<PAGE>   1

================================================================================
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549


                                    FORM 10-Q


[X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE       
         SECURITIES EXCHANGE ACT OF 1934
         FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1997

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

                          COMMISSION FILE NO. 000-29226

                       VALLEY NATIONAL GASES INCORPORATED
             (Exact name of registrant as specified in its charter)

         PENNSYLVANIA                                    23-2888240
(State or other jurisdiction of              I.R.S. Employer Identification No.)
incorporation or organization)

                                 67 43rd STREET

                          WHEELING, WEST VIRGINIA 26003
                    (Address of principal executive offices)


                                 (304) 232-1541
              (Registrant's telephone number, including area code)


Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                        Yes ___x____         No_________

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

         Class                             Outstanding at February 10, 1997
         ------                            --------------------------------

================================================================================
Common stock, $0.001 par value                            9,620,084
================================================================================

<PAGE>   2
                       VALLEY NATIONAL GASES INCORPORATED


                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                            Page
                                                                                                            ----
<S>               <C>                                                                                        <C>
PART I            FINANCIAL INFORMATION

     ITEM 1       Condensed Consolidated Balance Sheets as of June 30, 1997
                  And December 31, 1997                                                                       3

                  Condensed Consolidated Statements of Operations for the
                  Three Months Ended December 31, 1996 and 1997                                               5

                  Condensed Consolidated Statements of Operations for the
                  Six Months Ended December 31, 1996 and 1997                                                 6

                  Condensed Consolidated Statements of Changes in
                  Stockholders Equity for the Year Ended June 30, 1997 and
                  the Six Months Ended December 31, 1997                                                      7

                  Condensed Consolidated Statements of Cash Flows for the
                  Six Months Ended December 31, 1996 and 1997                                                 8

                  Notes to Condensed Consolidated Financial Statements                                        9

     ITEM 2       Management's Discussion and Analysis of Financial
                  Condition and Results of Operations                                                        13


PART II           OTHER INFORMATION

     ITEM 6       Exhibits and Reports on Form 8-K                                                           18

     SIGNATURES                                                                                              19

     EXHIBIT INDEX                                                                                           20
</TABLE>



                                     - 2 -
<PAGE>   3

                          PART I. FINANCIAL INFORMATION

ITEM I.  FINANCIAL STATEMENTS

                       VALLEY NATIONAL GASES INCORPORATED

                     CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                              A S S E T S
                                                                                    June 30,             December 31,
                                                                                      1997                   1997
                                                                            --------------------    ----------------------
                                                                                                         (Unaudited)
<S>                                                                         <C>                     <C>
CURRENT ASSETS:
    Cash and cash equivalents                                               $        1,551,949      $          594,101
    Accounts receivable, net of allowance for doubtful accounts of
       $200,750                                                                     10,299,100              12,119,102
    Inventory                                                                        6,822,171               8,764,300
    Prepaids and other                                                               1,604,181               1,669,752
                                                                            --------------------    ----------------------

                  Total current assets                                              20,277,401              23,147,255
                                                                            --------------------    ----------------------

PROPERTY, PLANT AND EQUIPMENT:
    Land                                                                                70,842                 149,786
    Buildings and improvements                                                       3,578,332               4,147,980
    Equipment                                                                       38,946,506              47,339,893
    Transportation equipment                                                         6,670,016               7,707,992
    Furniture and fixtures                                                           2,590,373               3,023,188
                                                                            --------------------    ----------------------

                  Total property, plant and equipment                               51,856,069              62,368,839

    Accumulated depreciation                                                       (21,786,762)            (24,870,397)
                                                                            --------------------    ----------------------

                  Net property, plant and equipment                                 30,069,307              37,498,442
                                                                            --------------------    ----------------------

OTHER ASSETS:
    Intangibles, net of amortization of $3,666,793 and $4,942,353,
       respectively                                                                 17,130,777              32,319,795
    Deposits and other assets                                                          328,610                 749,011
                                                                            --------------------    ----------------------

                  Total other assets                                                17,459,387              33,068,806
                                                                            --------------------    ----------------------

TOTAL ASSETS                                                                $       67,806,095      $       93,714,503
                                                                            ====================    ======================
</TABLE>



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



                                     - 3 -
<PAGE>   4



                       VALLEY NATIONAL GASES INCORPORATED

                      CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                 LIABILITIES AND STOCKHOLDERS' EQUITY                             June 30,              December 31,
                                                                                    1997                    1997
                                                                             -------------------    ---------------------
                                                                                                        (Unaudited)
<S>                                                                          <C>                    <C>
CURRENT LIABILITIES:
    Current maturities of long-term debt                                     $       3,928,387      $       7,834,675
    Bank overdraft                                                                          --              1,010,424
    Accounts payable, trade                                                          2,984,658              3,672,407
    Accrued compensation and employee benefits                                       2,965,676              2,584,123
    Other current liabilities                                                          713,684              1,455,305
                                                                             -------------------    ---------------------

                  Total current liabilities                                         10,592,405             16,556,934

LONG-TERM DEBT, less current maturities                                             28,787,064             47,107,596

DEFERRED TAXES AND OTHER LONG-TERM LIABILITIES                                       5,317,031              5,097,471
                                                                             -------------------    ---------------------

                  Total liabilities                                                 44,696,500             68,762,001
                                                                             -------------------    ---------------------

REDEEMABLE COMMON STOCK, par value, $.001
per share, issued 235,000 shares                                                     1,880,000              1,880,000

STOCKHOLDERS' EQUITY:
    Common stock, par value, $.001 per share-
    Authorized, 30,000,000 shares
    Issued, 9,385,084 shares                                                             9,385                  9,385
    Paid-in-capital                                                                 17,162,396             17,162,396
    Retained earnings                                                                4,057,814              5,900,721
                                                                             -------------------    ---------------------

                  Total stockholders' equity                                        21,229,595             23,072,502
                                                                             -------------------    ---------------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                   $      67,806,095      $      93,714,503
                                                                             ===================    =====================
</TABLE>



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



                                     - 4 -
<PAGE>   5

                       VALLEY NATIONAL GASES INCORPORATED

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                        Three Months Ended
                                                                                           December 31,
                                                                             -----------------------------------------
                                                                                   1996                   1997
                                                                             ------------------     ------------------

<S>                                                                                <C>                    <C>        
NET SALES                                                                          $19,263,633            $23,890,001
COST OF PRODUCTS SOLD, excluding depreciation and amortization
                                                                                     9,173,131             10,988,568
                                                                             ------------------     ------------------
                  Gross profit                                                      10,090,502             12,901,433

EXPENSES:
    Operating and administrative                                                     6,826,536              8,381,385
    Depreciation and amortization                                                    1,560,782              2,145,691
                                                                             ------------------     ------------------
                  Total expenses                                                     8,387,318             10,527,076
                                                                             ------------------     ------------------
                  Income from operations                                             1,703,184              2,374,357


INTEREST EXPENSE                                                                       578,037                684,045
OTHER INCOME (EXPENSE) NET                                                              75,731                 59,342
                                                                             ------------------     ------------------
EARNINGS BEFORE INCOME TAXES                                                         1,200,878              1,749,654
                                                                             ==================

PROVISION FOR INCOME TAXES                                                                                    731,098
                                                                                                    ------------------
NET EARNINGS                                                                                              $ 1,018,556
                                                                                                    ==================

BASIC EARNINGS PER SHARE                                                                                  $      0.11
DILUTED EARNINGS PER SHARE                                                                                $      0.11
WEIGHTED AVERAGE SHARES                                                                                     9,620,084
DILUTED AVERAGE SHARES                                                                                      9,666,349
</TABLE>

<TABLE>
<CAPTION>
                                                                             Pro Forma
                                                                             Information
                                                                             (Unaudited)
                                                                             -------------------
                                                                                    1996
                                                                             -------------------
<S>                                                                          <C>
EARNINGS BEFORE INCOME TAXES                                                 $       1,200,878
PRO FORMA INCOME TAXES                                                                 480,351
                                                                             -------------------
PRO FORMA NET EARNINGS                                                       $         720,527
                                                                             ===================

PRO FORMA NET EARNINGS PER SHARE                                             $            0.10
PRO FORMA WEIGHTED AVERAGE SHARES                                                    7,267,074
</TABLE>



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


                                     - 5 -
<PAGE>   6


                       VALLEY NATIONAL GASES INCORPORATED

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                         Six Months Ended
                                                                                           December 31,
                                                                             -----------------------------------------
                                                                                   1996                   1997
                                                                             ------------------     ------------------

<S>                                                                                <C>                    <C>        
NET SALES                                                                          $33,777,288            $44,511,152
COST OF PRODUCTS SOLD, excluding depreciation and amortization
                                                                                    15,504,275             20,463,037
                                                                             ------------------     ------------------
                  Gross profit                                                      18,273,013             24,048,115

EXPENSES:
    Operating and administrative                                                    12,567,193             15,745,455
    Depreciation and amortization                                                    2,934,240              4,044,592
                                                                             ------------------     ------------------
                  Total expenses                                                    15,501,433             19,790,047
                                                                             ------------------     ------------------
                  Income from operations                                             2,771,580              4,258,068


INTEREST EXPENSE                                                                       992,851              1,255,212
OTHER INCOME (EXPENSE) NET                                                             150,016                120,716
                                                                             ------------------     ------------------
EARNINGS BEFORE INCOME TAXES                                                         1,928,745              3,123,572
                                                                             ==================

PROVISION FOR INCOME TAXES                                                                                  1,280,665
                                                                                                    ------------------
NET EARNINGS                                                                                              $ 1,842,907
                                                                                                    ==================

BASIC EARNINGS PER SHARE                                                                                  $      0.19
DILUTED EARNINGS PER SHARE                                                                                $      0.19
WEIGHTED AVERAGE SHARES                                                                                     9,620,084
DILUTED AVERAGE SHARES                                                                                      9,664,341
</TABLE>

<TABLE>
<CAPTION>
                                                                             Pro Forma
                                                                             Information
                                                                             (Unaudited)
                                                                             -------------------
                                                                                    1996
                                                                             -------------------
<S>                                                                          <C>
EARNINGS BEFORE INCOME TAXES                                                 $       1,928,745
PRO FORMA INCOME TAXES                                                                 771,498
                                                                             -------------------
PRO FORMA NET EARNINGS                                                       $       1,157,247
                                                                             ===================

PRO FORMA NET EARNINGS PER SHARE                                             $            0.16
PRO FORMA WEIGHTED AVERAGE SHARES                                                    7,267,074
</TABLE>



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



                                     - 6 -
<PAGE>   7

                       VALLEY NATIONAL GASES INCORPORATED

      CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

                      FOR THE YEAR ENDED JUNE 30, 1997 AND

                     THE SIX MONTHS ENDED DECEMBER 31, 1997


<TABLE>
<CAPTION>
                         Common Stock                Treasury Stock                                        
                         ------------                --------------                                       
                                                                                                                        Total
                                                                                     Paid-in-       Retained        Stockholders'
                     Shares        Amount        Shares             Amount            Capital       Earnings            Equity 
                     ------        ------        ------             ------            -------       --------            ------
                                                                                           
<S>                  <C>             <C>          <C>              <C>                <C>           <C>               <C>
         BALANCE,                                                                                          
    June 30, 1996     18,300,653      $ 18,301     11,300,653       $ (3,705,000)      $    95,914    $19,961,877     $ 16,371,092 
                                                                                                                                  
         Net loss              -             -              -                  -                 -       (844,897)        (844,897)
                                                                                                                                  
      Issuance of                                                                                                                  
     common stock      2,218,000         2,218              -                  -        15,730,059              -       15,732,277 
                                                                                                                                  
      Issuance of                                                                                                                  
            stock                                                                                                                  
      pursuant to                                                                                                                  
     compensation                                                                                                                  
       agreements        267,084           267              -                  -         2,136,323              -        2,136,590 
                                                                                                                                  
    Conversion of                                                                                                                  
   debt to equity        135,000           135                                 -         1,079,865              -        1,080,000 
                                                                                                                                  
 Reclassification                                                                                                                  
    of redeemable                                                                                                                  
     common stock                                                                                                                  
       outside of                                                                                                                  
    shareholders'                                                                                                                  
           equity       (235,000)         (235)             -                  -        (1,879,765)             -       (1,880,000)
                                                                                                                                  
    Retirement of                                                                                                                  
         treasury                                                                                                                  
            stock    (11,300,653)      (11,301)   (11,300,653)         3,705,000                 -     (3,693,699)                 
                                                                                                                                  
   Dividends paid              -             -              -                  -                 -    (11,365,467)     (11,365,467)
                    ------------   -----------  -------------   ----------------   ---------------  --------------  --------------
                                                                                                                                  
         BALANCE,                                                                                                   
    June 30, 1997      9,385,084         9,385              -                  -        17,162,396      4,057,814       21,229,595 
                                                                                                                    
     Net earnings              -             -              -                  -                 -      1,842,907        1,842,907 
                    --------------------------------------------------------------------------------------------------------------
                                                                                                                                  
         BALANCE,                                                                                                                  
December 31, 1997      9,385,084        $9,385              -                  -      $17,162,396      $5,900,721      $23,072,502
      (Unaudited)   ============   ===========  =============   ================   ===============  ==============  ==============
</TABLE>



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




                                     - 7 -
<PAGE>   8


                       VALLEY NATIONAL GASES INCORPORATED

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                                        Six Months Ended
                                                                                          December 31,
                                                                           -------------------------------------------
                                                                                  1996                    1997
                                                                           -------------------     -------------------

<S>                                                                        <C>                     <C>              
NET CASH PROVIDED BY OPERATING ACTIVITIES                                  $       1,186,735       $       5,314,163
                                                                           -------------------     -------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Proceeds from disposal of assets                                                  24,353                 395,884
    Purchases of property and equipment                                           (1,377,456)             (2,714,678)
    Business acquisitions, net of cash acquired                                   (4,827,247)            (22,038,500)
    Change in restricted cash                                                        400,000                       -
                                                                           -------------------     -------------------

                  Net cash used by investing activities
                                                                                  (5,780,350)            (24,357,294)

CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from borrowings                                                       5,511,102              21,516,037
    Principal payments on loans                                                   (1,270,104)             (3,430,754)
    Dividends paid                                                                  (389,043)                      -
                                                                           -------------------     -------------------
                  Net cash provided by
                  financing activities                                             3,851,955              18,085,283
                                                                           -------------------     -------------------

NET CHANGE IN CASH AND CASH EQUIVALENTS                                             (741,660)               (957,848)

CASH AND CASH EQUIVALENTS, beginning of period                                     4,148,546               1,551,949
                                                                           -------------------     -------------------

CASH AND CASH EQUIVALENTS, end of period                                   $       3,406,886       $         594,101
                                                                           ===================     ===================

SUPPLEMENTAL CASH FLOW INFORMATION:
    Cash payments for interest                                             $         814,226       $       1,371,350
                                                                           ===================     ===================
</TABLE>



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




                                     - 8 -
<PAGE>   9



                       VALLEY NATIONAL GASES INCORPORATED


              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


1. BASIS OF PRESENTATION:

The financial statements of Valley National Gases Incorporated (the Company)
presented herein are unaudited. Certain information and footnote disclosures
normally prepared in accordance with generally accepted accounting principles
have been either condensed or omitted pursuant to the rules and regulations of
the Securities and Exchange Commission. Although the Company believes that all
adjustments, consisting of only normal recurring adjustments, necessary for a
fair presentation have been made, interim periods are not necessarily indicative
of the financial results of operations for a full year. As such, these financial
statements should be read in conjunction with the financial statements and notes
thereto included or incorporated by reference in the Company's audited financial
statements for the period ending June 30, 1997.

2. INVENTORY:

Inventory is carried at the lower of cost or market using the first-in,
first-out (FIFO) method.

The components of inventory are as follows:
<TABLE>
<CAPTION>
                               June 30, 1997         December 31, 1997
                              -----------------    ---------------------
                                                        (Unaudited)

<S>                                <C>                  <C>       
Hardgoods                          $6,043,962           $7,804,657
Gases                                 778,209              959,643
                              -----------------    ---------------------

                                   $6,822,171           $8,764,300
                              =================    =====================
</TABLE>

3. ACQUISITIONS:

The Company acquires businesses engaged in the distribution of industrial,
medical and specialty gases and related welding supplies and accessories.
Acquisitions have been recorded using the purchase method of accounting and,
accordingly, results of their operations have been included in the Company's
financial statements since the effective dates of the respective acquisitions.

During the six months ended December 31, 1997, the Company purchased three
businesses. The largest of these acquisitions and their effective dates included
Doansco, Inc. (July, 1997), Goss Brothers Welding Supply, Inc.
(September, 1997) and Buckeye Welder Services, Inc.(December, 1997).




                                     - 9 -
<PAGE>   10


In connection with these acquisitions, the total purchase price, fair value of
assets acquired, cash paid and liabilities assumed were as follows:

<TABLE>
<CAPTION>
                                                                           Six Months Ended
                                                                          December 31, 1997
                                                                         ---------------------
                                                                             (Unaudited)
<S>                                                                             <C>          
Cash paid                                                                       $  19,396,808
Notes issued to sellers                                                             2,647,800
Notes payable and capital leases assumed                                              847,530
Other liabilities assumed and acquisition costs                                     4,897,136
                                                                         ---------------------

Total purchase price allocated to assets acquired
                                                                                $  27,789,274
                                                                         =====================
</TABLE>

On October 10, 1996, the Company purchased substantially all of the assets of
Weldco Inc. (Weldco) pursuant to a Purchase and Sale Agreement (the Weldco
Purchase Agreement) for approximately $11.1 million. Approximately $7.9 million
of the purchase price was paid by promissory notes from the Company. In
conjunction with the Company's initial public offering, Weldco shareholders
converted a portion of the Company's promissory notes to shares of the Company's
common stock at the initial public offering price. The Company prepaid
$1,720,000 under the Company's promissory notes and issued 135,000 shares of
common stock to Weldco shareholders immediately prior to the closing of the
Offering in exchange for the cancellation of indebtedness in the amount of
$2,800,000. Additionally, certain Weldco shareholders purchased 100,000 shares
of common stock in the Offering. The Weldco Purchase Agreement further grants
Weldco shareholders the right to cause the Company to purchase the 235,000
shares of common stock issued to Weldco shareholders pursuant to the conversion
of indebtedness for a period of three years following the closing of the
Offering at the initial public offering price plus interest from the date of
issuance at the rate of 6.6% per annum. Accordingly, such shares will not be
classified as shareholders' equity. The Company's payment obligation is secured
by a letter of credit.




                                     - 10 -
<PAGE>   11


4. LONG-TERM DEBT:

Long-term debt consists of the following:
<TABLE>
<CAPTION>

                                                                                  June 30, 1997         December 31, 1997
                                                                               --------------------    ---------------------
                                                                                                          (Unaudited)
<S>                                                                                 <C>                     <C>
Revolving note, interest at LIBOR plus 1.75% payable monthly through October
    1999 and October 2000, respectively. Secured by the assets
    of the Company.                                                                 $ 9,075,154             $24,355,583
Term note, interest at LIBOR plus 1.75% payable monthly through October
    2003. Secured by the assets of the Company.
                                                                                     11,607,143              14,710,418
Note payable, interest at 6.6% payable annually through October 2003. Secured by
    certain assets of the Company.
                                                                                      4,781,521               4,098,447
Individuals and corporations, mortgages and notes, interest at 2.978% to 10.00%,
    payable at various dates through 2010.
                                                                                      7,456,419              11,970,305
                                                                               --------------------    -------------------

                                                                                     32,920,237              55,134,753
                  Original issue discount                                              (204,786)               (192,482)
                  Current maturities                                                 (3,928,387)             (7,834,675)
                                                                               --------------------    -------------------

Total long-term debt                                                                $28,787,064             $47,107,596
                                                                               ====================    ===================
</TABLE>

Prime rate was 8.5% and LIBOR was 5.75% at December 31, 1997.

On October 4, 1996, the Company executed a three year revolving credit agreement
with Bank One, Indiana, NA ("Bank One") for the purpose of refinancing the then
existing revolving credit agreement with NationsBank and to provide additional
acquisition capital. This agreement provided for a term note of $13,000,000 at a
variable interest rate based upon prime or LIBOR, depending on the Company's
funded debt to EBITDA ratio, payable monthly through September of 2003. The
agreement also provided for a revolving note with maximum borrowings (including
letters of credit) of $25,000,000 at a variable interest rate equal to that of
the term note payable monthly through September of 1999. A commitment fee of
$32,500 was paid upon acceptance of the agreement. These notes are secured by
the Company's accounts receivable, equipment, inventory, and general
intangibles, and the proceeds thereof. The loan agreement for the credit
facility contains various financial covenants applicable to the Company,
including covenants requiring minimum fixed charge coverage maximum funded debt
to EBITDA, and minimum net worth.

On September 29, 1997 the Company entered into an amended and restated revolving
credit agreement with Bank One which increased the term note to $15,350,000 and
the maximum revolving note borrowings to $34,250,000. The maturity of the
revolving note was also extended to October 2000. The Company is not required to
make principal payments on outstanding balances of the revolving loan as long as
certain covenants are satisfied. The Company pays a fee for the unused portion
of the revolving loan. The loan agreement for the 




                                     - 11 -
<PAGE>   12

credit facility contains various financial covenants applicable to the Company,
including covenants requiring minimum fixed charge coverage maximum funded debt
to EBITDA, and minimum net worth.




                                     - 12 -
<PAGE>   13


On December 23, 1997, the Company entered into two interest rate swap agreements
with Bank One to reduce the impact of changes in interest rates. The first
agreement was for a period of seven years, cancelable by the bank at the end of
five years, whereby the Company agreed to pay the bank a fixed rate of 5.90% per
annum on the notional principal amount of $5.0 million and the bank agreed to
pay the Company the one month LIBOR rate on the same notional amount. The second
agreement was for a period of five years, cancelable by the bank at the end of
three years, whereby the Company agreed to pay the bank a fixed rate of 5.80%
per annum on the notional principal amount of $5.0 million and the bank agreed
to pay the Company the one month LIBOR rate on the same notional amount. The
Company is exposed to credit loss in the event of nonperformance by the bank.
However, the Company does not anticipate nonperformance by the bank.

5. SUBSEQUENT EVENTS:

On January 15, 1998, the Company entered into two interest rate swap agreements
with Bank One to reduce the impact of changes in interest rates. The first
agreement was for a period of seven years, cancelable by the bank at the end of
five years, whereby, the Company agreed to pay the bank a fixed rate of 5.43%
per annum on the notional principal amount of $10.0 million and the bank agreed
to pay the Company the one month LIBOR rate on the same notional amount. The
second agreement was for a period of five years, cancelable by the bank at the
end of three years, whereby, the Company agreed to pay the bank a fixed rate of
5.29% per annum on the notional principal amount of $10.0 million and the bank
agreed to pay the Company the one month LIBOR rate on the same notional amount.
The Company is exposed to credit loss in the event of nonperformance by the
bank. However, the Company does not anticipate nonperformance by the bank.

On January 30, 1998 the Company acquired the assets of Liberty Fire Protection
Company, Inc. a supplier of fire protection and safety equipment having
approximately $0.5 million in annualized sales. The Company financed this
transaction from operating funds and notes with the Seller.

On February 5, 1998 the Company entered into an amended and restated credit
facility with Bank One, as agent. The new credit facility increased the maximum
revolving note borrowings to $75.3 million and refinanced the term note at the
existing balance of $14.7 million. The new scheduled maturity date of the term
note is October 4, 2003. The new scheduled maturity date of the revolving note
is January 16, 2001. The Company paid the banks fees of approximately $210,000,
which will be amortized over the term of the notes. The Company pays a fee for
the unused portion of the revolving loan. The loan agreement for the credit
facility contains various financial covenants applicable to the Company,
including covenants requiring minimum fixed charge coverage maximum funded debt
to EBITDA, and minimum net worth.

6. PRO FORMA INFORMATION (UNAUDITED):

The pro forma adjustments for income taxes included in the accompanying
condensed consolidated statement of operations for the three months and six
months ended December 31, 1996 are based upon the statutory rates in effect for
C Corporations during the periods presented. Pro forma earnings per share were
calculated by dividing pro forma earnings by the weighted average shares



                                     - 13 -
<PAGE>   14

outstanding for the period. The weighted average number of shares outstanding
used to calculate the pro forma net income per share is based on the historical
weighted average number of shares outstanding using an offering price of $8 per
share.



                                     - 14 -
<PAGE>   15



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

The following discussion should be read in conjunction with, and is qualified in
its entirety by, the Financial Statements and the Notes thereto.

OVERVIEW

The Company is a leading packager and distributor of industrial, medical and
specialty gases, welding equipment and supplies, and propane in ten states in
the mid-Atlantic and midwestern regions of the United States. The Company's net
sales have grown, primarily as a result of acquisitions, at a compound annual
rate of approximately 17% per year since the Company started business in 1958,
increasing from $190,000 in that year to $84.6 million for the last twelve
months. In fiscal 1997, gases accounted for approximately 42% of net sales,
welding equipment and supplies accounted for approximately 44% of net sales, and
cylinder and tank rental accounted for approximately 14% of net sales.

The Company believes it has been successful in executing its strategy of growth
through acquisitions, having completed 30 acquisitions since 1990. Some
acquisitions have had, and the Company expects some future acquisitions may
have, a dilutive effect upon the Company's income from operations and net income
before tax for a short period following consummation. This temporary dilution
occurs because some of the benefits of acquisitions, such as leveraging of
operating and administrative expenses, improved product gross margins and real
sales growth, occur over a period ranging from two to eight quarters, depending
upon the complexity of integrating each acquisition into the Company's existing
operations. The consideration for most acquisitions includes a combination of a
cash payment at closing, seller financing and payments under covenants not to
compete and consulting agreements. In most cases, operating cash flow of an
acquired business is positive in a relatively short period of time. For many
acquisitions, the Company believes that projections of future cash flows justify
payment of amounts in excess of the book or market value of the assets acquired,
resulting in goodwill being recorded.

The Company's results are subject to moderate seasonality, primarily due to
fluctuations in the demand for propane, which is highest during winter months
falling in the Company's second and third fiscal quarters.

Operating and administrative expenses are comprised primarily of salaries,
benefits, transportation equipment operating costs, facility lease expenses and
general office expenses. These expenses are generally fixed on a quarter-
to-quarter basis. The Company believes that changes in these expenses as a
percentage of sales should be evaluated over the long term rather than on a
quarter-to-quarter basis due to the moderate seasonality of sales mentioned
above and the generally fixed nature of these expenses.

Historically, the Company's gross profit margins as a percentage of sales have
been higher on the sale of gases than on the sale of welding equipment and
supplies ("hard goods"). As a result of recent acquisitions of some distributors
with a higher proportion of hard goods to gas sales, the Company's average gross
profit as a percentage of sales has decreased in 




                                     - 15 -
<PAGE>   16

comparison to prior years. Future acquisitions may affect this pattern depending
upon the product mix of the acquired businesses. Until April 10, 1997, the
Company was treated as an S Corporation for federal and state income tax
purposes. As a result, the Company was not subject to federal and state income
taxes. The Company terminated its S Corporation election in connection with its
initial public offering of stock and become a C Corporation. As a result of
termination of the S Corporation election, the Company recognized $3.9 million
of deferred income taxes in the fourth quarter of fiscal year 1997.

RESULTS OF OPERATIONS

Comparison of Three Months Ended December 31, 1997 and 1996

Net sales increased 24.0%, or $4.6 million, to $23.9 million from $19.3 million
for the three months ended December 31, 1997, and 1996, respectively.
Acquisitions made during the proceeding twelve months contributed $4.0 million
of the increase in net sales, while same store growth contributed $0.6 million
of the increase. Same store sales increased 3.2% versus the same quarter last
year. Gases and cylinder revenue represented 54.6% of net sales for the three
months ended December 31, 1997, with hard goods representing 45.4%. In
comparison, net sales for the three months ended December 31, 1996 reflected
gases and cylinder revenue at 56.9% and hard goods as 43.1%. This change in
sales mix reflects the effect of acquisitions made during the preceding twelve
months.

Gross profit, which excludes depreciation and amortization, increased 27.9%, or
$2.8 million, to $12.9 million from $10.1 million for the three months ended
December 31, 1997 and 1996, respectively. Acquisitions made during the
proceeding twelve months contributed $2.2 million of the increase in gross
profit, while the base business contributed $0.6 million of the increase. Gross
profit as a percentage of net sales was 54.0% for the three months ended
December 31, 1997, compared to 52.4% for the three months ended December 31,
1996. This change reflected the improvement in product margins, partially offset
by the increase in the mix of hard goods to total sales.

Operating and administrative expenses increased 22.8%, or $1.6 million, to $8.4
million from $6.8 million for the three months ended December 31, 1997 and 1996,
respectively. Of this increase, $1.5 million was related to acquired businesses
and the remaining $0.1 million reflected increases on a same store basis.
Operating and administrative expenses as a percentage of sales decreased to
35.1% for the three months ended December 31, 1997, as compared to 35.4% for the
same quarter in 1996, reflecting the addition of operating expenses related to
acquired businesses as a percentage of sales at a rate lower than the Company
average before the acquisitions were made.

Depreciation and amortization expense increased $0.6 million for the three
months ended December 31, 1997 compared to the same period in 1996, primarily as
a result of acquisitions made during the last twelve months.

Interest expense increased $0.1 million for the quarter, reflecting the
financing of acquisitions made during the last twelve months, partially reduced
by lower interest rates and reductions in debt as a result of the Company's
initial public offering of stock in April 1997.



                                     - 16 -
<PAGE>   17

Net earnings increased 41.4%, or $0.3 million, to $1.0 million from pro forma
net earnings of $0.7 million for the three months ended December 31, 1997 and
1996, respectively.

Comparison of Six Months Ended December 31, 1997 and 1996

Net sales increased 31.8%, or $10.7 million, to $44.5 million from $33.8 million
for the six months ended December 31, 1997, and 1996, respectively. Acquisitions
made during the proceeding twelve months contributed $9.1 million of the
increase in net sales, while same store growth contributed $1.6 million of the
increase. Same store sales increased 4.7% versus the same period last year.
Gases and cylinder revenue represented 53.7% of net sales for the six months
ended December 31, 1997, with hard goods representing 46.3%. In comparison, net
sales for the six months ended December 31, 1996 reflected gases and cylinder
revenue at 57.3% and hard goods as 42.7%. This change in sales mix primarily
reflects the effect of acquisitions made during the preceding twelve months.

Gross profit, which excludes depreciation and amortization, increased 31.6%, or
$5.8 million, to $24.1 million from $18.3 million for the six months ended
December 31, 1997 and 1996, respectively. Acquisitions made during the
proceeding twelve months contributed $4.8 million of the increase in gross
profit, while the base business contributed $1.0 million of the increase. Gross
profit as a percentage of net sales was 54.0% for the six months ended December
31, 1997, compared to 54.1% for the six months ended December 31, 1996. This
change reflected the increase in the mix of hard goods to total sales, partially
offset by improvement in product margins.

Operating and administrative expenses increased 25.3%, or $3.2 million, to $15.7
million from $12.5 million for the six months ended December 31, 1997 and 1996,
respectively. Of this increase, $2.9 million was related to acquired businesses
and the remaining $0.3 million reflected increases on a same store basis.
Operating and administrative expenses as a percentage of sales decreased to
35.4% for the six months ended December 31, 1997, as compared to 37.2% for the
same quarter in 1996, reflecting the addition of operating expenses related to
acquired businesses as a percentage of sales at a rate lower than the Company
average before the acquisitions were made.

Depreciation and amortization expense increased $1.1 million for the six months
ended December 31, 1997 compared to the same period in 1996, primarily as a
result of acquisitions made during the last twelve months.

Interest expense increased $0.3 million for the six months, reflecting the
financing of acquisitions made during the last twelve months, partially reduced
by lower interest rates and reductions in debt as a result of the Company's
initial public offering of stock in April 1997.

Net earnings increased 59.2%, or $0.7 million, to $1.8 million from pro forma
net earnings $1.1 million for the six months ended December 31, 1997 and 1996,
respectively.

LIQUIDITY AND CAPITAL RESOURCES



                                     - 17 -
<PAGE>   18

Historically, the Company has financed its operations, capital expenditures and
debt service with funds provided from operating activities. Acquisitions have
been financed by a combination of seller financing, bank borrowings and funds
generated from operations.

At December 31, 1997, the Company had working capital of approximately $6.6
million. Funds provided by operations for the six months ended December 31, 1997
were approximately $5.3 million. Funds used for investing activities were
approximately $24.4 million for the six months ended December 31, 1997,
consisting primarily of capital spending and financing for acquisitions. Sources
of funds from financing activities for six months ended December 31, 1997 were
approximately $18.1 million from net borrowings. The Company's cash balance
decreased $1.0 million during the quarter as $0.7 million in voluntary debt
reduction was made.

On September 29, 1997, the Company entered into an amended and restated
revolving credit agreement totaling $49.6 million, consisting of a $15.4 million
term loan, which matures in six years and is amortized in equal monthly
payments, and a $34.2 million revolving loan with a $15.0 million sublimit for
letters of credit, which matures in October 2000. The revolving loan is used
primarily to fund acquisitions. The Company is not required to make principal
payments on outstanding balances of the revolving loan as long as certain
covenants are satisfied. Interest is charged on both the term loan and the
revolving loan at either the lender's prime rate or various LIBOR rates, at the
Company's discretion, plus an applicable spread. The weighted average interest
rate for substantially all of the borrowings under the credit facility was 7.5%
as of December 31, 1997. The Company pays a fee for the unused portion of the
revolving loan. As of December 31, 1997, availability under the revolving loan
was approximately $2.3 million, with outstanding borrowings of approximately
$24.4 million and outstanding letters of credit of approximately $7.5 million.
The credit facility is secured by all of the Company's assets.

The loan agreement for the credit facility contains various financial covenants
applicable to the Company, including covenants requiring minimum fixed charge
coverage, maximum funded debt to EBITDA, and minimum net worth. The Company is
in compliance with these covenants and believes that it will continue to be in
compliance through at least the next twelve months.

The Company is obligated under various promissory notes related to the financing
of acquisitions that have various rates of interest, ranging from 3.0% to 10.0%
per annum, and maturities through 2010. The outstanding balance of these notes
as of December 31, 1997 was $15.9 million. Some of these notes are secured by
assets related to the applicable acquisition, some are unsecured, and some are
backed by bank letters of credit issued under the Company's credit facility.

On December 23, 1997, the Company entered into two interest rate swap agreements
with Bank One to reduce the impact of changes in interest rates. The first
agreement was for a period of seven years, cancelable by the bank at the end of
five years, whereby the Company agreed to pay the bank a fixed rate of 5.90% per
annum on the notional principal amount of $5.0 million and the bank agreed to
pay the Company the one month LIBOR rate on the same notional amount. The second
agreement was for a period of five years, cancelable by the 



                                     - 18 -
<PAGE>   19

bank at the end of three years, whereby the Company agreed to pay the bank a
fixed rate of 5.80% per annum on the notional principal amount of $5.0 million
and the bank agreed to pay the Company the one month LIBOR rate on the same
notional amount. The Company is exposed to credit loss in the event of
nonperformance by the bank. However, the Company does not anticipate
nonperformance by the bank.

FLUCTUATIONS IN QUARTERLY RESULTS

The Company generally has experienced higher sales activity during its second
and third quarters as a result of seasonal sales of propane, with corresponding
lower sales for the first and fourth quarters. As a result, income from
operations and net income typically is higher for the second and third quarters
than for the first and fourth quarters of the fiscal year.




                                     - 19 -
<PAGE>   20


INFLATION

The impact of inflation on the Company's operating results has been moderate in
recent years, reflecting generally low rates of inflation in the economy and the
Company's historical ability to pass purchase price increases to its customers
in the form of sales price increases. While inflation has not had, and the
Company does not expect that it will have, a material impact upon operating
results, there is no assurance that the Company's business will not be affected
by inflation in the future.

SUBSEQUENT EVENTS

On January 15, 1998, the Company entered into two interest rate swap agreements
with Bank One to reduce the impact of changes in interest rates. The first
agreement was for a period of seven years, cancelable by the bank at the end of
five years, whereby, the Company agreed to pay the bank a fixed rate of 5.43%
per annum on the notional principal amount of $10.0 million and the bank agreed
to pay the Company the one month LIBOR rate on the same notional amount. The
second agreement was for a period of five years, cancelable by the bank at the
end of three years, whereby, the Company agreed to pay the bank a fixed rate of
5.29% per annum on the notional principal amount of $10.0 million and the bank
agreed to pay the Company the one month LIBOR rate on the same notional amount.
The Company is exposed to credit loss in the event of nonperformance by the
bank. However, the Company does not anticipate nonperformance by the bank.

On January 30, 1998 the Company acquired the assets of Liberty Fire Protection
Company, Inc. a supplier of fire protection and safety equipment having
approximately $0.5 million in annualized sales. The Company financed this
transaction from operating funds and notes with the Seller.

On February 5, 1998 the Company entered into an amended and restated credit
facility with Bank One, as agent. The new credit facility increased the maximum
revolving note borrowings to $75.3 million and refinanced the term note at the
existing balance of $14.7 million. The new scheduled maturity date of the term
note is October 4, 2003. The new scheduled maturity date of the revolving note
is January 16, 2001. The Company paid the banks fees of approximately $210,000,
which will be amortized over the term of the notes. The Company pays a fee for
the unused portion of the revolving loan. The loan agreement for the credit
facility contains various financial covenants applicable to the Company,
including covenants requiring minimum fixed charge coverage maximum funded debt
to EBITDA, and minimum net worth.




                                     - 20 -
<PAGE>   21


RECENT ACCOUNTING PRONOUNCEMENTS

Financial Accounting Standard Board Statement No. 128, "Earnings Per Share"
(SFAS No. 128) was issued in February 1997 and is effective for periods ending
after December 15, 1997. This statement, upon adoption, will require all
prior-period earnings per share (EPS) data to be restated, to conform to the
provisions of the statement. This statement's objective is to simplify the
computation of EPS and to make the U.S. standard for EPS computations more
compatible with that of the International Accounting Standards Committee. The
Company has adopted SFAS No. 128 during the quarter ended December 31, 1997.

Financial Accounting Standard Board Statement No. 129, "Disclosure of
Information about Capital Structure" (SFAS No. 129) was issued in February 1997
and is effective for periods ending after December 15, 1997. This statement,
upon adoption, will require all companies to provide specific disclosure
regarding the entities capital structure. SFAS No. 129 will specify the
disclosures, for all companies, including descriptions of the securities
comprising the capital structure and the contractual rights of the holders of
such securities. The Company has adopted SFAS No. 129 during the quarter ended
December 31, 1997.


                           PART II. OTHER INFORMATION


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

        (a)       Exhibits:

                  See the Exhibit Index on page 20.

        (b)       Reports on Form 8-K:

                  Form 8-K dated October 14, 1997 reporting under Item 2 the
                  acquisition of Goss Brothers Welding Supply, Inc.

                  Form 8-K dated December 15, 1997 reporting under Item 5 the
                  execution of a letter of intent for the acquisition of Buckeye
                  Welder Services, Inc.




                                     - 21 -
<PAGE>   22


                                   SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



                                          VALLEY NATIONAL GASES INCORPORATED



February 13, 1998                         /s/ Robert D. Scherich
                                          ----------------------
                                          Robert D. Scherich
                                          Chief Financial Officer




                                     - 22 -
<PAGE>   23


                                  EXHIBIT INDEX


Exhibit Number   Description
--------------   -------------------------------------------------------------

3.1              Articles of Amendment of the Company, incorporated by reference
                 to Exhibit 3.1 to the Company's Registration Statement on Form
                 S-1 under the Securities Act of 1933, as amended, (File No.
                 333-19973)

3.2              Bylaws of the Company, incorporated by reference to Exhibit 3.2
                 to the Company's Registration Statement on Form S-1 under the
                 Securities Act of 1933, as amended, (File No. 333-19973)

10.1             Amended and Restated Credit Agreement dated January 23, 1997
                 between the Company and BankOne, Indiana NA

11.1             Calculation of Earnings Per Share

27.1             Financial Data Schedule (provided for the information of the 
                 U.S. Securities and Exchange Commission only)




                                     - 23 -