UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K
         (Mark One)
            [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                     For the fiscal year ended June 30, 1999

            [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                         Commission File Number 0-19343

                              VSI Liquidation Corp.
             (Exact name of registrant as specified in its charter)

          Delaware                                               34-1493345
(State or other jurisdiction of             (IRS Employer Identification Number)
incorporation or organization)

                  2170 Piedmont Road NE, Atlanta, Georgia 30324
               (Address of principal executive offices) (zip code)

       Registrant's telephone number, including area code: (404) 888-2750

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

           Securities registered pursuant to Section 12(g) of the Act:
                          Common Stock, $.01 par value
                                (Title of Class)

         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 by check mark if disclosure of delinquent  filers  pursuant to
Item 405 of Regulation S-K is not contained  herein,  and will not be contained,
to the best of  registrant's  knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K. [ X ]

         As of September 16, 1999:  (a) 7,906,617  shares of Common Stock,  $.01
par value, of the registrant were  outstanding;  (b) 2,072,872  shares of Common
Stock were held by  non-affiliates;  and (c) the  aggregate  market value of the
Common  Stock held by  non-affiliates  was  $259,109,  based on the closing sale
price of $0.125 per share on September 16, 1999.



887064v2
<PAGE>

                       DOCUMENTS INCORPORATED BY REFERENCE


Part I:           None

Part II:          None

Part              III: All items - see  registrant's  definitive proxy statement
                  which involves the election of directors and which is expected
                  to be filed  with the  commission  within  120 days  after the
                  close of the fiscal year.

o        Item 10: Directors and Executive Officers of the Registrant

o        Item 11: Executive Compensation

o        Item 12: Security Ownership of Certain Beneficial Owners and Management

o        Item 13: Certain Relationships and Related Transactions







                                       2
<PAGE>



                                     Part I
ITEM 1.  BUSINESS

General

         Prior to January 5, 1999,  the Company  was engaged in the  business of
providing  specialized  industrial  cleaning and other services to divisions and
facilities of Fortune 500 companies and other substantial  businesses engaged in
heavy  industry.  Such  services  generally  involved the removal of  industrial
grime,   deposits,   wastes,   encrustations  or  coatings  from  equipment  and
facilities.  The Company's principal  customers were in the chemical,  plastics,
power  generation,   petroleum  refining  and  primary  metals  businesses.  The
Company's  industrial  cleaning  methods  included,  in  addition  to the use of
waterblasting,   vacuuming,   and  other  more  conventional   procedures,   the
application of ultra-high pressure ("UHP") waterjetting and cutting methods.

         On September  8, 1998,  the Company  entered into a Second  Amended and
Restated Asset Purchase Agreement (the "Purchase Agreement") whereby essentially
all assets of the Company would be sold to, and substantially all liabilities of
the  Company  would  be  assumed  by,  HydroChem   Industrial   Services,   Inc.
("HydroChem").   The  purchase  price  for  these  assets  and  liabilities  was
approximately  $30.0 million,  adjusted for increases or decreases in net assets
after June 30,  1998.  $4.0  million of the  proceeds  were  placed in escrow to
secure and indemnify HydroChem for any breach of the Company's covenants and for
any  environmental  liabilities.  Escrow  funds,  to the  extent  not  needed to
indemnify  HydroChem,  will be released over the three year period following the
closing. $1.0 million will also be released when the Company can provide certain
environmental  assurances  to HydroChem,  expected to be sometime in 2000.  This
transaction closed on January 5, 1999, and was effective as of January 1, 1999.

         The  Company  changed  its  name  from  Valley  Systems,  Inc.  to  VSI
Liquidation Corp. after the closing of this  transaction,  and does not have and
will not have any business  operations in the future other than those associated
with the winding up and  dissolution of the Company,  including  distribution of
any escrow funds  released to the Company.  After the closing,  the Company used
approximately $5.5 million of the proceeds of the sale to redeem the outstanding
shares of Series C Preferred Stock, approximately $380,000 to redeem outstanding
employee stock options and  approximately  $165,000 to pay retention  bonuses to
certain officers and employees.  The Company also paid a liquidating dividend of
$16.8 million ($2.13 per common share) to common  stockholders from the proceeds
of the sale.

Insurance

         Much of the work  performed  by the Company was  pursuant to  contracts
that  required  the  Company  to  indemnify  the  customer  for injury or damage
occurring on the work site. The terms of such indemnity  agreements  varied, but
generally  provided  that the Company was required to indemnify the customer for
losses  resulting from or incurred in connection with performance by the Company
of its services  whether or not the Company was  negligent.  Liability  for such
indemnification claims is generally covered by the Company's insurance policies.

         Although the Company believes that its insurance  coverage is generally
consistent  with  industry  practice,  there are  exclusions  from the Company's
insurance  coverage for matters of  environmental  pollution  and other types of
environmental  damage  claims.  An  uninsured  or partially  insured  claim,  if
successful and of sufficient magnitude,  could have a material adverse effect on
the Company or its financial condition.

                                       3
<PAGE>
Proprietary Technology, Patents, Trademarks and Equipment

         All proprietary  technology,  patents,  trademarks and equipment of the
Company were sold as part of the Purchase Agreement discussed above. See "Item 1
- General".

Environmental Standards and Government Regulations

         The Company's operations were subject to numerous rules and regulations
at the federal,  state and local levels. The Company believes that it was and is
in substantial  compliance with the various rules and  regulations.  The Company
has not experienced any significant regulatory problems.

         All of the Company's  operations were subject to regulations  issued by
the United States  Department of Labor under the Occupational  Safety and Health
Act ("OSHA"). Additionally, some of the Company's operations were subject to the
provisions of the Federal Mine Safety and Health Act of 1977. These  regulations
have strict  requirements for protecting  employees  involved with any materials
that are classified as hazardous. Violations of these rules can result in fines.

         The Company does not believe  that its past  operating  activities  are
subject  to the duties  pertaining  to  hazardous  waste  treatment,  storage or
disposal  facilities,  nor those duties pertaining to hazardous waste generators
or transporters.

          In the event the Company performed a cleaning operation  involving the
disposal  of a waste  that  would be defined  as  hazardous  under the  Resource
Conversation and Recovery Act ("RCRA"),  the Company could also be classified as
a "generator" of hazardous waste, and therefore  responsible for manifesting and
transporting  all  such  waste  to  permitted  treatment,  storage  or  disposal
facilities  in  accordance  with RCRA.  As a  generator,  the  Company  could be
potentially liable under the Comprehensive Environmental Response,  Compensation
and Liability Act of 1980  ("CERCLA"),  also known as the Superfund  Act. To the
Company's  knowledge,  none of the sites at which the Company performed services
have been designated as Superfund sites.  Moreover,  to the Company's knowledge,
it has not sent any  hazardous  substances  or  wastes to any site that has been
designated  as a Superfund  site.  Many states  have  implemented  environmental
guidelines similar in nature to RCRA and CERCLA.

         The Company believes that it was and is in substantial  compliance with
all federal,  state and local laws and  regulations  governing its business.  To
date, the Company has not been subject to any  significant  fines,  penalties or
other liabilities under such laws and regulations.  However, no assurance can be
given that  future  changes in such law,  and  regulations,  or  interpretations
thereof, will not have an adverse impact on the Company's financial position.

         The  Company's  general  liability  insurance is subject to a pollution
exclusion  endorsement.  Such  exclusion is  generally  found in the majority of
general  liability  policies.   The  Company  does  not  maintain  environmental
impairment  liability  insurance.  Thus a claim for damages  against the Company
that  involves  pollution  or  environmental  impairment  will not be covered by
insurance,  and,  depending  on the size of the  claim,  could  have a  material
adverse  effect  upon the  financial  position  of the  Company.  See  "Item 1 -
Business-Insurance".

                                       4
<PAGE>
Employees

         As of August 31,  1999,  the  Company had no  employees  other than its
officers and directors.

ITEM 2.  PROPERTIES

         As of August 31, 1999 the Company does not own or lease any property.

ITEM 3.  LEGAL PROCEEDINGS

          The  Company  is   involved   in  two  related   lawsuits  -  Cardinal
Environmental Services, Inc. v. Quadres Company, et al., Case No. CV 98 02 0749,
Court of Common Pleas, Summit County,  Ohio; and Valley Systems of Ohio, Inc. v.
Erie  Industrial  Maintenance,  Inc., et al., Case No.  368885,  Court of Common
Pleas,  Cuyahoga  County,  Ohio.  These two lawsuits  involve the  abatement and
demolition of a building in Ohio.

         The  owner  of the  building  contracted  to have the  asbestos  in the
building  abated and the building  demolished.  The general  contractor  for the
project hired Eslich Wrecking Company  ("Eslich") as its demolition  contractor.
Eslich hired Cardinal Environmental  Services, Inc. ("Cardinal") as the asbestos
abatement  contractor.  Cardinal  employed  Erie  Industrial  Maintenance,  Inc.
("Erie")  to provide the labor for the  abatement.  Erie,  in turn,  rented high
pressure water removal equipment from the Company's  subsidiary,  Valley Systems
of Ohio, Inc.  ("Valley").  Valley also agreed to provide trained  personnel for
Erie to hire to operate the equipment as well as to train Erie  employees in the
use of the equipment.

         Eslich has charged that Valley made certain  representations  regarding
abatement speed that were false,  that its technique was  experimental,  that it
negligently  performed the abatement,  and that it negligently  sealed  unabated
asbestos  materials.  Eslich has also made claims  against Valley for negligence
and  negligent  concealment.  Eslich  claims  that it was  required to pay a new
abatement  contractor  in excess  of $1.5  million  to  complete  the  abatement
process.  Eslich seeks recovery of that $1.5 million from Valley,  Erie,  and/or
Cardinal.

         Valley  has   asserted   claims   for   common   law  and   contractual
indemnification  against Erie.  However,  if Valley is successful in obtaining a
judgment against Erie for indemnification,  Erie may not be able to satisfy such
a large judgment.  Further, counsel for Erie has indicated that Erie's insurance
company has denied coverage for this action.

         The Company vigorously disputes the allegations made against it, and no
provision  for any loss  resulting  from  this  litigation  has been made in the
consolidated financial statements.



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

         No matters  were  submitted  to a vote of security  holders  during the
fourth quarter of the year ended June 30, 1999.



                                       5
<PAGE>



                                     Part II

ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS


         The Company's  Common Stock traded on the Nasdaq SmallCap Market of the
Nasdaq Stock Market  under the symbol VALE until  January 5, 1999.  At that time
the  Company  was  delisted  from the  Nasdaq  Stock  Market  due to the sale of
substantially  all assets to HydroChem.  The following table sets forth the high
and low sale prices for the periods indicated.
                                                     High            Low
    Fiscal 1998:

    July 1, 1997 - September 30, 1997              $ 1.750         $ 1.250
    October 1, 1997 - December 31, 1997              1.750           0.750
    January 1, 1998 - March 31, 1998                 1.188           0.875
    April 1, 1998 - June 30, 1998                    1.500           0.938

    Fiscal 1999:

    July 1, 1998 - September 30, 1998                2.688           0.938
    October 1, 1998 - December 31, 1998              2.438           1.625
    January 1, 1999 - March 31, 1999                 2.250           0.250
    April 1, 1999 - June 30, 1999                    0.500           0.063

         Based on  information  furnished  by certain  brokerage  firms that are
record holders of the Company's  Common Stock,  the Company has in excess of 800
beneficial owners of its Common Stock.
<TABLE>
<CAPTION>

ITEM 6.   SELECTED FINANCIAL DATA

         Dollars in thousands, except per share data:

                                                         1999 (1)           1998           1997           1996            1995
                                                         ----------      ----------     ----------     ----------      -------
<S>                                                          <C>             <C>            <C>            <C>           <C>

Sales                                                      $ 13,537        $ 24,431       $ 23,088       $ 21,875      $ 24,231
Gross profit                                                  5,072           9,040          8,559           6,853        8,562
Selling, general and administrative expenses                  3,663           7,145          7,268           7,254        7,155
Litigation settlements and related fees                           -               -          (752)               -            -
Interest expense                                                163             593            592             572          895
Gain on sale of substantially all assets
  and assumption of substantially all
  liabilities of the Company                                 22,719               -              -               -            -
Net Income (loss)                                            21,465           1,302          1,451           (973)          512
Earnings (loss) per common share:
         Basic and diluted                                     2.69            0.12           0.13          (0.16)         0.02
Total assets                                                  5,958          15,934         14,568          15,123       15,704
Total long-term debt                                              -           7,585          7,235           7,021        5,858
Total stockholders' equity                                    4,285           5,354          4,437           4,031        5,412
-------------------
(1) July 1, 1998 through January 1, 1999.

</TABLE>

                                       6
<PAGE>


ITEM 7.  MANAGEMENT'S  DISCUSSION  AND ANALYSIS OF FINANCIAL  CONDITION AND
         RESULTS OF OPERATIONS

         The  following  discussion  should  be read  in  conjunction  with  the
Consolidated  Financial Statements and Notes thereto appearing elsewhere in this
Report.

FORWARD LOOKING STATEMENTS:

          Forward-looking  statements in this Form 10-K are made pursuant to the
safe harbor provisions of the Private Securities  Litigation Reform Act of 1995.
Such  forward-looking  statements are subject to certain risks and uncertainties
that could  cause  actual  results to differ  materially  from those  projected.
Readers  are  cautioned  not to place undue  reliance  on these  forward-looking
statements,  which  speak  only  as of the  date  hereof.  Potential  risks  and
uncertainties  include,  but are not limited to, the possibility  that HydroChem
will  successfully  assert claims against funds held in the escrow account,  the
possibility that the costs of winding up the Company's  affairs could exceed the
Company's  projections,  the Company's  potential  liability pursuant to ongoing
litigation (See Item 3., "Legal Proceedings.") and general business and economic
conditions.

Results of Discontinued Operations - 1999 compared to 1998

         The  results of  operations  for the year  ended June 30,  1999 are not
comparable  to those for the year ended June 30, 1998. As discussed in the notes
to the  consolidated  financial  statements  and in Item 1 - General,  effective
January  1, 1999  substantially  all  assets of the  Company  were sold to,  and
substantially all liabilities were assumed by, HydroChem.  Operations since that
date have consisted only of the sale itself, distribution of the proceeds of the
sale, and other  transactions  winding down the  operations of the Company.  The
Company  will not have any  business  operations  in the future other than those
associated  with  the  winding  up and  dissolution  of the  Company,  including
distribution of any escrow funds released to the Company.

Results of Discontinued Operations - 1998 compared to 1997

         Sales  increased  5.8% in the fiscal  year ended June 30, 1998 from the
prior year. Sales of UHP waterjetting  services decreased by 2.0% from the prior
year,  and amounted to 47% of total sales in 1998,  compared to 50% in 1997. The
decrease in UHP sales was due to one large emergency  project in 1997 (hurricane
damage to a customer's facility) that was not repeated.  Excluding this project,
UHP sales  increased  by 4%.  UHP  sales to the  hazardous  materials  abatement
industry  grew from $1.2  million in 1997 to $2.2  million in 1998.  The Company
expects UHP sales to this industry to continue  increasing in Fiscal 1999. Sales
of  the  Company's   other  major  service   lines,   vacuum  and   conventional
waterblasting,  each  increased  by 15% in 1998  over  the  prior  year.  Vacuum
services  totaled 28% of sales in 1998,  compared to 26% in 1997.  Waterblasting
services were 19% of total sales this year, compared to 18% in 1997. The revenue
gains in  vacuum  and  waterblasting  came  from  increased  sales  to  existing
accounts, as well as new customers.

         As there was no significant  shift in sales between the various service
lines in 1998,  gross  margin as a  percentage  of sales was 37%, the same as in
1997.  As  announced  in May 1998,  the Company  was  selected to be the primary
supplier  of  vacuum  and  waterblasting  services  to  FirstEnergy  Corp.  This
three-year  contract was expected to add  approximately $3 million of additional
revenues annually to these service lines.

         Selling,  general and  administrative  expenses decreased by 2% in 1998
from 1997,  and  represented  29% of sales in 1998  compared to 31% in the prior
year. Lower insurance  expenses due to better loss experience  helped cause this
decrease,  as well as lower  occupancy  costs resulting from the purchase of the
Company's headquarters facility. Interest expense remained constant from 1997 to
1998, and amounted to 2% of sales in 1998 and 3% in the prior year.

                                       7
<PAGE>

         All of the above factors resulted in net income of $1.3 million in 1998
(5.3% of  sales),  or $.12 per  common  share,  basic  and  diluted.  This is an
increase of 86% from the  comparable  1997 income  from  operations  of $700,000
(3.0%  of  sales),  or $.04 per  common  share,  before  gain on  settlement  of
litigation.  Net income in 1997 was improved by a one-time gain on settlement of
litigation of $752,000, or $.09 per share.

Quarterly Operating Results (unaudited)

         The following table presents certain unaudited  consolidated  quarterly
operating  information for the Company and includes all  adjustments  considered
necessary for a fair presentation of such information for the interim periods.
<TABLE>
<CAPTION>

                                                                  Three Months Ended
                                                         (In thousands, except per share data)
                                    9/30/97   12/31/97   3/31/98   6/30/98   9/30/98    12/31/98    3/31/99    6/30/99
                                    -------   --------   -------   -------   -------    --------    -------    -------
<S>                                   <C>        <C>       <C>       <C>       <C>        <C>        <C>          <C>

Sales                               $ 5,856    $ 6,058   $ 5,865   $ 6,652   $ 7,597     $ 5,940    $     -     $    -
Gross profit                          2,200      2,117     2,210     2,513     2,953       2,119          -          -
Net income                              304        131       344       523     1,027       6,437     13,661        340
Earnings per common share -
    basic and diluted               $   .03    $   .00   $   .03   $   .06   $   .12     $   .80    $  1.73     $  .04
</TABLE>


          Net income for the quarter ended  December 31, 1998 includes an income
tax benefit of $5,985,000 resulting from reversal of a valuation allowance.  Net
income for the quarter ended March 31, 1999 was a result of the gain on the sale
of substantially all assets to HydroChem.  Net income for the quarter ended June
30, 1999 was  primarily a result of an  adjustment  to the  purchase  price,  an
increase in the reserve for uncollectible accounts due to the return of accounts
receivable pursuant to the Purchase Agreement and interest income earned.

Liquidity and Capital Resources

         On January 5, 1999, the Company completed the sale of substantially all
of its operating assets and the operating assets of its wholly-owned subsidiary,
Valley Systems of Ohio,  Inc.  ("VSO"),  to HydroChem,  pursuant to the Purchase
Agreement,  for approximately  $30.0 million in cash, of which $26.0 million was
payable  immediately  and $4 million  was  deposited  into an escrow  account to
secure certain  indemnification  and other rights under the Purchase  Agreement,
and the  assumption  of the  Company's  and VSO's  bank debt and  certain  other
liabilities.

         Of the $26.0  million  received  at  closing,  after  payment or making
reasonable  provision for the payment of all known and  anticipated  liabilities
and  obligations  of the  Company,  payment  of  approximately  $5.5  million to
repurchase  all of the  55,000  shares  of the  Company's  outstanding  Series C
Preferred Stock held by Rollins Holding Company,  Inc., payment of approximately
$380,000  to  redeem   outstanding   employee   stock  options  and  payment  of
approximately  $165,000 as a retention bonus to certain  officers and employees,
approximately $16.8 million of the sale proceeds remained and were available for
distribution to stockholders pursuant to the Plan of Liquidation and Dissolution
adopted by the Company.

         On  January  29,  1999,  an  initial   liquidating   cash  dividend  of
approximately  $16.8  million  ($2.13 per share) was mailed to  stockholders  of
record at the close of  business  on January  22,  1999.  The Company now has no
further  assets to distribute  and expects to have no  additional  assets in the
future other than cash received  from the escrow  account  referenced  above and
cash remaining  after payment of all remaining  expenses to wind up and dissolve
the Company, if any.

                                       8
<PAGE>

         In  May,  1999  certain  accounts  receivable  totaling   approximately
$600,000 that were sold to HydroChem under the Purchase Agreement and guaranteed
by the Company  were  returned by HydroChem to the Company and were paid for out
of funds in escrow.

          The Company  expects that,  subject to any claims which may be made by
HydroChem,  the remaining  escrowed funds of approximately  $2.4 million will be
released on or about the first,  second, and third  anniversaries of the closing
date in amounts of  approximately  $400,000 in January  2000,  and $1 million in
each of  January  2001 and  2002,  with up to an  additional  $1  million  being
released  at such  time as the  Company  delivers  to  HydroChem  a  certificate
regarding certain environmental  remediation matters, expected to be in the year
2000.  There can be no  guarantee,  however,  that these  funds,  or any portion
thereof,  will be  released  to the  Company.  As escrowed  funds,  if any,  are
released to the Company,  they will be utilized to pay any unanticipated  unpaid
expenses, with the remainder to be distributed as a liquidating cash dividend to
stockholders  as soon as is  practicable.  In addition,  if the Company does not
prevail in the ongoing  litigation,  any escrowed  funds released to the Company
may be  required to be  utilized  to pay a judgment  against  the Company  which
payment will reduce the amount available to be distributed as a liquidation cash
dividend to stockholders. See Item 3., "Legal Proceedings".

          As  of  the  fiscal  year  ended  June  30,  1999,   the  Company  had
approximately  $1.7  million in cash in addition to  approximately  $3.4 million
held in an escrow account.

         The Company will not engage in any further business  activities and the
only  remaining  activities  will be those  associated  with the  winding up and
dissolution of the Company. The Company believes that the remaining cash on hand
and in escrow will be sufficient to meet its liabilities  and obligations  until
the Company is dissolved in accordance with Delaware law.

Year 2000 Issue

         The Year 2000 issue is the result of computer  programs  being  written
using two digits  rather than four digits to define the  applicable  year.  This
could  result in a system  failure  or  miscalculations  if a  computer  program
recognizes  a date of "00" as the year 1900  instead of 2000.  The  Company  has
assessed the Year 2000 issue with regard to third parties with which the Company
has material relationships.

         The Company has  identified  third  parties  with which it has material
relationships  with respect to the Year 2000 issue.  These parties are primarily
large financial, telecommunication and information processing entities. All such
third  parties have reported to the Company that they are on schedule with their
projects to remediate Year 2000 issues, and that they anticipate being Year 2000
compliant  on a timely  basis.  The  Company  intends to continue to monitor the
progress of these third parties and will develop contingency plans during Fiscal
2000 in the event one or more of these third  parties  fail to  remediate  their
Year 2000 issues in such a way as to materially affect the winding up operations
of the Company.  At this time, the Company believes the risk of such third party
failures  having a material  impact on the  Company's  winding up  operations is
remote.

ITEM 7A. QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

          Company's  primary  market  risk is  interest  rate risk.  The Company
currently  minimizes  such risk by investing its temporary  cash in money market
funds and,  pursuant to Escrow  Agreement  entered into by among Bank One Texas,
N.A. and the Company,  the escrowed funds are invested in United States Treasury
Bills having a maturity of 90 days or less,  repurchase  obligations  secured by
such United States Treasury Bills and demand deposits with the escrow agent. The
Company does not engage in derivative transactions,  and no financial instrument
transactions  are entered into for hedging  purposes.  As a result,  the Company
believes that it has no material interest rate risk to manage.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The  required  financial  statements  of the  Registrant  are set forth
immediately  following  the  signature  page to this Form  10-K.  See "Item 14 -
Exhibits, Financial Statements, Schedules and Reports on Form 8-K", for index to
the financial statements.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
         ACCOUNTING AND FINANCIAL DISCLOSURE

         None.


                                       9
<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The information required by this item is expected to be set forth under
the  captions  "Election  of  Directors"  and  "Executive  Compensation"  of the
registrant's definitive proxy statement, and incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

         The information required by this item is expected to be set forth under
the  caption  "Executive  Compensation"  of the  registrant's  definitive  proxy
statement, and incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
         MANAGEMENT

         The information required by this item is expected to be set forth under
the caption  "Beneficial  Ownership of Voting  Securities"  of the  registrant's
definitive proxy statement, and incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information required by this item is expected to be set forth under
the  caption  "Executive  Compensation"  of the  registrant's  definitive  proxy
statement, and incorporated herein by reference.

                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND
         REPORTS ON FORM 8-K

A.   (1)          Financial Statements Filed

                  Valley Systems, Inc. and Subsidiaries:
                      Report of Independent Accountants.
                      Consolidated Balance Sheets at June 30, 1999 and 1998.
                      Consolidated Statements of Discontinued Operations for the
                         years  ended June 30,  1999,  1998 and 1997.
                      Consolidated Statements  of  Stockholders'  Equity for the
                         years ended June 30, 1999, 1998 and 1997.
                      Consolidated  Statements of Cash Flows for the years ended
                         June 30,  1999,  1998 and 1997.
                      Notes to Consolidated Financial Statements.

     (2)          Exhibits

No.       Description of Exhibit

2.1       Second  Amended and Restated  Asset  Purchase  Agreement,  dated as of
          September 8, 1998, among the Company, Valley Systems of Ohio, Inc. and
          HydroChem Industrial Services,  Inc. (Incorporated herein by reference
          to Appendix A of the  Registrant's  Definitive  Information  Statement
          filed with the  Securities  and  Exchange  Commission  on December 15,
          1998.)

3.1       Restated Certificate of Incorporation of the Company (filed as Exhibit
          3.1 to the Company's  Registration Statement on Form S-1 filed on June
          11, 1991, and incorporated therein by reference.)

                                       10
<PAGE>

3.2       Certification  of Amendment of  Certificate  of  Incorporation  of the
          Company  (filed  as  Exhibit  3.2 to the  Company's  Form  10-K  dated
          September 25, 1995, and incorporated herein by reference.)

3.3       Certificate  of Correction of  Certificate of Amendment of Certificate
          of Incorporation of the Company  (incorporated by reference to Exhibit
          3.3 to the Form 10-Q for the quarter ended December 31, 1998.)

3.4       Certificate of  Elimination  of Series A Preferred  Stock and Series B
          Preference Stock of the Company  (incorporated by reference to Exhibit
          3.4 to the Form 10-Q for the quarter ended December 31, 1998.)

3.5       Certificate  of  Amendment  of  Certificate  of  Incorporation  of the
          Company (incorporated by reference to Exhibit 3.5 to the Form 10-Q for
          the quarter ended December 31, 1998.)

3.6       Bylaws  of the  Company,  as  amended,  (filed as  Exhibit  3.3 to the
          Company's Form 10-K dated September 25, 1995 and  incorporated  herein
          by reference.)

10.1      Plan of Liquidation and Dissolution  (Incorporated herein by reference
          to Appendix C of the  Registrant's  Definitive  Information  Statement
          filed with the  Securities  and  Exchange  Commission  on December 15,
          1998.)

10.2+     Purchase  Order dated June 11, 1998 between  Ohio  Edison/Pennsylvania
          Power Company and the Registrant (Incorporated by reference to Exhibit
          10.25 to the Form 10-K/A for the fiscal year June 30, 1998.)

21.1*     Subsidiaries of the Registrant.

27.1*     Financial Data Schedule.

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

*   Filed herewith.

+   The  Company  has applied  for  confidential  treatment  of portions of this
    Agreement.  Accordingly,  portions  thereof  have  been  omitted  and  filed
    separately with the Securities and Exchange Commission.

Reports on Form 8-K filed during the three months ended June 30, 1999

         None.



                                       11
<PAGE>





                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant had duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.


                                            VSI LIQUIDATION CORP.


September 28, 1999                          By: \s\  Ed Strickland
                                               ---------------------------
                                               Ed Strickland, President
                                               and Chief Executive Officer


         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
registrant and in the capacities and on the dates indicated.



Signature                          Title                    Date
---------                          -----                    ----

\s\  Allen O. Kinzer               Director                 September 28, 1999
--------------------
Allen O. Kinzer
\s\  Joe M. Young                  Director                 September 28, 1999
-----------------
Joe M. Young



                                       12
<PAGE>

                      VSI LIQUIDATION CORP. AND SUBSIDIARY
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


                                                                     Page
                                                                    Number

REPORT OF INDEPENDENT ACCOUNTANTS                                     14

CONSOLIDATED BALANCE SHEETS - June 30, 1999 and 1998                  15

CONSOLIDATED STATEMENTS OF DISCONTINUED OPERATIONS
     - Years ended June 30, 1999, 1998 and 1997                       16

CONSOLIDATED  STATEMENTS  OF  STOCKHOLDERS'  EQUITY
     - Years ended June 30, 1999, 1998 and 1997                       17

CONSOLIDATED STATEMENTS OF CASH FLOWS
     - Years ended June 30, 1999, 1998 and 1997                       18

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                          19-25

All schedules are omitted because they are not required under the  instructions,
are  inapplicable,  or the  information  is included  elsewhere in the financial
statements.








                                       13
<PAGE>


                       REPORT OF INDEPENDENT ACCOUNTANTS



To the Stockholders of
VSI Liquidation Corp.:


In our opinion,  the  accompanying  consolidated  balance sheets and the related
consolidated  statements of discontinued  operations,  changes in  stockholders'
equity and cash flows present fairly,  in all material  respects,  the financial
position of VSI  Liquidation  Corp. and Subsidiary  (the  "Company") at June 30,
1999 and 1998, and the results of their  discontinued  operations and their cash
flows  for  each of the  three  years  in the  period  ended  June  30,1999,  in
conformity  with  generally  accepted  accounting  principles.  These  financial
statements   are  the   responsibility   of  the   Company's   management;   our
responsibility  is to express an opinion on these financial  statements based on
our audits.  We conducted  our audits of these  statements  in  accordance  with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable  assurance about whether the financial statements are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence  supporting the amounts and  disclosures  in the financial  statements,
assessing the  accounting  principles  used and  significant  estimates  made by
management,  and evaluating the overall  financial  statement  presentation.  We
believe  that our audits  provide a reasonable  basis for the opinion  expressed
above.

As more fully described in Note 2 to the consolidated financial statements,  the
Company sold substantially all of its net operating assets on January 1, 1999.



                                                  PricewaterhouseCoopers LLP




September 23, 1999
Cleveland, Ohio






                                       14
<PAGE>



                      VSI LIQUIDATION CORP. AND SUBSIDIARY

                          Consolidated Balance Sheets
                             June 30, 1999 and 1998

<TABLE>
<CAPTION>
                                                                     1999                   1998
                                                            ---------------------    ------------------

                    ASSETS
<S>                                                           <C>                        <C>

Current assets:
     Cash                                                   $ 1,765,382               $     207,492
     Cash in escrow account                                     410,807                           -
     Accounts receivable, net                                   425,175                   5,740,394
     Prepaid supplies                                                 -                     522,992
     Prepaid expenses and deposits                              356,651                     155,439
                                                            ---------------------    ------------------
        Total current assets                                   2,958,015                  6,626,317

Cash in escrow account                                         3,000,000                          -
Property and equipment, net                                            -                  8,896,650
Intangible assets                                                      -                    411,000
                                                            ---------------------    ------------------
            Total assets                                    $  5,958,015              $  15,933,967
                                                            =====================    ==================

         LIABILITIES AND STOCKHOLDERS'  EQUITY

Current liabilities:
     Accounts payable                                       $     70,145              $     726,054
     Accrued expenses                                            323,215                  1,610,470
     Income taxes payable                                        159,000                          -
     Deferred income taxes                                        64,474                          -
     Current portion of long-term debt                                 -                    659,257
                                                            ---------------------    ------------------
        Total current liabilities                                616,834                  2,995,781

Deferred income taxes                                          1,056,526                          -
Long-term debt                                                         -                  7,584,593
                                                            ---------------------    ------------------
        Total liabilities                                      1,673,360                 10,580,374
                                                            ---------------------    ------------------
Commitments and contingencies                                          -                          -
Stockholders' equity:
     Preferred stock, $.10 par value; authorized
        2,000,000 shares, issued and outstanding
        55,000 shares at June 30, 1998                                 -                      5,500
     Common stock, $.01 par value; authorized
        12,000,000 shares, issued and outstanding
        8,512,073 shares                                          79,066                     85,121
     Paid-in capital                                           3,773,492                 26,786,040
     Retained earnings                                           432,097                (20,840,060)
     Treasury stock, at cost, 605,456 shares at
        June 30, 1998                                                  -                   (683,008)
                                                            ---------------------    ------------------
                                                               4,284,655                  5,353,593
                                                            ---------------------    ------------------
          Total liabilities and stockholders' equity        $  5,958,015             $   15,933,967
                                                            =====================    ==================

</TABLE>

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


                                       15
<PAGE>


                      VSI LIQUIDATION CORP. AND SUBSIDIARY

               Consolidated Statements of Discontinued Operations
                for the years ended June 30, 1999, 1998 and 1997

<TABLE>
<CAPTION>


                                                        1999                     1998               1997
                                                ----------------------  --------------------  ---------------------------
<S>                                                   <C>                   <C>                 <C>

Sales                                           $     13,536,876        $    24,431,385       $  23,088,298
Cost of sales                                          8,464,830             15,391,490          14,529,554
                                                ----------------------  --------------------  ------------------
     Gross profit                                      5,072,046              9,039,895           8,558,744

Selling, general and administrative expenses           3,662,704              7,144,739           7,267,973
Interest expense, net                                    163,264                593,127             592,024
Gain on settlement of litigation                               -                      -             752,236
Gain on sale of substantially all assets to,
    and assumption of substantially all
    liabilities of the Company by,
    Hydrochem Industrial Services, Inc.               22,718,579                      -                   -
                                                ----------------------  --------------------  ------------------

Income from discontinued operations before
    income taxes                                      23,964,657              1,302,029           1,450,983

Income taxes                                           2,500,000                      -                   -
                                                ----------------------  --------------------  ------------------

     Net income                                 $     21,464,657        $     1,302,029        $  1,450,983
                                                ======================  ====================  ==================

Earnings per share:

Net earnings per common share -  basic
                                                $          2.69         $           .12       $         .13
                                                ======================  ====================  ==================

Net earnings per common share -
   assuming dilution                             $          2.69        $           .12       $         .13
                                                ======================  ====================  ==================

Weighted average shares used in
  computation - basic and diluted                      7,906,617              7,906,617           8,203,069
                                                ======================  ====================  ==================



</TABLE>
The  accompanying  notes are an integral  part of these  consolidated  financial
statements.


                                       16
<PAGE>


                      VSI LIQUIDATION CORP. AND SUBSIDIARY


                Consolidated Statements of Stockholders' Equity
                for the years ended June 30, 1999, 1998 and 1997


<TABLE>
<CAPTION>
                                                                            Retained
                              Preferred     Common         Paid-In         (Deficit)           Treasury
                              Stock (1)    Stock (2)        Capital         Earnings            Stock            Total
                              ---------- -------------- ----------------- ----------------- --------------- ----------------
<S>                              <C>         <C>           <C>            <C>                 <C>               <C>

Balance, July 1, 1996         $  5,500     $ 85,121      $ 26,786,040    $(22,726,822)       $(118,638)       $ 4,031,201
Purchase of treasury
   stock                                                                                      (564,370)          (564,370)
Net income                                                                  1,450,983                           1,450,983
Series C preferred
   dividends                                                                 (481,250)                           (481,250)
                              --------- ------------ -----------------  ----------------- ---------------   ---------------
Balance, June 30, 1997           5,500       85,121        26,786,040     (21,757,089)        (683,008)         4,436,564
Net income                                                                  1,302,029                           1,302,029
Series C preferred
   dividends                                                                 (385,000)                           (385,000)
                              --------- ------------ -----------------  ----------------- ---------------   ---------------
Balance, June 30, 1998           5,500       85,121        26,786,040     (20,840,060)        (683,008)         5,353,593
Net income                                                                 21,464,657                          21,464,657
Series C preferred
   dividends                                                                 (192,500)                           (192,500)
Retirement of treasury
   stock                                     (6,055)         (676,953)                         683,008                 -
Redemption of Series C
   Preferred Stock              (5,500)                    (5,494,500)                                         (5,500,000)
Distribution of $2.13 per
   share to common
   stockholders                                           (16,841,095)                                        (16,841,095)
                              --------- ------------ -----------------   ---------------  ---------------   ---------------

Balance, June 30, 1999         $     -     $ 79,066      $  3,773,492    $    432,097       $        -       $  4,284,655
                              ========= ============ =================   ================= ===============  ===============


(1) Share amounts are  equivalent to ten times dollar  amounts
(2) Share amounts are equivalent to one hundred times dollar amounts

</TABLE>

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




                                       17
<PAGE>


                      VSI LIQUIDATION CORP. AND SUBSIDIARY

                     Consolidated Statements of Cash Flows
                for the years ended June 30, 1999, 1998 and 1997

<TABLE>
<CAPTION>

                                                                       1999                1998               1997
                                                                   ------------------   ----------------  -------------------
<S>                                                                   <C>                 <C>                <C>

Cash flows from operating activities:
   Net income                                                      $  21,464,657        $ 1,302,029       $   1,450,983
   Adjustments to reconcile net income (loss) to cash
     provided by operating activities:
       Depreciation and amortization                                   1,476,569          2,758,868           3,138,326
       Gain on disposition of property and equipment                     (31,625)           (66,083)             (5,784)
       Gain on sale of assets and assumption of liabilities          (22,718,579)                 -                   -
       Deferred income taxes                                           1,121,000                  -                   -
       (Increase) decrease in assets:
           Accounts receivable                                           262,195           (102,044)           (953,631)
           Prepaid expenses and supplies                                (383,543)           (47,820)              6,422
       Increase (decrease) in liabilities:
           Accounts payable and accrued expenses                         408,923            (63,921)         (1,036,443)
           Income tax payable                                            159,000                   -                  -
                                                                   ------------------   ----------------  -------------------
Cash provided by operating activities                                  1,758,597           3,781,029          2,599,873
                                                                   ------------------   ----------------  -------------------

Cash flows from investing activities:
   Additions to property and equipment                                (1,635,104)        (2,295,049)         (1,665,092)
   Proceeds from dispositions of property and equipment                   31,625            240,092             148,240
   Proceeds from sale of assets and assumption of
     liabilities, net of expenses of sale and cash
     sold with assets                                                 28,469,429                  -                   -
Establishment of escrow account                                       (4,000,000)                 -                   -
Change in escrow account                                                 589,193                  -                   -
                                                                   ------------------   ----------------  -------------------
Cash provided from (used in) investing activities                     23,455,143         (2,054,957)         (1,516,852)
                                                                   ------------------   ----------------  -------------------

Cash flows from financing activities:
   Net (payments) borrowings from revolving loan                        (505,669)        (1,467,355)            583,403
   Payments of other long-term debt                                     (520,336)          (252,394)           (603,060)
   Additional borrowings of long-term debt                                     -            386,076                   -
   Payments of preferred stock dividends                                (288,750)          (385,000)           (385,000)
   Purchase of treasury stock                                                  -                  -            (564,370)
   Redemption of Series C Preferred Stock                             (5,500,000)                 -                   -
   Distribution to common stockholders                               (16,841,095)                 -                   -
                                                                   ------------------   ----------------  -------------------
      Cash used in financing activities                              (23,655,850)        (1,718,673)           (969,027)
                                                                   ------------------   ----------------  -------------------
Increase in cash                                                       1,557,890              7,399             113,994
Cash at beginning of year                                                207,492            200,093              86,099
                                                                   ------------------   ----------------  -------------------
Cash at end of year                                                $   1,765,382        $   207,492        $    200,093
                                                                   ==================   ================  ===================

Cash paid for:
   Interest                                                        $     303,623        $   589,340        $    592,024
   Income taxes                                                        1,220,000                  -                   -

Non-cash investing activities:
  Property and equipment acquired with capital leases                          -          1,846,474                   -
Non-cash financing activities:
  Preferred stock dividends accrued                                            -                  -              96,250

</TABLE>

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


                                       18
<PAGE>




                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      VSI LIQUIDATION CORP. AND SUBSIDIARY

1.   Description of Business:

The Company was engaged in the  business  of  providing  specialized  industrial
cleaning and other services to divisions and facilities of Fortune 500 companies
and other  substantial  businesses  engaged  in heavy  industry.  Such  services
generally   involved  the  removal  of  industrial  grime,   deposits,   wastes,
encrustations  and  coatings  from  equipment  and  facilities.   The  Company's
principal customers were in the chemical, plastics, power generation,  petroleum
refining  and primary  metals  businesses.  The  Company's  industrial  cleaning
methods included,  in addition to the use of waterblasting,  vacuuming and other
more  conventional  procedures,  the application of ultra-high  pressure ("UHP")
waterjetting methods.

2.  Sale of  Substantially  All  Assets  and  Assumption  of  Substantially  All
Liabilities of the Company:

On September  8, 1998,  the Company  entered into a Second  Amended and Restated
Asset Purchase  Agreement (the "Purchase  Agreement")  whereby  essentially  all
assets of the Company would be sold to, and substantially all liabilities of the
Company would be assumed by, HydroChem Industrial Services,  Inc. ("HydroChem").
The purchase  price for these assets and  liabilities  was  approximately  $30.0
million,  adjusted for increases or decreases in net assets after June 30, 1998.
$4.0  million of the  proceeds  were  placed in escrow to secure  and  indemnify
HydroChem  for any breach of the Company's  covenants and for any  environmental
liabilities.  The Company has reserved $100,000 in the financial  statements for
potential  future  liabilities to HydroChem to be paid from the escrow  account.
Escrow funds, to the extent not needed to indemnify HydroChem,  will be released
over the next three years.  $1.0 million will also be released  when the Company
can  provide  certain  environmental  assurances  to  HydroChem,  expected to be
sometime in 2000. This transaction  closed on January 5, 1999, and was effective
as of January 1, 1999.  Costs totaling $1.3 million were incurred by the Company
in connection with the sale.

The Company changed its name from Valley Systems,  Inc. to VSI Liquidation Corp.
after the closing of this transaction, and will not have any business operations
other than those  associated with the winding up and dissolution of the Company,
including  distribution  of any escrow funds released to the Company.  After the
closing, the Company used approximately $5.5 million of the proceeds of the sale
to redeem the  outstanding  shares of Series C  Preferred  Stock,  approximately
$380,000 to redeem outstanding employee stock options and approximately $165,000
to pay retention  bonuses to certain  officers and  employees.  The Company also
paid a liquidating  dividend of $16.8 million ($2.13 per common share) to common
stockholders from the proceeds of the sale.

                                       19
<PAGE>


The following  summarizes the assets sold and the liabilities  assumed under the
Purchase Agreement:



<TABLE>
<CAPTION>
                                                 Balance            Amount            Balance
                                                 12/31/98            Sold           After Sale
                                             ----------------- ----------------- ------------------
<S>                                              <C>               <C>                <C>

Cash                                           $   222,800     $     222,800      $           -
Accounts receivable                              5,053,024         5,053,024                  -
Prepaid supplies                                   626,348           626,348                  -
Prepaid expenses                                   159,350            78,574             80,776
Deferred expenses of asset sale                  1,132,091                -           1,132,091
Deferred income taxes                            5,985,000                -           5,985,000
Property and equipment, net                      9,994,390         9,994,390                  -
Intangible assets                                  342,500           342,500                  -
                                             -------------- ----------------- ------------------
     Total assets                               23,515,503        16,317,636          7,197,867
                                             -------------- ----------------- ------------------
Accounts payable                                   748,083           748,083                  -
Accrued expenses                                 2,053,086         1,607,353            445,733
Long-term debt                                   8,088,550         8,088,550                  -
                                             -------------- ----------------- ------------------
     Total liabilities                          10,889,719        10,443,986            445,733
                                             ============== ================= ==================
          Net assets                         $  12,625,784        $5,873,650      $   6,752,134
                                             ============== ================= ==================



                                       20
<PAGE>




The gain on this transaction is as follows:

     Proceeds from sale                                                           $  29,960,308
     Less:
          Net basis of assets sold and liabilities assumed                            5,873,650
          Expenses of sale                                                            1,268,079
          Reserve for liabilitis resulting from indemnities and
               guaranties under the Purchase Agreement                                  100,000
                                                                              -----------------
     Gain on sale                                                                 $  22,718,579
                                                                              ==================
</TABLE>




Revenues  earned and expenses  incurred by the Company since the sale on January
1, 1999 to June 30, 1999 include  $87,000 of interest  income  earned on cash in
the escrow account and $394,000 of selling, general and administrative expenses.

3.   Summary of Significant Accounting Policies:

Principles of Consolidation:  The consolidated  financial statements include the
accounts  of  the  Company  and  its  wholly-owned   subsidiary.   All  material
intercompany  transactions have been eliminated in the accompanying consolidated
financial statements.

Revenue  Recognition:  Sales and the related cost of sales for services provided
were recorded as the services were performed.

Cash in Escrow Account: Cash in escrow includes highly liquid investments with a
maturity  of three  months  or less  when  purchased.  Carrying  values  of such
investments  approximate  fair  value  due to the  short-term  nature  of  these
instruments.

Accounts  Receivable:  The Company's customers were located primarily throughout
the United States. The Company monitored potential credit losses and such losses
have been within  management's  expectations.  Accounts  receivable which become
uncollectible are written off against  operations at the time they are deemed to
be worthless.  The total  uncollectible  accounts  charged to operations for the
years ended June 30, 1999,  1998 and 1997 were $232,000,  $14,000,  and $51,000,
respectively.  The allowance for doubtful accounts was $300,000 at June 30, 1999
and $125,000 at June 30, 1998.

Prepaid Supplies:  Prepaid supplies consisted of items to be used in operations,
and are stated at the lower of cost (first in, first out) or market.

Property and  Equipment:  Property and equipment was stated at cost. The Company
used the straight-line  method of depreciation for financial reporting purposes.
For income tax purposes,  depreciation was computed by either the accelerated or
modified  cost  recovery  methods.  The  estimated  useful  lives for  financial
reporting purposes were as follows:

           Building and leasehold improvements              7 to 20 years
           Automobiles and trucks                           3 to 7 years
           Equipment                                        3 to 7 years

The cost  and  related  accumulated  depreciation  of  assets  retired,  sold or
otherwise  disposed of were  removed  from the accounts and any gain or loss was
reflected in the current years' results of operations.

Income Taxes:  Deferred  income taxes are provided to reflect the tax effects of
temporary  differences between financial and tax reporting,  principally related
to depreciation.

Intangible  Assets:  Intangible  assets  included  the cost of certain  patents,
technology,  trademarks, and a non-compete agreement. These items were amortized
to operations on a  straight-line  basis over 10 years,  the period in which the
economic  benefits  were  estimated  to be  realized.  Accumulated  amortization
amounted to $959,000 as of June 30, 1998.



                                       21
<PAGE>

Earnings  Per  Common  Share:  Earnings  per  share of  common  stock  have been
calculated  according to the  guidelines of Financial  Accounting  Standards No.
128, "Earnings Per Share."

Basic  earnings  per common  share are  computed  by  dividing  net income  less
preferred stock dividend requirements ($192,500 for the year ended June 30, 1999
and $385,000 per year for the years ended June 30, 1998 and 1997) for the period
by the weighted  average  number of shares of common stock  outstanding  for the
period.  Diluted  earnings per common share do not vary from basic  earnings per
share for any of the periods presented because there were no dilutive  potential
shares of common stock outstanding. The dilutive effect of outstanding potential
shares of common stock was computed using the treasury stock method.

Use of Estimates:  The  preparation of financial  statements in conformity  with
generally accepted  accounting  principles requires management to make estimates
and assumptions that affect the amounts of assets and liabilities and disclosure
of contingent  assets and  liabilities at the dates of the financial  statements
and the reported amounts of revenues and expenses during the reporting  periods.
Actual results may differ from those estimates.

Business  Segment  Information:  Management  has  determined  that  the  Company
consists  of a single  operating  segment,  therefore,  there are no  disclosure
requirements under Financial  Accounting  Standards No. 131,  "Disclosures about
Segments of an Enterprise and Related Information."

Fair Value of Financial Instruments:  The carrying values of accounts receivable
and short-term  borrowings  represent reasonable estimates of the fair values of
these  instruments  due to their short  maturities.  The fair value of long-term
debt is estimated  by  discounting  the future cash flows using rates  currently
available to the Company for debt with similar terms and  remaining  maturities.
The estimated  fair values of the long-term  debt at June 30, 1998  approximated
its carrying values.

Reclassifications: Certain amounts in the 1998 consolidated financial statements
have been reclassified to conform to the 1999 presentation.

4.   Property and Equipment:

Property and equipment consisted of the following:

                                                    1999          1998
                                                  --------     ----------
Land                                              $   -       $   420,683

Building and leasehold improvements                   -         1,032,752


Automobiles and trucks                                -         8,600,072
Equipment                                             -         8,637,151
Equipment in progress and parts                       -           199,538
                                                  -------     -----------
                                                      -        18,890,196
Less accumulated depreciation and amortization        -         9,993,546
                                                  -------     -----------
                                                  $   -       $ 8,896,650
                                                  =======     ===========

Included  in  property  and  equipment  were  assets  under  capital  leases  of
$3,618,000  with related  accumulated  depreciation of $1,230,000 as of June 30,
1998.

The Company incurred repairs and maintenance  costs on property and equipment of
approximately  $610,000,  $1,350,000 and $1,450,000 for the years ended June 30,
1999, 1998 and 1997, respectively.



                                       22
<PAGE>

5.   Accrued Expenses:

Accrued expenses consist of the following:

                                             1999              1998
                                           --------         ---------
Accrued payroll and compensation          $      -         $  927,000
Accrued preferred stock dividends                -             96,250
Other accrued liabilities                   323,215           587,220
                                          ---------        ----------
                                          $ 323,215        $1,610,470
                                          =========        ==========


6.   Long-Term Debt:

Long-term debt was comprised of the following:

                                             1999              1998
                                          ---------     -------------
Capitalized leases (A)                    $     -       $ 2,114,640
Revolving loan - bank (C)                       -         5,742,543
Mortgage loan - bank (D)                        -           386,667
                                          ---------     -----------
                                                -         8,243,850
Less: current portion of long-term debt         -           659,257
                                          ---------     -----------
                                          $     -       $ 7,584,593
                                          =========     ===========


A. Capitalized  leases were due in monthly  installments  ranging from $4,000 to
$15,000 and bear interest of 8.5%.

B. The Company has an $8 million loan agreement  with its majority  stockholder,
which  expires in July 2000.  This facility may be utilized by borrowings at .5%
over the prime rate (payable  quarterly) or, at the Company's  option, by having
the stockholder  provide bank letters of credit which the Company can utilize as
collateral for other obligations. The Company reimburses the stockholder for the
actual cost of the letters of credit.  This loan agreement is  collateralized by
essentially  all assets of the  Company.  At June 30,  1999,  there are no loans
outstanding under this facility, and the stockholder has issued $800,000 in bank
letters of credit that were still outstanding.

C. This  obligation  represented  borrowings  under a $7,500,000  revolving loan
agreement with a bank. The loan had interest at 1.7% below the prime rate (6.80%
at June 30, 1998),  payable monthly,  and was collateralized by a bank letter of
credit provided by the Company's  majority  shareholder under the loan agreement
described in B. above.  This loan  agreement was assumed by HydroChem as part of
the sale of substantially all assets of the Company in January 1999.

D. Mortgage loan payable in monthly  installments of $2,778 plus interest on the
outstanding  balance at the prime rate (8.5% at June 30,  1998),  due  September
2007.   This  mortgage  was  assumed  by  HydroChem  as  part  of  the  sale  of
substantially all assets of the Company in January 1999.

                                       23
<PAGE>

7.   Income Taxes:

The income tax provision for the three years ended June 30, 1999 is comprised of
the following amounts:
<TABLE>
<CAPTION>

                                                       1999            1998        1997
                                                     -----------      ------      ------
<S>     <C>    <C>    <C>    <C>    <C>    <C>
   Current                                           $ 1,379,000         $ 0        $ 0
   Deferred                                            1,121,000           0          0
                                                     -----------      ------      ------
        Total provision                              $ 2,500,000         $ 0        $ 0
   Statutory rate                                            34%         34%        34%
   State and local taxes, net of federal benefit             52           5          5
   Operating loss utilized                                  (29)        (39)       (39)
                                                     -----------      ------      ------
        Effective rate                                       10%          0%         0%
                                                                      ======      ======

</TABLE>

                                       24
<PAGE>

Deferred  federal  income  taxes  reflect  the  impact for  financial  statement
reporting purposes of temporary  differences between the financial statement and
tax basis of assets and  liabilities.  At June 30, 1999 and 1998, the components
of the net deferred tax assets and liabilities were as follows:



                                                      1999              1998
                                                 ---------------   -------------
  Deferred tax assets:
       Allowance for doubtful accounts           $    117,000       $  50,000
       Vacation accrual                                     -         144,000
       Net operating loss carryforwards                     -       7,654,878
       Other                                                -         164,912
                                                 --------------    -------------
                                                      117,000       8,013,790
  Deferred tax liabilities:
       Basis difference in fixed assets                     -        (596,930)
       Escrow account                                (1,200,598)            -
       Other                                            (37,402)            -
                                                 --------------    -------------
                                                     (1,238,000)     (596,930)
                                                 --------------    -------------
  Net deferred tax (liabilities) assets             (1,121,000)     7,416,860
  Valuation allowance                                        -     (7,416,860)
                                                 --------------    -------------
          Net deferred taxes recognized           $ (1,121,000)    $        -
                                                 ==============    =============


8.   Litigation:

In addition to the matters  discussed  below, the Company is involved in various
litigation arising in the ordinary course of business.  Management believes that
the ultimate  resolution of such  litigation  will not have a material effect on
the Company's operations, financial position or cash flows.

A. The Company filed a lawsuit in September  1993 against  certain of its former
directors and officers,  as well as other  parties.  This lawsuit was settled in
December 1996.

B.  During the fiscal year ended June 30,  1996,  the  Company  determined  that
amounts  contributed  to it by two  former  officers  and  directors  that  were
previously  classified  as loans to the Company  were not loans.  Instead,  such
contributions  were  determined  to be  repayments  by the former  officers  and
directors of amounts owed by those  officers and directors to the Company at the
time the contributions  were made.  Because the former officers and directors in
the lawsuit  described above contested this  determination,  an equal amount was
reserved.  As a result  of the  settlement  of this  lawsuit,  the  reserve  was
eliminated  in the quarter  ended  December  31,  1996,  resulting  in a gain of
$752,000 after related expenses of the litigation.

9.   Stockholders' Equity:

In September  1994, the Company issued 55,000 shares of Series C Preferred Stock
to its majority stockholder,  which then transferred them to an affiliate.  Each
share of the  Series C  Preferred  Stock was  entitled  to a  cumulative  annual
dividend  of  $7.00,  payable  quarterly.  The  proceeds  from  the  sale of the
preferred  shares  totaled $5.5 million;  $3.0 million in the conversion of debt
for  equity  and $2.5  million  of cash.  In the event the  Company is merged or
consolidated  such that the majority  shareholder  no longer holds a controlling
interest in the  surviving  or resulting  entity,  the  preferred  stock must be
redeemed  and retired for $5.5  million  plus any accrued and unpaid  cumulative
dividends. In accordance with this provision, the preferred shares were redeemed
and  retired  after the sale of  substantially  all of the  Company's  assets to
HydroChem in January 1999.


                                       25
<PAGE>


10.   Stock Options and Warrants:

A. In 1991,  the Company  adopted a stock option plan.  Up to 400,000  shares of
common  stock could be issued under the plan.  Due to the sale of  substantially
all  assets of the  Company,  all  outstanding  options  on January 1, 1999 were
redeemed by the Company using a market value of $2.50 per share.  The difference
between the market price and the option  price was paid to the option  holder in
cash, with a total cost of  approximately  $380,000.  No further options will be
issued under the plan.

B. In October  1994,  the  Company  issued  stock  options to its  directors  to
purchase a total of 50,000 shares of its common stock at $1.50 per share.  These
options are not part of the stock  option plan above,  and were  redeemed at the
same time and under the same terms as those  options that were part of the plan,
with a total cost of $50,000.


C. In 1999, 1998 and 1997, respectively,  options to purchase 11,900, 46,700 and
24,000 shares of common stock were forfeited.

D.  The  Company  has  elected  to adopt  the  "disclosure-only"  provisions  of
Financial   Accounting   Standards   No.  123,   "Accounting   for  Stock  Based
Compensation" ("SFAS No. 123"), with no compensation cost recognized for options
granted  at or above  market  value.  For SFAS No.  123,  the fair value of each
option granted was estimated on the date of grant using the Black-Scholes option
pricing model with the following  assumptions  for 1998 and 1997:  (a) risk-free
interest  rates of 6.40% to 7.04%;  (b) no dividend  yield in either  year;  (c)
expected terms of 8 years; and (d) volatility of 95%.

If the Company  had  elected to  recognize  the  compensation  cost of its stock
option plan based on the fair value of the awards under that plan in  accordance
with SFAS No. 123,  net income  would have  increased  to  $1,383,952  ($.13 per
common share, assuming dilution) for the year ended June 30, 1998 and reduced to
$1,306,346  ($.11 per common share,  assuming  dilution) for the year ended June
30, 1997.

At June 30, 1999, warrants to purchase shares of the Company's common stock were
outstanding as follows:

           Warrant
            Price       Shares     Expiration Date
           ---------   ---------   ---------------

           $  3.09     2,314,000     May 2000
           $ 15.00       100,000     September 2001

11.   Employee Benefit Plan:

In 1991,  the  Company  adopted a 401(k)  plan  that  covers  substantially  all
employees.  The plan is a discretionary  plan in that the Company may or may not
make  contributions  to the plan.  The  Company did not  contribute  to the plan
during the three  years  ended June 30,  1999.  Effective  January 1, 1999,  the
Company terminated this plan as a result of the sale of substantially all of the
Company's  assets  to  HydroChem.  On  April  20,  1999  the  Company  filed  an
application  for  termination  of the plan with the  Internal  Revenue  Service.
Termination is expected to be completed in December 1999.