------------------------------------------------------------------------------

                   U.S. SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                 FORM 10-QSB

         [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                       SECURITIES EXCHANGE ACT OF 1934
                   For the Quarter Ended September 30, 1998
                                      or
         [ ] Transition Report Pursuant to Section 13 or 15(d) of the
                       Securities Exchange Act of 1934

                        Commission file number 0-18995

                       INTERLINE RESOURCES CORPORATION
      (Exact name of small business issuer as specified in its charter)

               Utah                                         87-0461653
        --------------------                             ---------------
   (State or other jurisdiction of                      (I.R.S. employer
    incorporation or organization)                       identification No.)

            160 West Canyon Crest Road, Alpine, UT 84004 (Address of
                          principal executive offices)

       Registrant's telephone number, including area code: (801) 756-3031

      Securities registered pursuant to Section 12(b) of the Exchange Act:

      Securities registered pursuant to Section 12(g) of the Exchange Act:

                          Common Stock $.005 Par Value
                                 Title of Class

    Securities registered pursuant to Section 12(g) of the Exchange Act: None

Check  whether  the Issuer  (1) has filed all  reports  required  to be filed by
Section 13 or 15(d) of the 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____.

Common stock  outstanding at November 9, 1998 - 14,074,167  shares of $.005
par value Common stock.


                  DOCUMENTS INCORPORATED BY REFERENCE: NONE

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<PAGE>


                                 FORM 10-QSB
                       INTERLINE RESOURCES CORPORATION

                              TABLE OF CONTENTS


PART I. - FINANCIAL INFORMATION

Item 1      Financial Statements                                       Page

            Condensed Consolidated Balance Sheet at
            September 30, 1998                                          1

            Condensed Consolidated Statement of Operations for the
            three and nine months ended September 30, 1998 and 1997     3

            Condensed Consolidated Statements of Cash Flows for
            nine months ended September 30, 1998 and 1997               4

            Notes to Condensed Consolidated Financial Statements        6

Item 2      Management's Discussion and Analysis of
            Financial Condition and Results of Operations               9


PART II. - OTHER INFORMATION

Item 1      Legal Proceedings                                           21

Item 2      Changes in the Securities                                   23

Item 3      Defaults Upon Senior Securities                             23

 Item 4     Submission of Matters to a Vote of Security Holders         23

Item 5      Other Information                                           23

Item 6(a)   Exhibits                                                    23

Item 6(b)   Reports on Form 8-K                                         23

            Signatures                                                  24




<PAGE>



                  FORWARD LOOKING INFORMATION AND RISK FACTORS


      Interline Resources Corporation (the "Company") or its representatives may
make forward looking statements,  oral or written,  including statements in this
report's Management's Discussion and Analysis of Financial Condition and Results
of  Operation,  press  release  and filings  with the  Securities  and  Exchange
Commission,  regarding  estimated future net revenues from  operations,  planned
capital expenditures  (including the amount and nature thereof),  the effects of
the Company's Bankruptcy proceeding, the Company's projected financial position,
results of  operations,  business  strategy and other plans and  objectives  for
future operations.  These statements are forward-looking statements,  within the
meaning of Section  27A of the  Securities  Act of 1993 and  Section  21E of the
Securities Exchange Act, which reflect  Management's  current views with respect
to future events and financial performance.

      Although the Company  believes  that the  expectations  reflected in these
forward looking  statements are  reasonable,  there can be no assurance that the
actual results or  developments  anticipated by the Company will be realized or,
even if substantially  realized, that they will have the expected effects on its
business or results of operations. Such forward-looking statements involve known
and unknown  risks,  uncertainties  and other factors which may cause the actual
results,  performance or achievements of the Company to be materially  different
from any future  results,  performance or  achievements  expressed or implied by
such forward-looking statements. Such factors include but are not limited to the
outcome of the Company's current Bankruptcy Proceeding, the timing and extent of
changes  in  commodity   prices,   unforeseen   engineering  and  mechanical  or
technological  difficulties in connection with the Company's business operations
and other risks.

      These  forward-looking   statements  are  subject  to  certain  risks  and
uncertainties  including,  but not limited to, future financial  performance and
future events,  competitive pricing for services,  costs of obtaining capital as
well as national,  regional and local economic conditions.  Actual results could
differ materially from those addressed in the forward-looking statements. Due to
such uncertainties and risks,  readers are cautioned not to place undue reliance
on such forward-looking statements, which speak only as of the date whereof.

     All subsequent oral and written forward-looking  statements attributable to
the Company or persons  acting on its behalf are  expressly  qualified  in their
entirety by these  factors.  The Company  assumes no obligation to update any of
these statements.






<PAGE>



               INTERLINE RESOURCES CORPORATION AND SUBSIDIARIES

                               PART I - ITEM 1
                             FINANCIAL STATEMENTS
                                 (UNAUDITED)

                              September 30, 1998



The condensed  financial  statements included have been prepared by the Company,
without  audit,  pursuant to the rules and  regulations  of the  Securities  and
Exchange  Commission.  Certain  information  and footnote  disclosures  normally
included in financial  statements prepared in accordance with generally accepted
accounting  principles have been condensed or omitted pursuant to such rules and
regulations,  although the Company believes that the disclosures are adequate to
make the  information  presented not misleading.  The Company  presumes that the
user of this interim financial information has read or has access to the audited
financial statements for the preceding fiscal year----and in that context,  this
disclosure  is  adequate  for a fair  presentation  of the  Company's  financial
position.

In the  opinion  of the  Company,  all  adjustments  consisting  of only  normal
recurring  adjustments as of September 30, 1998,  have been made. The results of
operations for the interim period are not necessarily  indicative of the results
to be expected for the entire year.




<PAGE>



                       INTERLINE RESOURCES CORPORATION
                               AND SUBSIDIARIES

                     Condensed Consolidated Balance Sheet
                                 (Unaudited)


Assets                                       September 30, 1998
                                             ___________________

Current assets:
  Cash and cash equivalents                      $691,235
  Accounts receivable - trade                     593,911
  Income taxes receivable                          40,000
  Inventories                                      35,632
  Note receivable - current portion                55,700
  Net assets of discontinued operations              -
  Other current assets                             49,868
                                              ____________

     Total current assets                       1,466,346

Property, plant and equipment                   6,125,128
Accumulated depreciation and depletion         (2,175,735)
                                              ____________

     Net property, plant & equipment            3,949,393

Note receivable                                    78,756
Technology and marketing rights                   899,682
Net assets of discontinued operations                -
                                              ____________

        Total assets                           $6,394,177
                                              ============


The  accompanying  notes are an integral  part of these  consolidated  condensed
financial statements.

                                        1




<PAGE>





                       INTERLINE RESOURCES CORPORATION
                               AND SUBSIDIARIES

                     Condensed Consolidated Balance Sheet
                                 (Unaudited)



Liabilities and Stockholders' Equity            September 30, 1998
                                                __________________

Current liabilities:
  Accounts payable                                  $506,785
  Accrued liabilities                                237,600
  Accrued interest, related party                      -
  Note payable, related party                        750,000
  Current portion of long-term debt                  183,707
  Other current liabilities                           20,116
                                                 _____________

     Total current liabilities                     1,698,208
                                                 _____________

Long-term debt less current maturities               589,788
Note payable, related party                        2,850,000
Deferred income                                       56,340
                                                 _____________

     Total liabilities                             5,194,336

Stockholders' equity:
  Preferred stock - $.01 par value. 25,000,000
     shares authorized; 1,000,000 series A shares
     authorized; 0 series A shares issued and o/s       -
  Common stock - $.005 par value. 100,000,000
     shares authorized; 14,074,167 shares
     outstanding at Sept 30, 1998                     70,371
  Additional paid-in capital                       9,209,017
  Retained earnings                               (8,079,547)
                                                 _____________

       Total stockholders' equity                  1,199,841
                                                 _____________


       Total liabilities & stockholders           $6,394,177
                                                 =============


The  accompanying  notes are an integral  part of these  consolidated  condensed
financial statements.

                                        2



<PAGE>




                         INTERLINE RESOURCES CORPORATION
                                AND SUBSIDIARIES
                 Condensed Consolidated Statement of Operations
                                   (Unaudited)

<TABLE>
<CAPTION>
                                              Three months ended             Nine months ended
                                                   Sept 30,                       Sept 30,
                                            ______________________      __________________________
                                              1998          1997            1998           1997
<S>                                         <C>           <C>          <C>             <C>


Revenue                                     $963,522      $956,156      $2,649,155     $3,697,744

Direct costs                                 606,960       779,925       1,837,640      2,830,224
                                            _______________________     __________________________


Gross margin                                 356,562       176,231         811,515        867,520

Selling, general and
   administrative expenses                   258,137       335,161         771,946        935,472
Research and development                      14,001         5,786          63,087        122,942
Depreciation, depletion and amortization     170,028       191,137         510,078        578,541
                                            _______________________     __________________________

 (Loss) from operations                      (85,604)     (355,853)       (533,596)      (769,435)

Other income (expense) net
  Interest income (expense)                   (6,874)       (9,394)        (27,983)       (33,645)
  Interest expense, related party            130,795       (66,437)        (47,136)      (390,020)
  Gain (loss) from sale of assets                -          16,109           1,334        789,229
                                            _______________________     __________________________

Income (loss) before discontinued operations  38,317      (415,575)       (607,381)      (403,871)


Discontinued operations
  Income (loss) from discontinued operations     -          14,732         (53,868)      (508,502)
  Gain on disposal of discontinued operations    -      (1,567,459)         18,885        520,258
                                            _______________________     __________________________

  Total discontinued operations                  0      (1,552,727)        (34,983)        11,756

Net Income (loss)                            $38,317   ($1,968,302)      ($642,364)     ($392,115)
                                            =======================     ==========================
Earning per share
  Loss from continuing operations              $0.00        ($0.03)         ($0.04)        ($0.03)
  Income from discontinued operations          $0.00        ($0.11)         ($0.00)         $0.00
                                            _______________________     ___________________________

   Income (loss) per common share:             $0.00        ($0.14)         ($0.05)        ($0.03)
                                            =======================     ===========================

Weighted average shares o/s               14,074,167    14,074,167      14,074,167     14,074,167
                                         ==========================     ===========================

</TABLE>



The  accompanying  notes are an integral  part of these  consolidated  condensed
financial statements.


<PAGE>





                       INTERLINE RESOURCES CORPORATION
                               AND SUBSIDIARIES
                Condensed Consolidated Statement of Cash Flows
                                 (Unaudited)


<TABLE>
<CAPTION>

                                                                Nine months ended
                                                                     Sept 30,
                                                               1998          1997
                                                            _________________________
<S>                                                         <C>           <C>

Cash flows from operating activities:
  Net  income (loss)                                        (642,364)     (392,115)
  Adjustment to reconcile net income (loss) to net
    cash (used in) provided by operating activities:
  Depreciation, depletion and amortizat                      510,078       578,541
  Gain on disposal of asset                                    1,334      (760,258)
  Common Stock issued for services                            24,000           -
  (Increase) decrease in:
     Accounts receivable                                    (289,821)     (226,886)
     Inventories                                             (11,463)      (12,529)
     Other current assets                                    (28,560)      (32,296)
     Note receivable                                         (45,677)       38,742
  Increase (decrease) in:
     Accounts payable                                        207,657      (343,662)
     Accrued liabilities                                    (792,481)       55,269
     Accrued interest, related party                            -          390,020
     Other current liabilities                                20,116           -
     Deferred income                                          (4,753)     (111,159)
                                                          -------------  -----------
      Net cash (used) by operating activities             (1,051,934)     (816,333)

Cash flows from investing activities:
  Proceeds from sale of equipment                              4,700       531,768
  Proceeds from sale of joint venture                            -         500,000
  Purchase of intangible assets                                  -         (23,869)
  Net assets of discontinued operations                      683,853     2,947,316
  Purchase of property, plant & equipment                    (56,036)     (361,589)
                                                          -------------  -----------

  Net cash provided (used in) investing actitivi             632,517     3,593,626

</TABLE>


The  accompanying  notes are an integral  part of these  consolidated  condensed
financial statements.





<PAGE>




                        INTERLINE RESOURCES CORPORATION
                               AND SUBSIDIARIES
                Condensed Consolidated Statement of Cash Flows
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                    Nine months ended
                                                                        Sept 30,
                                                                 1998            1997
                                                             ___________________________
<S>                                                             <C>          <C>

Cash flows from financing activities:
  Proceeds from debt obligations                                   -              -
  Conversion of related party interest                           34,135
  Payment on long-term debt                                     (76,682)     (2,428,255)
                                                             ___________________________

  Net cash provided (used) by financing                         (42,547)     (2,428,255)
                                                             ___________________________

Net increase (decrease) in cash                                (461,964)        349,038

Cash, beginning of year                                       1,153,199         907,669
                                                             ____________________________

Cash,  end of  quarter                                          691,235       1,256,707
                                                             ============================

</TABLE>



















<PAGE>



               INTERLINE RESOURCES CORPORATION AND SUBSIDIARIES
                  Notes to Consolidated Financial Statements

Oil and Gas Accounting
The  Company  uses the  "successful  efforts"  method to account for oil and gas
operations.  The use of this  method  results  in the  capitalization  of  costs
related to acquisition, exploration and development of revenue producing oil and
gas properties.  The costs of unsuccessful  exploration  efforts are expensed in
the  period in which  they are  determined  unrecoverable  by  future  revenues.
Provision for  depreciation  and depletion of oil and gas properties is based on
the units of production method, based on proven oil and gas reserves.

Segment information  concerning oil and gas reserves and related disclosures are
not  presented  since they are not  significant  in  relation  to the  financial
statements taken as a whole.


Construction Accounting
Construction revenues are recognized on the  percentage-of-completion  method of
accounting.  Profits on contracts  are  recorded on the basis of  "cost-to-cost"
determination  of percentage of completion on individual  contracts,  commencing
when  progress  reaches  a point  where  cost and  estimate  analysis  and other
evidence of trend are  sufficient  to estimate  final  results  with  reasonable
accuracy.  That  portion  of the total  contract  price  which is  allocable  to
contract expenditure incurred and work performed is accrued as earned income. At
the time a loss on a contract  becomes known, the entire amount of the estimated
ultimate loss is accrued.  Claims for  additional  revenue are  recognized  when
settled.  The  aggregate of cost incurred and income  recognized on  uncompleted
contracts  in excess of related  billings is shown as a current  asset,  and the
aggregate  of  billings  on  uncompleted  contracts  in excess of related  costs
incurred and income recognized is shown as a current liability.


Cash Equivalents
For purposes of the consolidated statement of cash flows, cash includes all cash
and investments with original maturities to the Company of three months or less.


Inventories
Inventories  consisting of supplies and  miscellaneous  material are recorded in
the financial statements at their aggregate lower of cost (first-in,  first-out)
or market.


Investments
Investments  in less than  majority  owned  entities are accounted for using the
equity method.  Investments are included in the financial  statements  under the
caption of "Other Assets."




<PAGE>



               INTERLINE RESOURCES CORPORATION AND SUBSIDIARIES
                  Notes to Consolidated Financial Statements


Property, Plant and Equipment 
Property,  plant and  equipment  are carried at cost.  Depreciation  is computed
using  straight-line  and  accelerated  methods.  When  assets  are  retired  or
otherwise disposed of, the cost and related accumulated depreciation are removed
from the accounts,  and any  resulting  gain or loss is recognized as income for
the  period.  The cost of  maintenance  and  repairs  is  charged  to  income as
incurred;  significant renewals and betterments are capitalized.  Deductions are
made for  retirements  resulting  from  renewals or  betterments.  The estimated
useful lives are as follows:

Building and equipment  15-25 years
Equipment and vehicles  3-10 years

Amortization
The Company has amortized its marketing and  technology  rights for the used oil
refining  process over seventeen  years.  This period  approximates  the assets'
useful lives.

Contingencies
During 1996, the Company entered into an agreement to sell certain assets of the
Company. As part of this agreement,  the Company also agreed to guarantee a note
payable  between the  purchaser and a third party.  At September  30, 1998,  the
remaining liability on the note was approximately $89,037.

The Company has executed license agreements with licensees to utilize Interlines
used oil technology which includes  technology  received from Petroleum  System,
Inc.  ("PSI")  through an  assignment  agreement of certain  patent  rights (PSI
technology).  Under the  assignment  agreement  the Company is  obligated to pay
royalties to PSI for those Interline plants using PSI technology.

      The Company has now developed a new technology  which does not utilize PSI
technology. As a result, on September 10, 1998 the Company reassigned all of the
intellectual rights it obtained from PSI under the assignment agreement, back to
PSI. The only plants that utilize the PSI  technology  are the Dubai Plant which
has been shut down and essentially  abandoned,  the Genesis Plant which has been
shut  down  and no  longer  operates,  and the  England  Plant  which  currently
operates.  Under the terms of the assignment agreement, the Company is obligated
to assign all royalties  payable from plants  utilizing PSI  technology  back to
PSI. The Company did so on September 10, 1998.

     PSI has made other claims  against the Company  which are described in Part
II, Item 1. Legal Proceeding.





<PAGE>



               INTERLINE RESOURCES CORPORATION AND SUBSIDIARIES
                  Notes to Consolidated Financial Statements


      In April of 1997,  the Company sold its 40% interest in the England  Plant
joint venture to John Wheland for $500,000.  John Wheland has only paid $200,000
of the  purchase  price  and while  the  Company  has  demanded  payment  of the
remaining  purchase  price the  payment  remains in  dispute.  Additionally,  in
connection  with the sale of the  Company"  interest in the joint  venture,  the
joint venture was to pay the Company $100,000 for certain  construction  charges
and services it performed on the England  Plant.  The joint venture has not made
this payment,  and its payment is in dispute.  While the Company believes that a
settlement of the disputed payments is likely, there can be no assurance that an
agreement  will be  reached.  In such an event  the  Company  will  seek a legal
remedy. The Company's financial  statements reflect a doubtful allowance reserve
to cover this money due.

Profit Sharing Plan
During 1995, the Company commenced a defined contribution retirement plan, which
qualifies under code section 401(k), for all eligible  employees.  Employees who
work at least  1,000  hours  during a year and are over age 21 are  eligible  to
participate.  Employees  may  contribute  up to fifteen  percent of their annual
compensation subject to regulatory  limitations.  The Company also contributes a
discretionary amount on behalf of the participating  employees. The Company made
contributions of $987 and $459 for the three months ended September 30, 1998 and
1997, respectively.

Reclassification
Certain amounts in the prior years financial  statements have been  reclassified
to conform to the September 30, 1998 presentation.

Discontinued Operations
The  financial  statements  for all periods  presented  reflect the revenues and
expenses  generated  from the assets of the Utah oil and gas  operations,  Gagon
Mechanical  construction  and  manufacturing  operations  and the Salt Lake City
refinery   operations  under  the  caption  "Income  (loss)  from   discontinued
operations."  The related assets and  liabilities of Gagon  Mechanical have been
presented  on the  balance  sheet  under  caption  "net  assets of  discontinued
operations."












<PAGE>



                               PART 1 - ITEM 2

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


 General

      The Company is a Utah corporation with its principal and executive offices
located at 160 West Canyon  Crest Road,  Utah 84004  (801)  756-3031.  Interline
Resources  Corporation (the "Company"),  a Utah  corporation,  is engaged in two
areas  of  business,   each  operating  as  separate   subsidiaries:   Interline
Hydrocarbon Inc., a Wyoming corporation, which commercializes the Company's used
oil  refining  technology;  and  Interline  Energy  Services,  Inc.,  a  Wyoming
corporation,  which  manages the  Company's  oil and gas  operations  located in
Wyoming.

      The Company has invested substantial resources  commercializing a used oil
refining technology and has signed license agreements with companies in England,
South Korea,  Dubia,  Australia and Spain. The Company's first used oil refinery
was  constructed  in Salt Lake City,  Utah in 1996.  The  Company's  oil and gas
operations   consist  of  natural  gas   gathering,   natural  gas   processing,
transportation and oil well production all located in Wyoming.

      On September  26, 1997,  the Company  filed a Petition for  Reorganization
under Chapter 11 (the  "Petition")  of the United States  Bankruptcy  Code.  The
Company continued its operations as a debtor-in-possession  under the Bankruptcy
Code.  The Company's  subsidiaries  did not join the Company in the Petition and
were not directly involved in the Bankruptcy Reorganization Proceeding.

      On  June  18,  1998,  the  Company  filed  a Plan  of  Reorganization  and
Disclosure  Statement  to the  Plan of  Reorganization  with the  United  States
Bankruptcy Court for the District of Utah,  Central Division.  On July 14, 1998,
the Company's Plan of  Reorganization  and  Disclosure  Statement to the Plan of
Reorganization  was approved and  circulation  thereof  authorized by the United
States Bankruptcy Court for the District of Utah, Central Division.

      On September  10, 1998,  the plan of  reorganization  under  Chapter 11 of
Interline  Resources  Corporation was confirmed by the United States  Bankruptcy
Court for the District of Utah.  As a result,  restraints  on the  activities of
Interline imposed by the Bankruptcy code have been removed. The Company's motion
for final decree is scheduled for November 12, 1998. Interline reached agreement
with  its  major  creditor  during  the  Chapter  11 case  and the  terms of the
agreement  (See  Part  1 -  Item  2 -  Liquidity  and  Capital  Resources)  were
incorporated  in the plan.  All other  creditors  will be paid in full under the
plan.


<PAGE>


      The Company's  current  operating  subsidiaries  are (1) Interline  Energy
Services,  Inc.("Interline  Energy") a Wyoming  corporation  which  manages  the
Company's  oil  and  gas  operations   located  in  Wyoming  and  (2)  Interline
Hydrocarbons,  Inc. ("Interline  Hydrocarbons") a Wyoming corporation which owns
and operates the Company's used oil refining technology.


      Interline Energy Services - Oil and Gas Operations.

      The Company has been engaged in the oil and gas industry since 1990. These
operations  primarily  involve natural gas gathering and  processing,  crude oil
gathering,  fractionation and marketing of natural gas liquids,  and oil and gas
production.  In May,  1997,  the Company sold its Utah  gathering and production
operations to subsidiaries of the Questar  Corporation of Salt Lake City,  Utah,
and is now concentrating on its operations in east-central Wyoming.

      At the Well Draw Gas Plant ("Well  Draw") the Company  buys mixed  liquids
from several  different plants,  transports them to Well Draw,  fractionates the
liquids into commercial  propane,  butane, and natural gasoline,  and re-markets
these products for its own account. Additionally,  from time to time the Company
enters into agreements for  fractionation of liquids from others on a fee basis,
including the Amoco contract and others.  The plant processed and fractionated a
total of 86,901  gallons a day of natural gas liquids for the three months ended
September 30, 1998  compared to 59,400  gallons a day for the three months ended
September 30, 1997.  Of the total  gallons  fractionated  and  processed,  8,790
gallons per day was for the Company  and 78,111  gallons per day for others,  as
compared to 10,260 and 49,140 gallons per day  respectively  in 1997. In October
of  1997,  KN  Gas  Gathering   ("KN")  began   fractionating   and   processing
approximately  20,000  gallons  per day at Well Draw  under an  agreement  which
extended  to March 31,  1998.  During  April and May of 1998,  KN elected not to
fractionate their liquids at the Well Draw Gas Plant. Since June of 1998, KN has
resumed the fractionating  agreement with the Company on a month to month basis.
Since June of 1998,  the Company  has been  fractionating  for KN  approximately
30,000 gallons a day of natural gas liquids.

      The Company's  natural gas liquids  transportation  operation  transported
approximately  17 million  gallons of raw and finished  products during the nine
months ended September 30, 1998. The Company  operates four  tractor-trailer-pup
combination  units to move  unprocessed  natural  gas  liquids  to Well Draw for
fractionation,  and then to take propane, butane, and natural gasoline from Well
Draw to various  refiners,  chemical plants,  and end-users.  When time permits,
these trucks also move liquids on a common carrier basis for third parties.  The
Company intends to continue to emphasize this profitable  business segment,  and
believes that our reputation for flexibility and customer  service will allow us
to maximize opportunities.

      Oil and  natural  gas  production  from the  Company's  wells  in  Wyoming
continue to be a small but profitable  segment of  operations.  Although oil and
gas prices have  declined  significantly  from  historical  prices,  the Company
intends to continue producing these wells.


<PAGE>


      Management is unaware of any significant  future capital  expenditures for
the future in its oil and gas operations.  However, the very nature of equipment
operation,  ware and tear  and  replacement  in this  type of  operation  can be
significant.  Further,  it is noted that most of the revenues earned by the Well
Draw Plant are  derived  from the Amoco  contract  which will  expire in June 1,
2000. If this contract is not renewed,  it will have a substantial impact on the
ability of the Well Draw plant to continue  operations.  Management continues to
seek other liquids and gas connections to expand and diversify its operations in
Wyoming,  however,  its  operations  are in a limited and well  defined area and
expansion is difficult.


      Interline Hydrocarbon - Used Oil Refining.

     Revenues to the  Company,  from its used oil refining  technology  can come
from five  sources:  1) profits  made from  constructing  a used oil  plant,  2)
granting  exclusive  territories to licensee,  3) receiving  royalties  based on
either  production  or a  flat  yearly  licensing  fee,  4)  taking  partnership
interests in  operating  Plants by either  contributing  the  technology  and/or
making cash  contributions  for partnership  interests and, 5) rather than build
plants,  sell the construction  plans and provide  consultation and expertise so
that the customer can build the Plant.

      Based on the experiences  with the four Plants that have been built by the
Company,  management's  current  feelings  are to  not  be in  the  construction
business.  Further, until the Company gets in better financial condition,  it is
not in a position to take  interests in operating  Plants.  Management  believes
that  the  best  way for it to  capitalize  on the  technology  is to  sell  the
construction  plans  for a  Plant  and  provide  consultation  services  to  the
purchaser.

      On June 10, 1998 the Company signed an engineering and marketing agreement
with Ecolube,  S.A., a subsidiary of Sener Engineering of Madrid,  Spain.  Under
the agreement, the Company provided Ecolube with engineering  specifications and
construction  drawings  for the  building  of a 24,000  gallon per day waste oil
re-refinery.  The plant will be located in Madrid,  Spain.  Under the agreement,
Ecolube will  construct  and operate the plant and produce  lubricant  base oil.
Interline will receive a $534,000  engineering and licensing payment and receive
a running  royalty  of $0.0175 on each  gallon  produced  and sold for 10 years.
Ecolube has the right to build additional plants in the Iberian Peninsula (Spain
and Portugal) for a four year period commencing from the date of plant start up.

      It has also become evident to management that demanding royalties based on
production in many  situations and countries is difficult.  Unless and until the
rerefined  oil produced in a Plant can be sold at higher values based on pricing
similar to base  lubricating  oils,  on-going  royalties  based on production is
difficult to obtain. The most viable opportunities management has discovered are
in countries that have governmental concessions resulting in economic incentives
for  collecting  and  processing  used oil.  This  reality has been seen in both
Korea,  where the royalty was terminated for the first plant, and England where,
as described previous filings,  the royalties were reduced and not payable until
profitable.


<PAGE>

      Management  still believes that there exists  economic  justification  and
interest in the technology. The Company continues to improve the technology, and
on May 28, 1998 filed a patent  application  in the United  States Patent Office
for a new and  alternative  method from the PSI technology  for processing  used
oil. This new technology has been  implemented  in the Korean,  Austrialian  and
Spanish  Plants.  While  management  continues  to receive  inquiries  about the
technology,   the  Company  is  selective  as  to  potential  purchasers.   From
experience, management is aware of the complicated nature between the balance of
supply  and  demand.   Management   has  become  much  more   selective  in  its
consideration  of selling the  technology to  prospective  purchasers and unless
favorable conditions exist the Company discourages the purchaser. Management has
become  much more  active in  helping  potential  customers  evaluate  their end
product sales markets.


Results of Operations

      The  following  analysis  of  the  financial   condition  and  results  of
operations should be read in conjunction with the Financial Statements and Notes
thereto, included elsewhere in this report.

      During 1997, the following three events occurred, and have been classified
and presented in the financial statement as discontinued operations.  Readers of
the condensed  financial  statements  should keep in mind that prior comparative
information in this report have been changed to reflect these events.

      Salt Lake Refinery - Genesis  Petroleum Inc.: As disclosed in previous SEC
filings,  the Company  recorded a  liability  for the  repurchase  of a used oil
refinery  located in Salt Lake City, Utah from Genesis  Petroleum,  the original
purchaser. This liability is a result of Genesis exercising the option, provided
in the sales agreement, to require the Company to repurchase the refinery. Prior
to the option being exercised,  the Company was a 26% owner of the joint venture
which  operated the used oil refinery and  accounted  for its  investment on the
equity method through June 19, 1996. The original  purchaser owned the remaining
74% of the joint  venture and operated the plant.  The Company had  consolidated
the  operations  of the refinery and joint  venture since June 19, 1996 the date
the option was executed.

      Effective  September 30, 1997, the Company  reclassified the operations of
the Genesis  Refinery and joint  venture  into  "discontinued  operations".  The
change in  accounting  treatment  was due to the belief of Company's  management
that it will not  retain  the  refinery  and  ownership  in the  joint  venture.
Subsequently,  on December  23, 1997 the Company and Genesis  Petroleum  entered
into an agreement to settle all claims.  (See Legal Proceeding) The consolidated
statement of operations  presented for the three and nine months ended September
30, 1998 and 1997 reflect the revenue and expense  relating to Genesis  Refinery
under caption "Income (loss) from discontinued operations".


<PAGE>

      Utah Oil and Gas Operations:  As disclosed in previous SEC filings, on May
1, 1997,  the Company  sold all assets of its Utah oil and gas  operations.  The
consolidated  statement of  operations  presented  for the three and nine months
ended September 30, 1998 and 1997,  reflect the revenue and expense  relating to
these assets under caption  "Income (loss) from  discontinued  operations."  The
consolidated  statement of  operations  presented  for the three and nine months
ended  September  30,  1998 and 1997,  reflect the gain or loss on sale of these
assets under caption "Gain (loss) on disposal of discontinued operations."

      Gagon  Mechanical  Operations:  In May 1997, the Company  discontinued the
operations  of  Gagon  Mechanical.  The  consolidated  statement  of  operations
presented  for the three and nine  months  ended  September  30,  1998 and 1997,
reflect the revenue and expense  relating to these assets under caption  "Income
(loss) from discontinued operations." The consolidated balance sheet for quarter
ended  September  30, 1998  reflect all assets and  liabilities  relating to the
operations   under  caption  "Net  assets  of  discontinued   operations".   The
consolidated  statement of  operations  presented  for the three and nine months
ended  September  30,  1998 and 1997,  reflect the gain or loss on sale of these
assets under caption "Gain (loss) on disposal of discontinued operations."

Total Revenues for Nine Months Ended September 30, 1998
      Revenues decreased $1,048,589 or 28.36%, to $2,649,155 for the nine months
ended  September  30, 1998 as compared to  $3,697,744  for the nine months ended
September 30, 1997. The revenue decrease included a $843,481 or 26.64%, decrease
in oil and gas revenues; and a $227,883, or 42.86% decrease in used oil refining
revenues  and an  $22,775  increase  in  other  revenues.  The  Company's  total
revenues,  on a segment basis, for nine months ended September 30, 1998 and 1997
were as follows:

The following table excludes any revenues  generated from the assets of the Utah
oil  and  gas  operations,   Gagon  Mechanical  construction  and  manufacturing
operations,  and  any  revenues  attributed  to  the  Salt  Lake  City  refinery
operation.  The assets of the Utah oil and gas operations were sold May 1, 1997.
Gagon Mechanical  operations were discontinued in May 1997, although the Company
is subcontracting  to G-EPIC,  Inc. the construction of the Australia plant. The
assets  of the  Salt  Lake  Refinery  were  discontinued  due  to the  Company's
agreement  with  Genesis  Petroleum  to settle all claims.  The results of these
operations  are  reflected in the  consolidated  statement of  operations  under
caption "Income (loss) from discontinued operations".

          Revenues For Nine Months Ended September 30, 1998 and 1997

                          1998            %              1997            %
______________________________________________________________________________

Oil and Gas            $2,322,520       87.67%         $3,166,001     85.62%
Used Oil refining         303,860       11.47%            531,743     14.38%
Other                      22,775         .86%               0          .00%
______________________________________________________________________________

Total Revenue          $2,649,155         100%         $3,697,744       100%

==============================================================================

<PAGE>

Total Revenues for Three Months Ended September 30, 1998
      Revenues  increased $7,366 or .77%, to $963,522 for the three months ended
September 30, 1998 as compared to $956,156 for the three months ended  September
30, 1997. The revenue  increase  included a $143,365 or 15.07%,  decrease in oil
and gas  revenues;  and a $145,056,  or 2948.89%,  increase in used oil refining
revenues and an $5,675 increase in other revenues. The Company's total revenues,
on a segment basis,  for three months ended  September 30, 1998 and 1997 were as
follows:

The following table excludes any revenues  generated from the assets of the Utah
oil  and  gas  operations,   Gagon  Mechanical  construction  and  manufacturing
operations,  and  any  revenues  attributed  to  the  Salt  Lake  City  refinery
operation.  The assets of the Utah oil and gas operations were sold May 1, 1997.
Gagon Mechanical  operations were discontinued in May 1997, although the Company
is subcontracting  to G-EPIC,  Inc. the construction of the Australia plant. The
assets  of the  Salt  Lake  Refinery  were  discontinued  due  to the  Company's
agreement  with  Genesis  Petroleum  to settle all claims.  The results of these
operations  are  reflected in the  consolidated  statement of  operations  under
caption "Income (loss) from discontinued operations".


          Revenues For Nine Months Ended September 30, 1998 and 1997

                          1998            %              1997            %
______________________________________________________________________________

Oil and Gas             $807,872        83.85%         $951,237       99.49%
Used Oil refining        149,975        15.57%            4,919         .51%
Other                      5,675          .58%                0         .00%
______________________________________________________________________________

Total Revenue           $963,522          100%          $956,156        100%

==============================================================================


Oil and Gas Revenues 
      Oil and gas revenues  contributed  approximately  83.85% of total revenues
for the three months ended  September  30,  1998,  as compared to  approximately
99.49%  for the three  months  ended  September  30,  1997.  Revenues  decreased
$143,365 or 15.07% to $807,872 for the three months ended  September 30, 1998 as
compared to $951,237 for the three months ended September 30, 1997.

      The revenues  presented  in the above table are solely from the  Company's
Wyoming  operations.  This  revenue  decrease  of  $143,365  or 15.07% is mainly
attributed to several liquid


<PAGE>

purchase  contracts  that expired.  The Company tried to negotiate new terms for
these liquids,  but after  considering  the very low margins and the risk on the
structure of the pricing, the Company did not except the new terms. During 1998,
the Company's  focus has been on increasing cash flows by increasing the margins
as it relates to its liquid purchase contracts.


Used Oil Refining Revenues 
      Since it  commenced  operations  in the used oil  refining  business,  the
Company has primarily derived revenues attributed to fees for engineering, plant
design,  license,  exclusively or other services  associated  with the Company's
used oil refining  technology.  The revenue  attributed to the used oil refining
business varies  significantly  from quarter to quarter reflecting the status of
the Company's fees and plant design services.

      Used oil refining  revenues  contributed  15.57% of total revenues for the
three  months  ended  September  30, 1998  compared to .51% for the three months
ended  September 30, 1997.  The revenues  increased  $145,056,  or 2948.89%,  to
$149,975 for the three months ended  September  30, 1998  compared to $4,919 for
the three months ended September 30, 1997. This revenue increase of $145,056 was
mainly derived from the engineering and licensing agreement with Ecolube,  S.A.,
a subsidiary of Sener  Engineering of Madrid,  Spain.  Under the agreement,  the
Company will receive an  engineering  and licensing  payment of $534,000.  As of
September 30, 1998, the Company received $200,000 from Ecolube. During the three
and nine  months  ended  September  30, 1998 and 1997,  the Company  received no
revenues for royalties for it used oil technology.

      The results of the Salt Lake City refinery operations during the three and
nine  months  ended  September  30,  1997,  are  reflected  in the  consolidated
statement  of  operations  under the caption  "Income  (loss) from  discontinued
operations".


Direct Costs 
      Direct  costs  decreased  $172,965,  or 22.18%,  to $606,960 for the three
months ended  September 30, 1998 compared to $779,925 for the three months ended
September 30, 1997. As a percent of revenues,  direct costs  decreased to 62.99%
for the three months ended  September  30, 1998 compared to 81.57% for the three
months ended  September 30, 1997.  The decrease of $172,965 for the three months
ended  September  30,  1998 was  mainly  attributed  to the  Company's  focus to
increase  cash flow and  reduce  expenses.  During  1997,  the  Company  reduced
personnel in the Wyoming oil and gas operations.


Selling, General and Administrative 
      Selling, general and administrative expenses decreased $77,024, or 22.98%,
to $258,137 for the three months ended  September  30, 1998 compared to $335,161
for the three  months  September  30, 1997.  As a percent of revenues,  selling,
general  and  administrative  expenses  were 26.79% for the three  months  ended
September 30, 1998  compared to 35.05% for the three months ended  September 30,
1997.  During 1997, the Company's  management  developed a plan to increase cash
flow and reduce  expenses.  Part of the plan  included a reduction of personnel,
including both  management and  operations  personnel.  During 1997, the Company
reduced 3 management  positions and 25 operational  positions.  During 1998, the
Company reduced an additional 4 management


<PAGE>

positions and 2 operational positions.  The Company did incur outside legal fees
of $108,825 for the nine months ended  September  30, 1998  compared to $111,605
for the nine months  ended  September  30,  1997.  These legal costs were mainly
attributed to the Company's legal proceedings and bankruptcy filing.


Depreciation and Amortization 
      Depreciation and amortization  expenses  decreased  $21,109,  or 11.04% to
$170,028 for the three months ended  September 30, 1998 compared to $191,137 for
the  three  months  ended   September  30,  1997.  As  a  percent  of  revenues,
depreciation and amortization  expenses decreased to 17.65% for the three months
ended September 30, 1998 compared to 19.99% for the three months ended September
30, 1997.


Research and Development 
      Research and development expenses increased $8,215, or 141.98%, to $14,001
for the three months ended  September  30, 1998  compared to $5,786 for the year
ended  September  30, 1997. As a percent of revenues,  research and  development
expenses  increased  to 1.45% for the three  months  ended  September  30,  1998
compared to .61% for the three months ended September 30, 1997.

      Research  and  development   expenses  were  mainly  attributable  to  the
development and enhancement of the Company's used oil refining  technology.  The
Company will continue to incur research and development expenses as it continues
to develop its used oil refining technology.

(Loss) from operations 

      Loss from operations  decreased  $270,249,  or 75.94%,  to $85,604 for the
three months ended  September 30, 1998 compared to a $355,853 loss for the three
months ended  September 30, 1997. The $270,249  decrease in loss from operations
was mainly  attributed  to a decrease in direct cost of  $172,965,  or 22.18% to
$606,960 for the three months ended  September 30, 1998 compared to $779,925 for
the three months ended September 30, 1997. Also the Company's  selling,  general
and administrative expenses decreased by $77,024, or 22.98%, to $258,137 for the
three months ended  September 30 1998  compared to $335,161 for the three months
ended September 30, 1997.


Other income (expenses)

      Net interest income (expense)  decreased  $2,520, or 26.83%, to $6,874 for
the three  months  ended  September  30,  1998  compared to $9,394 for the three
months end  September  30, 1997.  The net decrease was mainly  attributed  to an
increase in interest earned on the Company's  money market and interest  bearing
accounts.

     Interest  expense to a related  party  decreased  $197,232 or  296.87%,  to
-$130,795 for the three months ended  September 30, 1998 compared to $66,437 for
the three months ended  September 30, 1997.  This $197,232  decrease in interest
expense to a related party was attributed to the Company new note agreement.  As
part of the plan of  reorganization  under Chapter 11 the Company executed a new
note agreement for  $3,600,000.  Subsequently  to the new note, the Company owed
this related  party  $3,743,795,  which  included  $2,680,089  in principle  and
$1,063,706 in interest.


<PAGE>


Income (Loss) from discontinued operations.

                   Income (Loss) From Discontinued Operations
             For The Three Months Ended September 30, 1998 and 1997

                                    1998           1997            Change
______________________________________________________________________________

Utah Oil and Gas                     $0           -$1,134         -$1,134
Gagon Mechanical                      0            63,002          63,002
Genesis Refinery                      0           -47,134         -47,134
______________________________________________________________________________

Total                               -$0           $14,734         $14,734

==============================================================================


      Income  (loss) from  discontinued  operations  was $0 for the three months
ended  September  30, 1998  compared  to income of $14,734 for the three  months
ended  September  30, 1997.  Income  (loss) from the Utah oil and gas  operation
(sold May 1, 1997) was $0 for the three month ended September 30, 1998 and 1997.
Losses attributed to the Genesis refinery (discontinued  September 30, 1997) was
$-0- for the three months ended September 30, 1998 compared to a loss of $47,134
for the three months ended September 30, 1997.  Losses from the Gagon Mechanical
(discontinued  May 1, 1997) was $-0- for the three  months ended  September  30,
1998 compared to income of $63,002 for the three months ended September 30, 1997
The Company's  total income (loss) from  discontinued  operations,  on a segment
basis, for the three months ended September 30, 1998 and 1997 were as follows:


                   Income (Loss) From Discontinued Operations
             For The Three Months Ended September 30, 1998 and 1997

                                    1998           1997            Change
______________________________________________________________________________

Utah Oil and Gas                     $0           $82,613         $82,613
Gagon Mechanical                -53,868          -215,326        -161,458
Genesis Refinery                      0          -375,789        -375,789
______________________________________________________________________________

Total                          -$53,868          -$508,502       -$454,634

==============================================================================

     Loss from  discontinued  operations  is $53,868 for the nine  months  ended
September  30, 1998  compared to a loss of  $508,502  for the nine months  ended
September 30, 1997.  Income (loss) from the Utah oil and gas operation (sold May
1, 1997) is $0 for the nine month ended September 30, 1998 compared to income of
$82,613 for the nine months ended September 30, 1998.  Losses  attributed to the
Genesis refinery  (discontinued  September 30, 1997) is $-0- for the nine months
ended  September  30, 1998  compared  to a loss of $375,789  for the nine months
ended September 30, 1997. Loss from the Gagon  Mechanical  (discontinued  May 1,
1997) is $53,868 for the nine months ended September 30, 1998 compared to a loss
of $215,326 for the nine months ended  September  30, 1997 The  Company's  total
income (loss) from  discontinued  operations,  on a segment basis,  for the nine
months ended September 30, 1998 and 1997 were as follows:



<PAGE>


Liquidity and Capital Resources

      Sources  of  liquidity  for the  Company  are  revenues  from  oil and gas
operations and revenues from the sale of its  hydrocarbon  refining  technology.
Currently,  the only consistent  ongoing revenue sources to the Company are from
its oil and gas operations in Wyoming.  The Company  receives  revenues from its
used oil  refining  technology  when a sale or  license  is  executed.  On going
royalty fees will be received only from the  Austrilian  Plant,  and the Spanish
Plant,  when  constructed and operational.  While the Company  continues to work
with potential  purchasers of its technology,  such sales and expected  revenues
are uncertain and unpredictable.

       On September 10, 1998, the Company's plan of reorganization under Chapter
11 was confirmed by the United States Bankruptcy Court for the District of Utah.
Management  believes  that the  Company's  cash  from the oil and gas  operating
activities,  cash received from the sale of its hydrocarbon  refining technology
and cash retained  under the  reorganization  plan would be adequate to meet its
operating  needs  in the  near  term  and  would  provide  a plan to  meet  debt
obligations.  Because of certain assumptions made in the plan of reorganization,
if the Company is unable to receive cash from the  marketing of its  hydrocarbon
refining  technology  there can be no assurance that the Company will be able to
continue its current operations.

      Management has put strict restraints on all capital  expenditures with the
exception of necessary expenditures to maintain current operations.  The Company
will continue to incur research and development costs as it continues to develop
its refining  technology.  At present these  activities  are being  performed by
current Company employees and part time contract consultants

      The Company's operations used $1,051,934 of cash for the nine months ended
September  30, 1998 compared to cash used by operations of $816,333 for the nine
months ended  September 30, 1997. Of the $1,051,934  cash used in operations for
the nine months ended September 30, 1998, $750,000 was attributed to an one time
payment  to Genesis  Petroleum,  Inc.  to settle all claims  (See Item 1 - Legal
Proceeding).  Without the one time payment to Genesis Petroleum, Inc., cash used
in operations for the nine months ended September 30, 1998 was $301,934.

The decrease in cash used by operations  (exclusive  of the $750,000  payment to
Genesis  Petroleum,  Inc.) was  mainly  attributed  to  changes  implemented  by
management. During 1997 and 1998, the Company's management implemented a plan to
increase cash flow and reduce expenses. The plan included the following:

1.   In May of 1997, the Company  discontinued the Gagon  Mechanical  operations
     and has been  subcontracting  any work formerly done by Gagon.  In the year
     ended  December 31, 1997,  Gagon's loss from  discontinued  operations  was
     $4,609  compared to a loss of  $2,022,857  for the year ended  December 31,
     1996.  In the nine months  ended  September  30,  1998,  Gagon's  loss from
     discontinued  operations was $53,868 compared to a loss of $215,326 for the
     nine months ended September 30, 1997.

2.   During 1997, the Company reduced its workforce by 28 personnel. Included in
     the reduction was 3 management positions and 25 operational positions. This
     reduction  in  workforce  reduced  the  Company's  salaries  and  wages  by
     approximately $550,000.

<PAGE>

      During 1998, the Company reduced an additional 4 management  positions,  1
operational position and 1 clerical position.

3.   During 1997, the Company  received  proceeds in the amount of $5,014,024 on
     the sale of assets and reduced debt by $2,461,077. Included in assets sold,
     were  the  Company's  Utah  oil and gas  operations  (Monument  Butte)  for
     $4,000,000,  the 40% interest in Interline  (UK) Joint Venture for $500,000
     in which the Company has received 200,000,  the sale of two compressors for
     $502,111  located in Wyoming and other  equipment and vehicles for $11,913.
     On March 1,  1998,  the  Company  sold the  Gagon  Mechanical  construction
     equipment,  parts and salvage material for the sum of $65,000. Also, on May
     28, 1998, the Company sold the Gagon Mechanical building, located in Sandy,
     Utah for $885,106.  Net proceeds to the Company after commissions,  closing
     costs and payoff of secured debt was $568,743.

4.   On September 30, 1997, the Company deemed its Salt Lake Refinery  operation
     to be a  discontinued  operation.  Subsequently,  on December 23, 1997, the
     Company entered into a agreement with Genesis Petroleum, Inc. to settle all
     claims  between  both  parties.  The  agreement  resulted  in  the  Company
     transferring  all its  rights to the Salt Lake  Refinery,  the  payment  of
     $750,000  (made on January  29,  1998),  and  granting  of a license of the
     Company's  technology for three additional sites with no license fees to be
     paid to the Company. In the year ended December 31, 1997 loss from the Salt
     Lake Refinery was $191,044 compared to $281,832 for the year ended December
     31,  1996.  For the nine  months  ended  September  30, 1998 there where no
     losses compared to $375,789 for the nine months ended September 30, 1997.

5.   During 1997,  the Company  reduced  capital  expenditures  from  continuing
     operations  by $78,023,  to $153,378  for the year ended  December 31, 1997
     compared to $231,401 for the year ended  December 31, 1996.  For 1998,  the
     Company  has put strict  restraints  on all capital  expenditures  with the
     exception of necessary expenditures to maintain current operations. Capital
     expenditures from continuing operations for the nine months ended September
     30,  1998 were  $56,036  compared to  $361,589  for the nine  months  ended
     September 30, 1997.

      On  September 9, 1998,  the plan of  reorganization  under  Chapter 11 was
confirmed by the United States  Bankruptcy  Court for the District of Utah.  The
Company reached agreement with its major creditor during the Chapter 11 case and
the terms of the agreement were incorporated in the plan.

      The terms of the agreement  included a new trust deed note dated September
22, 1998 for  $3,600,000,  together with interest at the rate of 7% per annum on
the unpaid  principal.  The Company will make quarterly  payments of all accrued
interest beginning on December 22, 1998 and continuing until September 22, 2002.
The Company will also make principal  payment of $750,000 on September 22, 1999;
$1,000,000 on September 22, 2000;  $1,000,000 on September 22, 2001 and $850,000
on September 22, 2002.


<PAGE>

     Subsequently  to the new  note  agreement,  the  Company  owed  this  major
creditor  $3,743,795,  which included  $2,680,089 in principle and $1,063,706 in
interest. The Company current financial statements reflect a $143,795 adjustment
in  interest to a related  party due to the new note  agreement.  The  following
table  summarizes each note prior to the new note agreement  being  executed.  A
description of the terms and conditions of the prior notes have been  previously
disclosed in the Company's filings.


             Note Payable and Accrued Interest Due to Related Party

                    Initial        Interest       Current        Accrued
                    Balance        Rate           Balance        Interest
______________________________________________________________________________

Note 1              $250,000        12%          $250,000        $104,890
Note 2             1,500,000        12%         1,500,000         374,301
Note 3               780,089        16%                 0         500,451
Note 4             2,500,000        16%           930,089          84,064
______________________________________________________________________________

Total              5,030,089                    2,680,089      $1,063,706

==============================================================================


Inflation

      The Company's business and operations have not been materially affected by
inflation  during the past three years and the  current  calendar  quarter.  The
Company  believes that inflation  will not  materially nor adversely  impact its
business plans for the future.


<PAGE>



                          PART II - OTHER INFORMATION


Item 1.     Legal  Proceedings

Bankruptcy Proceedings

      On September  26, 1997,  the Company  filed a Petition for  Reorganization
under Chapter 11 (the  "Petition")  of the United States  Bankruptcy  Code.  The
Company continued its operations as a debtor-in-possession  under the Bankruptcy
Code.  The Company's  subsidiaries  did not join the Company in the Petition and
were not directly involved in the Bankruptcy Reorganization Proceeding.

On June 18, 1998,  the Company  filed a Plan of  Reorganization  and  Disclosure
Statement to the Plan of Reorganization  with the United States Bankruptcy Court
for the District of Utah, Central Division. On July 14, 1998, the Company's Plan
of Reorganization  and Disclosure  Statement to the Plan of  Reorganization  was
approved and  circulation  thereof  authorized by the United  States  Bankruptcy
Court for the District of Utah, Central Division.

     On  September  10, 1998,  the plan of  reorganization  under  Chapter 11 of
Interline  Resources  Corporation was confirmed by the United States  Bankruptcy
Court for the District of Utah.  As a result,  restraints  on the  activities of
Interline  imposed by the Bankruptcy code have been removed.  Interline  reached
agreement  with its major  creditor  during the Chapter 11 case and the terms of
the agreement were incorporated in the plan. All other creditors will be paid in
full under the plan.

Genesis Petroleum Inc.
The Company has previously  reported a lawsuit that had been filed against it in
the Third Judicial District Court of Salt Lake County, State of Utah, by Genesis
Petroleum Inc.  ("GPI") for breach of a Sale and Purchase  Agreement.  Under the
Agreement,  the Company  agreed to purchase GPI's interest in the Salt Lake City
used oil refinery  that had been  operated by a joint venture owned by GPI and a
subsidiary of the Company. In July 1997, the Court granted GPI a judgment in the
litigation and awarded GPI damages for breach of contract. The Court awarded GPI
damages in the amount of  $2,320,836,  less an offset of the value of the assets
which the Company had agreed to purchase from GPI under the Agreement,  but as a
result of the  Company's  default,  these  assets had been  retained by GPI. The
Company  was to present  evidence  to the Court as to the value of the Plant and
the amount of the offset (See  Liquidity  and Capital  Resources).  Prior to the
Company presenting the Court with such evidence,  GPI and another creditor filed
a Petition for Involuntary Bankruptcy against the Company.

      On January 20, 1998 the United States Bankruptcy Court for the District of
Utah approved a settlement  agreement between the Company and Genesis Petroleum.
The Company and Genesis were joint ventureres in an used oil refinery located in
Salt Lake City, Utah. The settlement agreement provided for, among other things,
the following: 1) the litigation between them was terminated;  2) Interline paid
Genesis the sum of $750,000;  3) the Company  granted Genesis a license to build
and operate three additional used oil refineries  using the technology  assigned
to it by PSI  without  the  payment of any  royalties  or other  payments to the
Company; 4) the Company transferred all of its right in the joint venture and in
the Salt Lake Refinery to Genesis;  and, 5) all previous  agreements between the
Company and Genesis were terminated.

<PAGE>

Petroleum  Systems Inc.
The Company has executed  license  agreements  with
licensees to utilize  Interlines used oil technology  which includes  technology
received from Petroleum System, Inc. ("PSI") through an assignment  agreement of
certain  patent  rights (PSI  technology).  Under the  assignment  agreement the
Company is obligated to pay  royalties to PSI for those  Interline  plants using
PSI technology.

The Company  and PSI have been  involved  in a dispute as to what  payments  the
Company owes PSI under the assignment agreement.  The Company and PSI were first
involved in an arbitration  proceeding to determine the issues between them, but
PSI  discontinued  resolution  through  arbitration and on July 29, 1997 filed a
lawsuit  against  the  Company  and  its  wholly  owned   subsidiary   Interline
Hydrocarbons  in the Third Judicial  District Court of the State of Utah ("State
Court  Action")  alleging  that the  Company  was in  breach  of the  Assignment
agreement  and that PSI should be allowed to  re-acquire  all of the  technology
rights assigned to the Company through the assignment  agreement.  PSI filed its
complaint  and  the  Company  answered,  but  as  a  result  of  the  bankruptcy
proceeding, and its procedural rules the State Court Action was stayed until the
bankruptcy proceedings were resolved.



<PAGE>



On March 26,  1998,  PSI filed  claim  against  the  Company  in the  bankruptcy
proceeding  seeking royalties of $420,000,  asserting breaches of the assignment
agreement and requesting the return of a prototype  production device ("Baby M")
held by the Company. The Company filed an objection to the claim, and a trial of
the claims was held on June 5 and 8, 1998. After hearing testimony of witnesses,
receiving exhibits and hearing arguments of counsel,  the court entered an order
denying PSI's claim for $420,000, ordering that the Company return Baby M to PSI
and denying all other claims  brought by PSI. The Company has returned Baby M to
PSI.

On May 29, 1998,  PSI filed a motion for relief from the  automatic  stay in the
bankruptcy  court  seeking  the right to  proceed  with its State  Court  Action
against the Company and the Company's subsidiary Interline  Hydrocarbons.  After
argument and hearing,  the bankruptcy court requested counsel for PSI to prepare
an order granting  relief from the automatic  stay. The Company  objected to the
proposed  order  granting  relief from the automatic  stay and a hearing was set
before the court on August 13, 1998. After argument, the Court entered its order
granting relief from the automatic stay, but limited PSI cause of action against
the Company by prohibiting any money damage to be assessed against the Company.

On September 10, 1998, on its own initiative, the Third District Court scheduled
an Order to Show Cause for on October  15,  1998.  Its purpose was to advise the
court as to the progress of the action. The hearing was held on October 15, 1998
and the court entered an order that the case be certified ready for trail within
90 days - January 13, 1999.  PSI was to amend or otherwise  file a new complaint
against the Company.  As of November 9, 1998 PSI has taken no further  action to
proceed with this action.  The Company does not know if PSI will  continue  with
its action.

_______________________________________________________________________________

Item 2. Changes in Securities:
            None
_______________________________________________________________________________

Item 3. Defaults Upon Senior Securities:

      The Company is  currently  in default on notes due to a  shareholder  (See
Liquidity and Capital Resources).
_______________________________________________________________________________

Item 4. Submission of Matters to a Vote of Security Holders:
            None
_______________________________________________________________________________

Item 5. Other Information:

      The Company  announced on August 13, 1997 that the American Stock Exchange
(AMEX) made a final determination to delist the Company from the AMEX's Emerging
Company marketplace.

      As of November  5, 1998,  a market is being made of the  Company's  common
stock on the NASD Bulletin Board under symbol "IRCE".
_______________________________________________________________________________

Item 6(a). Exhibits:
            None
_______________________________________________________________________________

Item 6(b) Form 8-K:
            None
_______________________________________________________________________________


<PAGE>


                                   SIGNATURES

      In  accordance  with Section 13 or 15(d) of the Exchange  Act, the Company
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

Dated: November 9, 1998             INTERLINE RESOURCES CORPORATION




                                    By:  /s/ Michael R. Williams
                                          Michael R. Williams
                                          CEO/President
                                          Principal Executive Officer
                                          Director




                                    By:  /s/ Mark W. Holland
                                          Mark W. Holland
                                          Chief Financial Officer


     In  accordance  with the Exchange Act, this report has been signed below by
the following  persons on behalf of the Company and in the capacities and on the
dates indicated.


          Date              Title             Signature
   ------------------------------------------------------------------
     November 9, 1998    CEO/President     /s/ Michael R. Williams
                         and Director          Michael R. Williams


     November 9, 1998    Secretary/        /s/ Laurie Evans
                         Director              Laurie Evans