<PAGE>
                                       1





                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549



                                   FORM 10-QSB


                   QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934



For the Quarter ended                             Commission File No. 0-22185
     May 31, 1998


                                EXPROFUELS, INC.
             (Exact Name of Registrant as Specified in its Charter)



     DELAWARE                                                  74-2727901

(State or other jurisdiction of                       (I.R.S. Employer I.D. No.)
incorporation or organization)


500 NORTH LOOP 1604 E., SUITE 250                                 78232
(Address of principal executive offices)                        (Zip Code)


Registrant's telephone number, including area code: (210) 490-9400



Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.
                                    Yes X No


Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock as of July 15, 1998:

Common Stock $0.01 par value                                     4,310,453
(Class of Stock)                                            (Number of Shares)

                           Total number of pages is 11

<PAGE>
                                       2


                         PART I - FINANCIAL INFORMATION


ITEM 1.           FINANCIAL STATEMENTS.


                                EXPROFUELS, INC.
                                 BALANCE SHEETS
                                   (UNAUDITED)


Assets                                                May 31, 1998  Aug 31, 1997
------                                                ------------  ------------


Current Assets
    Cash and equivalents .............................   $   1,745    $  31,647
    Accounts receivable, net .........................      75,946      141,754
    Inventories ......................................     232,627      400,517
    Prepaid expenses and other .......................      21,548       34,159
                                                         ---------    ---------
           Total Current Assets ......................     331,866      608,077


Property  and Equipment
    Transportation and other equipment ...............     135,308      133,883
    Equipment under capital leases ...................      67,356       93,326
    Fuel stations ....................................     255,976      280,889
    Less accumulated depreciation and amortization ...    (291,240)    (270,436)
                                                         ---------    ---------
           Net property and equipment ................     167,400      237,662

Other Assets
    Investment in and advances to CNG International ..         -0-          -0-
    Other assets .....................................      30,908       45,099
                                                         ---------    ---------
                                                            30,908       45,099
                                                         ---------    ---------



                  Total Assets .......................   $ 530,174    $ 890,838
                                                         =========    =========
















See notes to financial statements.
<PAGE>
                                       3


                                EXPROFUELS, INC.
                                 BALANCE SHEETS
                                   (UNAUDITED)

<TABLE>
<CAPTION>




Liabilities and Stockholders' Equity                                        May 31, 1998                 August 31, 1997
------------------------------------                                        ------------                 ---------------
<S>                                                                        <C>                           <C>  


Current Liabilities
    Accounts payable and accrued expenses                                 $      459,592                 $      495,468
    Current portion of long-term debt-others                                         715                          8,945
    Current portion of long-term debt-affiliates                                 845,916                        561,225
    Current portion of capital lease obligations                                  10,350                         21,062
                                                                           -------------                  -------------
           Total Current Liabilities                                           1,316,573                      1,086,700


Long-term Liabilities
    Long-term debt-others                                                        300,000                        507,946
    Long-term capital lease obligations                                              -0-                          8,656
                                                                           -------------                   ------------
           Total Long-term Liabilities                                           300,000                        516,602


Stockholders' Equity
    Common stock, par value $.01 per share; authorized
        50,000,000 shares; issued and outstanding
        4,310,453 shares                                                          43,105                         40,000
    Additional paid-in capital                                                 3,793,485                      3,486,136
    Accumulated deficit                                                       (4,922,989)                    (4,238,600)
                                                                           -------------                   ------------
           Total Stockholders' Equity                                         (1,086,399)                      (712,464)
                                                                           -------------                   ------------


           Total Liabilities and Stockholders' Equity                     $      530,174                  $     890,838
                                                                           =============                   ============


</TABLE>

















See notes to financial statements.
<PAGE>
                                       4


                                EXPROFUELS, INC.
                            STATEMENTS OF OPERATIONS
                                   (UNAUDITED)


                                     Three Months   Three Months
                                        Ended          Ended
                                     May 31, 1998   May 31, 1997
                                     ------------   ------------


Revenues:
    Conversion sales ...............   $ 272,268    $ 139,673
    Fuel station construction sales          -0-       32,000
    Alternative fuel sales .........      37,731       70,785
                                       ---------    ---------
                                         309,999      242,458

Costs and Expenses:
    Cost of sales ..................     193,526      215,557
    Shop general and administrative       75,068      107,412
    Depreciation and amortization ..      24,083       21,833
    General and  administrative ....     125,699      170,484
                                       ---------    ---------
            Total Costs and Expenses     418,376      515,286
                                       ---------    ---------


Loss from operations ...............    (108,377)    (272,828)

Other Income (Expense):
    Sublease rental income .........         -0-          -0-
    Interest income ................         202          263
    Interest expense ...............     (53,277)     (18,764)
    Gain on sale of equipment ......      18,880          -0-
                                       ---------    --------- 
                                         (34,195)     (18,501)
                                       ---------    ---------

Net loss ...........................   $(142,572)   $(291,329)
                                       =========    =========


Amounts Per Common Share:

Basic loss per common share ........   $   (0.04)   $   (0.07)
                                       =========    =========














See notes to financial statements.
<PAGE>
                                       5


                                EXPROFUELS, INC.
                            STATEMENTS OF OPERATIONS
                                   (UNAUDITED)


                                       Nine Months     Nine Months
                                          Ended           Ended
                                      May 31, 1998     May 31, 1997
                                     --------------    ------------


Revenues:
    Conversion sales ...............   $   692,733    $   405,181
    Fuel station construction sales        175,511        128,854
    Alternative fuel sales .........       171,441        255,809
                                       -----------    -----------
                                         1,039,685        789,844

Costs and Expenses:
    Cost of sales ..................       913,993        646,985
    Shop general and administrative        279,150        326,191
    Depreciation and amortization ..        72,240         65,500
    General and  administrative ....       401,717        458,768
                                       -----------    -----------
            Total Costs and Expenses     1,667,100      1,497,444
                                       -----------    -----------


Loss from operations ...............      (627,415)      (707,600)

Other Income (Expense):
    Sublease rental income .........           -0-         13,500
    Interest income ................           800            634
    Interest expense ...............       (76,654)       (32,647)
    Gain on sale of equipment ......        18,880            -0-
                                       -----------    ----------- 
                                           (56,974)       (18,513)
                                       -----------    -----------

Net loss ...........................   $  (684,389)   $  (726,113)
                                       ===========    ===========


Amounts Per Common Share:

Basic loss per common share ........   $     (0.17)   $     (0.18)
                                       ===========    ===========













See notes to financial statements.
<PAGE>
                                       6


                                EXPROFUELS, INC.
                            STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)


                                                 Nine Months    Nine Months
                                                   Ended          Ended
                                                May 31, 1998   May 31, 1997
                                                ------------   ------------


Operating Activities:
Net Loss .......................................   $(684,389)   $(726,113)
Adjustments to reconcile net loss to net cash
   used by operating activities:
      Depreciation, depletion and amortization .      72,240       65,500
Changes in operating assets and liabilities:
     Receivables ...............................      65,808       53,615
     Inventory .................................     167,890     (191,400)
     Prepaid expenses and other ................      12,611        1,745
     Accounts payable and accrued expenses .....     (54,756)      47,671
                                                   ---------    ---------
Net cash (used) in operating activities ........    (420,596)    (748,982)

Investing Activities:
     Purchases of property and equipment .......     (32,902)     (39,240)
     Proceeds from sale of equipment ...........      59,045          -0-
     Investments in and advances to venture ....         -0-      (31,798)
     Other assets ..............................       4,951       (1,102)
                                                   ---------    --------- 
Net cash provided (used) in investing activities      31,094      (72,140)

Financing Activities:
     Advances from affiliates ..................     395,144      338,303
     Proceeds from long-term debt obligations ..         -0-      500,000
     Payments on long-term obligations .........     (35,544)     (24,477)
                                                   ---------    ---------
Net cash provided by financing activities ......     359,600      813,826
                                                   ---------    ---------

Increase (Decrease) in cash and equivalents ....     (29,902)      (7,296)

Cash and equivalents at beginning of period ....      31,647       20,871
                                                   ---------    ---------

Cash and equivalents at end of period ..........   $   1,745    $  13,575
                                                   =========    =========















See notes to financial statements.
<PAGE>
                                       7


                                EXPROFUELS, INC.
                          NOTES TO FINANCIAL STATEMENTS
                   PERIODS ENDED MAY 31, 1998 AND MAY 31 1997
                                   (UNAUDITED)


1.       Basis of Presentation

             The accompanying unaudited financial statements of ExproFuels, Inc.
             (the  Company)  have been  prepared in  accordance  with  generally
             accepted  accounting  principles for interim financial  information
             and  with  the  instructions  to  Form  10-QSB  and  Article  10 of
             Regulation  S-X.  Accordingly,  they  do  not  include  all  of the
             information and footnotes required by generally accepted accounting
             principles  for  complete  financial  statements.   The  accounting
             policies  followed  by the  Company  are set forth in Note A to the
             audited  financial  statements  contained in the  Company's  annual
             report filed on Form 10-KSB.

             In the opinion of management, all adjustments (consisting of normal
             recurring adjustments) considered necessary for a fair presentation
             have been included.  For further information,  refer to the audited
             financial   statements  and  footnotes   thereto  included  in  the
             Registrant  Company's  annual  report on Form  10-KSB  for the year
             ended August 31, 1997 and its Registration Statement on Form 10-SB,
             as  amended,  filed on August 27,  1997 for the three  years  ended
             August 31, 1996, which are incorporated herein by reference.


2.        Common Stock and Basic Loss Per Share

             As of May 31, 1998, the Company had outstanding options to purchase
             300,000  shares of common  stock at a price of 110% of the  share's
             appraised fair market value,  which was $0.13 per share on the date
             of grant and which expire through September 2006.

             Basic  loss per share is  computed  based on the  weighted  average
             number of common shares outstanding during the periods presented as
             follows:

                                                      Three Months   Nine Months
                                                      ------------   -----------
               May 31, 1998 .........................   4,003,374     4,001,125
               May 31, 1997 .........................   4,000,000     4,000,000

             

3.        Long Term Debt

             At the  beginning  of  the  current  quarter,  the  Company  had an
             outstanding  balance  of  $500,000  under  the  terms  of its  four
             separate  unsecured  convertible  debentures,  all  with  identical
             terms,   except  for  their  due  dates.  Each  debenture  required
             quarterly  interest payments computed at 6%, and was convertible at
             the payee's  option into common stock of the Company at the rate of
             $1 of debt to 1 share of common stock.

             Effective May 31, 1998, the Company elected to convert  $200,000 of
             its  outstanding  debentures and $100,000 of short term notes,  all
             payable to an affiliated company, together with accrued interest of
             $10,453,  into  310,453  shares of its  common  stock at the stated
             conversion  rate of $1 of debt per share as provided  for under the
             terms of the underlying  obligations.  Subsequent to the end of the
             third  quarter,  as of July  1,  1998,  the  Company  had not  made
             quarterly interest payments due totaling $4,488 and was technically
             in  default  under  the  terms  of  its  two  remaining   debenture
             agreements with a total outstanding  principal balance of $300,000.
             As of the date of this  report,  the Company had made  arrangements
             for the payment of all accrued  interest due on its debt and was in
             process of  obtaining  waivers on the  default  from its  debenture
             holders.
<PAGE>
                                       8


ITEM 2.      MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                  CONDITION AND RESULTS OF OPERATIONS

The  following  discussion  should  be read in  conjunction  with the  unaudited
financial statements and notes thereto, and with the Company's audited financial
statements and notes thereto for the fiscal year ended August 31, 1997, included
in the Company's Form 10-KSB.

Financial Condition and Capital Resources

During the nine months ended May 31, 1998,  the  Company's  principal  source of
working  capital came in the form of advances under existing  credit  agreements
from its former parent, The Exploration Company, totaling $241,117,  including a
final advance of $50,000 during the second quarter.  Also during the same period
unsecured borrowings totaling $100,000 were obtained from an affiliated company.
Working  capital  totaling  $59,045  was  obtained  through  the sale of surplus
transportation,  shop and fuel station equipment.  Uses of available capital for
the nine month period  included  funding cash used in  operating  activities  of
$420,596,  capital  investments  totaling  $32,902 for purchases of property and
equipment, in addition to payments on long term obligations of $35,544.

As a result of these  activities,  the Company ended the third quarter of fiscal
1998 with negative  working capital of $984,707 and a current ratio of .25 to 1.
This compares to a negative  working  capital of $478,623 and a current ratio of
 .56 to 1 at August 31, 1997.

In order to meet the  Company's  obligations,  ExproFuels  must continue to seek
additional  sources  of  operating  capital  through  additional  debt or equity
financing.   Further,   until  such  time  as  the  Company  attains  profitable
operations,  additional  capital will be required to fund  recurring cash losses
from  operations.  The  Company  has  returned  to the  same  financiers  of its
Convertible  Debt for funding of its additional debt or equity  financing needs.
The Company has secured only limited commitment for such additional financing as
of the date hereof,  and has obtained no firm  commitments from its unaffiliated
lenders or  creditors to refinance  its  outstanding  debt when it comes due. In
addition,  while the Company's former Parent provided additional working capital
funds through December 31, 1997, no additional funds will be available from this
source in the future.  All of these  factors raise  substantial  doubt as to the
Company's ability to continue as a going concern.

The Company's  financial  position poses certain risks,  including the risk that
(i) cash flow from operations  will be  insufficient to maintain  operations or;
(ii) it will be unable to obtain  financing  in the future for working  capital,
debt service, capital expenditures and general corporate purposes; and (iii) the
Company  will be more  vulnerable  to  economic  downturns  and may be unable to
withstand  competitive  pressures.  If Management's  efforts to raise additional
capital are not successful,  the Company's financial condition and liquidity and
its ongoing  ability to maintain  its  operations  as a going  concern,  will be
materially adversely affected.

Forward-looking  statements  in this 10-Q are made  pursuant  to the safe harbor
provisions of the Private  Securities  Litigation Reform Act of 1995.  Investors
are   cautioned   that  all   forward-looking   statements   involve  risks  and
uncertainties.  Among the  factors  that could  cause  actual  results to differ
materially are environmental,  tax or other regulatory developments,  as well as
general market conditions, competition, pricing and ongoing availability of debt
or  equity  capital.   Please  refer  to  ExproFuels'  Securities  and  Exchange
Commission  filings,  copies of which are  available  from the  Company  without
charge, for additional information.
<PAGE>
                                       9


Results of Operations

ExproFuels  total  revenues for the third  quarter and the nine months ended May
31, 1998  increased by  approximately  30% over the same periods of fiscal 1997.
This increase was  primarily  due to a 71% increase in conversion  sales for the
nine month period reflecting new, higher value CNG and LNG conversion  contracts
in Arizona and continued  propane  conversion  demand in the Texas market.  Also
contributing  significantly  was  the  increase  in  fuel  station  construction
revenues to $169,722  during the first quarter of 1998 from $19,454 in the first
quarter of 1997.  This  increase was due to five new fuel  station  construction
contracts in the San Antonio area  subsequent to the same period of fiscal 1997.
This increase was partially offset by the lack of new fuel station  construction
contracts during the current quarter.  Also offsetting the increase somewhat was
the 33%  decrease in  alternative  fuel sales for the nine months of fiscal 1998
primarily due to the expiration of two fleet fueling  contracts with the City of
Plano and the Texas Department of Criminal Justice facility at Beeville,  Texas,
as well as the unseasonably mild winter during the current year.

Current  costs and expenses  increased  11% during the current nine month period
compared  to the same period of fiscal  1997,  while  decreasing  by 19% for the
current quarter.  Contributing most  significantly for the nine month period was
the increase in costs of sales of $267,008 which increased in part due to higher
sales levels as well as to inventory  adjustments during the period.  Reductions
in  general  and  administrative   expenses  reflect  the  results  of  ongoing,
company-wide cost cutting efforts, including reduced advertising,  promotion and
outside  consulting  services  expenses during the latest two quarters of fiscal
1998.  Further  contributing to these reductions are the ongoing monthly savings
from reduced  operating and staffing levels in the Dallas and Tucson markets and
the elimination of associated office and shop overhead  expenses.  The reduction
in shop and overall general and administrative expense for the nine month period
was offset somewhat by the opening of a new company owned conversion facility in
Mesa, Arizona,  during the second quarter.  Located in the Phoenix  metropolitan
area, the 7,400 square foot facility  provides full service and warranty support
for existing  customers and provides the company with additional growth capacity
as that local market develops.

Sublease rental income  decreased to $0 for the current nine month period due to
the  expiration  of the  Company's  former  Louisiana  shop  facility  sublease.
Interest expense  increased  $44,007 over the previous fiscal periods due to the
higher level of debt outstanding for the nine month period of fiscal 1998.

Throughout fiscal 1998, the Company has continued in its efforts to identify new
opportunities to install  additional fuel stations  domestically,  and to obtain
additional  conversion  contracts in Texas and Arizona.  Management continues to
reevaluate  operating  activities  in each of the  Company's  markets,  with the
immediate  goal of reducing  ongoing  operating  losses.  By  strengthening  its
affiliate  shop  relationships  in  selected  markets,  the  Company  intends to
maintain  adequate service levels for its existing customer base, while reducing
operating overhead levels associated with company owned facilities. Accordingly,
the Company has  completed the  restructuring  of its presence in the Dallas and
Tucson  markets to  affiliate  shop  status,  insuring  ongoing  support for its
customer base, existing service contracts and warranty obligations.
<PAGE>
                                       10



                           PART II - OTHER INFORMATION

ITEM 1.           LEGAL PROCEEDINGS

         The Company is not involved in any  significant  matters of  litigation
         incidental to its business, except for the following:

         Disputes between ExproFuels and CNG International, AEI and ATI resulted
         in the filing of two  lawsuits  in July,  1997,  one by  ExproFuels  in
         federal  court in San Antonio,  Texas,  and the other by ATI and AEI in
         state court in Memphis,  Tennessee.  In its lawsuit,  ExproFuels claims
         breach of contract and is seeking,  among other things,  (i) damages in
         the   amount   of   ExproFuels'   investment   in   CNG   International
         (approximately $381,000), ExproFuels' unreimbursed expenses advanced to
         CNG International (approximately $239,000) and ExproFuels' lost profits
         or (ii) recision of ExproFuels'  arrangement with CNG International and
         a refund of all monies  invested in or  advanced to CNG  International.
         ATI and AEI,  in their  lawsuit,  have sued  ExproFuels  for  breach of
         contract,   tortious   interference  with  contract,   libel,  slander,
         defamation  and  unfair   competition.   ATI  and  AEI  are  seeking  a
         declaratory  judgment that ExproFuels' interest in CNG International is
         null  and  void as  well  as  unspecified  compensatory  and  exemplary
         damages.  During January 1998,  both cases were  consolidated  into one
         case, to be  adjudicated  in federal  court in the Western  District of
         Tennessee.  A  non-jury  trial  date of March  22,  1999 has been  set.
         Currently,  both parties are in the advanced  stages of  negotiating  a
         preliminary Settlement Agreement and Mutual Release Agreement resulting
         from court-annexed non-binding mediation proceedings.  Should mediation
         efforts not be successful,  ExproFuels intends to pursue its claims and
         vigorously  defend itself  against ATI's and AEI's claims.  The Company
         and its counsel remain optimistic ExproFuels will prevail in the matter
         and remain confident that any unfavorable outcome is extremely unlikely
         as of the date of this writing.

ITEM 2.           CHANGES IN SECURITIES

         None

ITEM 3.           DEFAULTS UPON SENIOR SECURITIES

         At the end of the second  quarter,  the Company  had  accrued  past due
         interest  of  $6,049  on the  outstanding  balance  of its  convertible
         debentures  totaling $500,000.  As of the January 1, 1998 due date, the
         Company had not made its quarterly interest payment and was technically
         in default  under the terms of the debenture  agreements.  Prior to the
         end of the second quarter, the Company paid all accrued interest due on
         its debt and obtained waivers on the default from all debenture holders

         Subsequent  to the end of the third  quarter,  as of July 1, 1998,  the
         Company had not made quarterly  interest  payments due totaling  $4,488
         and was  technically  in default  under the terms of its two  remaining
         debenture   agreements,   with  an  outstanding  principal  balance  of
         $300,000.  As of  the  date  of  this  report,  the  Company  had  made
         arrangement for the payment of all accrued interest due on its debt and
         was in process of obtaining  waivers on the default from its  debenture
         holders.

ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         None

ITEM 5.           OTHER INFORMATION

         None

ITEM 6.           EXHIBITS AND REPORTS ON FORM 8-K

         None
<PAGE>
                                       11







                                   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.



                                  EXPROFUELS, INC.
                                  (Registrant)






                                   /s/ Roberto R. Thomae
                                   Roberto R. Thomae,
                                   Chief Financial Officer
                                   (Signing on behalf of the Registrant and as
                                   chief accounting officer)





Date:  July 16, 1998



<PAGE>
                                       12









                             INDEX TO EXHIBITS


<TABLE>
<CAPTION>
EXHIBIT
NUMBER                DESCRIPTION
---------           ---------------
<S>                  <C>

 27                 FINANCIAL DATA SCHEDULE
</TABLE>