increase  over the prior fiscal year
period.  Propane  revenues  also  impacted  the nine month period as a result of
higher retail pricing.

     Residential  retail  sales of home  heating  equipment  and  installations,
retail  commercial and  institutional  sales and AEC's sale of its first natural
gas  fuel  cell  positively  impacted  nonutility  revenues.   Propane  revenues
increased  due to the  slightly  colder  weather in this past winter  period and
increased product pricing, which is being passed on to customers.  Propane gross
profit margins declined  slightly,  despite an increase in propane gallons sold,
due to the  competitive  pricing  of its sales and fixed  price  contracts.  The
nonutility revenues relating to the weather insurance product increased slightly
over the prior fiscal year period, as mentioned above.

     Cost of sales -  nonutility  for retail,  AEC and propane  operations  were
$3,909,700  for the nine month  period in fiscal 2000 as compared to  $1,905,500
for the  corresponding  period of the prior fiscal year.  This  increase was the
direct  result  of the  increased  retail,  commercial,  propane  and AEC  sales
mentioned above.

     Other operating expenses totaled  $2,106,400,  an increase of $241,400 over
the prior year's nine month fiscal period.  Other operation  expenses  increased
over the prior  fiscal year  period due to normal  wage and  benefit  increases.
Labor and servicing of customer  equipment  for the service  contract and rental
programs also increased when compared to the prior fiscal year.

Merger-Related Expenses
-----------------------

     The  Corporation  incurred  merger-related  expenses  comprised  of  legal,
regulatory, shareholder and investment banking fees, incurred in the first three
quarters of fiscal  2000.  See "Valley  Resources  Inc./Southern  Union  Company
Merger" below for further details.

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

     During  the third  quarter of fiscal  2000 the  liquidity  position  of the
Corporation  improved over the second  quarter as a result of the  collection of
accounts  receivable,  the  receipt of the  payment  for the  weather  insurance
product  and the  timing of tax  payments.  Management  believes  its  available
financing  arrangements  are  sufficient  to  meet  cash  requirements  for  the
foreseeable  future.  The funds  available under lines of credit at May 31, 2000
were $24,600,000 and there were $4,400,000 of short-term borrowings outstanding.

     Cash flows were favorably  impacted during the third quarter of fiscal 2000
due to the collection of accounts receivable from winter heating sales.  Utility
sales  during the  quarter  were less than  anticipated  due to the warmer  than
normal weather, thus negatively impacting liquidity.

     Construction  expenditures  increased, as planned, during the third quarter
of fiscal 2000,  due to more  favorable  weather,  thereby  adversely  affecting
liquidity.


                                       11
<PAGE>

     The  liquidity  position of the  Corporation  will be  seasonally  affected
during  the  fourth  quarter  when  revenues  decline as a result of the lack of
heat-sensitive  sales  in the  utility  companies.  Unprecedented  increases  in
natural gas  pricing  will  negatively  impact  liquidity.  Also,  planned  cash
expenditures on the construction  program will increase during the fourth fiscal
quarter and will also negatively impact cash flow.

     In the first quarter of fiscal 2000,  the  Corporation  purchased a weather
insurance  product which applied to the winter heating season from November 1999
through March 2000. This product provided  insurance against  unfavorable shifts
in weather  conditions.  The insurance  coverage pays the Corporation  cash when
degree days for the measurement  period fall outside a  predetermined  variance.
The policy  acts like a  "collar"  in that  payments  are due the  insurer  when
weather conditions  positively impact revenues above a predetermined  limit. The
measurement  period  occurs at the  expiration  of the policy.  The  Corporation
received a payment from the policy during the third fiscal quarter,  as a result
of warm  weather  during  the  insurance  period,  thereby  favorably  impacting
liquidity.

Valley Resources, Inc./Southern Union Company Merger
----------------------------------------------------

     On December 1, 1999,  Southern  Union  Company and Valley  Resources,  Inc.
announced  that they signed a  definitive  merger  agreement  under which Valley
Resources,  Inc.  will  ultimately  merge  into  Southern  Union  Company  in  a
transaction which is valued at approximately $160 million,  including assumption
of debt. Under the terms of the agreement,  Valley Resources,  Inc. shareholders
will  receive  $25.00 in cash per  share of  common  stock  held.  The  business
combination will be accounted for under the purchase method of accounting.

     On June 13, 2000  shareholders  approved the  Agreement  of Merger  between
Southern Union Company and Valley Resources,  Inc. This transaction has received
the required approval by the Rhode Island Legislature and regulators in Missouri
and Pennsylvania where Southern Union currently has operations. Approval remains
to be obtained  from  regulators  in Rhode Island and is also pending in Florida
regarding  Southern Union's financing plans relating to the merger. A closing of
the merger is currently expected to occur in September 2000.


Forward Looking Statements; Risk and Uncertainties
--------------------------------------------------

     Statements  contained  in this  report  that are not  historical  facts are
forward-looking  statements  made pursuant to the safe harbor  provisions of the
Private  Securities  Litigation  Reform Act of 1995. In addition,  words such as
"believes,"  "anticipates,"  "expects" and similar  expressions  are intended to
identify forward looking statements. Certain factors that could cause the actual
results to differ  materially  from  those  projected  in these  forward-looking
statements  include,  but are not limited to: variations in weather,  changes in
the  regulatory  environment,   fluctuations  and  uncertainty  in  natural  gas
commodity pricing,  customers'  preferences on energy sources,  general economic
conditions,  increased  competition  and other  uncertainties,  all of which are
difficult  to  predict,  and  many  of  which  are  beyond  the  control  of the
Corporation.  This provides only an example of some of the risks,  uncertainties
and  assumptions  that may affect  forward-looking  statements.  If any of these
risks or uncertainties materialize or fail to materialize,  as applicable, or if
the underlying assumptions prove incorrect, actual results may differ materially
from those projected in the forward-looking statements.


                                       12
<PAGE>

                           PART II: OTHER INFORMATION


Item 4 - Submission of Matters to a Vote of  Security Holders

     A Special  Meeting of Stockholders  of Valley  Resources,  Inc. was held on
June 13, 2000, for the purpose of approving and adopting the Agreement of Merger
between  Southern  Union  Company  and Valley  Resources,  Inc.  Proxies for the
meeting were solicited pursuant to Section 14 (a) of the Securities Exchange Act
of  1934  and  there  was  no   solicitation   in  opposition  to   management's
solicitations.
<TABLE>
<CAPTION>

                                                           Shares               Shares                   Shares
                                                           Voted                Voted                    Voted           Broker
                                                           "For"              "Against"               "Abstained"      "Non-Votes"
                                                           -----              ---------               -----------      -----------
<S>                                                       <C>                  <C>                      <C>              <C>
       Agreement of Merger between Southern
         Union and Valley Resources, Inc.                 3,482,093            161,069                  54,724           None

</TABLE>

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

       (a)   Financial Data Schedule.

       (b)   None.


                                       13
<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/S. Partridge
                                        ----------------------------------------
                                                    S. Partridge
                                        Vice President, Chief Financial Officer,
                                           Secretary and Treasurer


July 14,  2000






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