SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

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

                  For the quarterly period ended March 31, 1997

                           Commission File No. 000-29226

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

                                  Pennsylvania
--------------------------------------------------------------------------------
         (State or other jurisdiction of incorporation or organization)

                                   23-2888240
--------------------------------------------------------------------------------
                      (I.R.S. Employer Identification No.)

                  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 May 21, 1997
--------------------------------------------------------------------------------
Common stock, $0.001 par value                      9,620,084


<PAGE>

                       VALLEY NATIONAL GASES INCORPORATED

                                TABLE OF CONTENTS

                                                                          Page

PART I      FINANCIAL INFORMATION

  Item 1    Condensed Balance Sheets as of June 30, 1996 and
            March 31, 1997                                                  3

            Condensed Statements of Operations for the Three
            and Nine Months Ended March 31, 1996 and 1997                   5

            Condensed Statements of Changes in Stockholder's
            Equity for the Year Ended June 30, 1996 and the Nine
            Months Ended March 31, 1997                                     7

            Condensed Statements of Cash Flows for the Nine Months
            Ended March 31, 1996 and 1997                                   8

            Notes to Condensed Financial Statements                         9

  Item 2    Management's Discussion and Analysis of Financial
            Condition and Results of Operations                            15


PART II     OTHER INFORMATION

  Item 6    Exhibits and Reports on Form 8-K                               21

  Signatures                                                               22

  Exhibit Index                                                            23

                                       2

<PAGE>

                         PART I. FINANCIAL INFORMATION
<TABLE>

                       VALLEY NATIONAL GASES INCORPORATED
                            CONDENSED BALANCE SHEETS

<CAPTION>

                              A S S E T S
                                                                                  June 30,                March 31,
                                                                                    1996                    1997
                                                                             -------------------    -------------------
                                                                                                        (Unaudited)
<S>                                                                          <C>                    <C>

CURRENT ASSETS:                                                                                        

    Cash and cash equivalents                                                $        4,148,546     $        3,276,982
    Restricted cash                                                                     400,000                      -
    Accounts receivable, net of allowance for doubtful accounts of
       $140,000 and $259,423, respectively
                                                                                      6,701,939              9,622,027
    Inventory                                                                         4,157,906              6,968,005
    Prepaids and other                                                                  832,899                910,964
                                                                             -------------------    -------------------

                  Total current assets                                               16,241,290             20,777,978
                                                                             -------------------    -------------------

PROPERTY, PLANT AND EQUIPMENT:
    Land                                                                                  7,000                  7,000
    Buildings and improvements                                                        2,664,460              3,191,086
    Equipment                                                                        30,788,676             35,400,482
    Transportation equipment                                                          5,758,581              6,281,581
    Furniture and fixtures                                                            1,937,110              2,131,894
                                                                             -------------------    -------------------

                  Total property, plant and equipment                                41,155,827             47,012,043

    Accumulated depreciation                                                        (18,029,419)           (20,830,490)
                                                                             -------------------    -------------------

                  Net property, plant and equipment                                  23,126,408             26,181,553
                                                                             -------------------    -------------------

OTHER ASSETS:
    Intangibles, net of amortization of $1,745,353 and $2,979,277,
       respectively                                                                   5,902,885             14,753,131
    Deposits and other assets                                                           220,265                340,042
                                                                             -------------------    -------------------

                  Total other assets                                                  6,123,150             15,093,173
                                                                             -------------------    -------------------

TOTAL ASSETS                                                                 $       45,490,848     $       62,052,704
                                                                             ===================    ===================




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

</TABLE>
                                       3
<PAGE>
<TABLE>
                       VALLEY NATIONAL GASES INCORPORATED
                            CONDENSED BALANCE SHEETS

<CAPTION>

                 LIABILITIES AND STOCKHOLDERS' EQUITY             June 30,               March 31,
                                                                    1996                   1997
                                                             -------------------    --------------------
                                                                                        (Unaudited)
<S>                                                          <C>                    <C>

CURRENT LIABILITIES:
    Current maturities of long-term debt                     $       2,736,814      $       4,186,750
    Accounts payable, trade                                          2,835,920              2,831,653
    Accrued compensation and employee benefits                       2,970,987              3,227,437
    Other current liabilities                                          479,126                847,075
                                                             -------------------    --------------------

                  Total current liabilities                          9,022,847             11,092,915

LONG-TERM DEBT, less current maturities                             19,506,728             30,608,582

OTHER LONG-TERM LIABILITIES                                            590,181              1,328,358
                                                             -------------------    --------------------

                  Total liabilities                                 29,119,756             43,029,855
                                                             -------------------    --------------------

STOCKHOLDERS' EQUITY:
    Common stock, par value, $.001 per share-
    Authorized, 30,000,000 shares
    Issued, 18,300,653 shares                                           18,301                 18,301
    Paid-in-capital                                                     95,914                 95,914
    Treasury stock, 11,300,653 shares at cost                       (3,705,000)            (3,705,000)
    Retained earnings                                               19,961,877             22,613,634
                                                             -------------------    --------------------

                  Total stockholders' equity                        16,371,092             19,022,849
                                                             -------------------    --------------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                   $      45,490,848      $      62,052,704
                                                             ===================    ====================


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

</TABLE>
                                       4

<PAGE>
<TABLE>

                       VALLEY NATIONAL GASES INCORPORATED
                       CONDENSED STATEMENTS OF OPERATIONS
                                   (Unaudited)
<CAPTION>
                                                                                 Three Months Ended
                                                                                     March 31,
                                                                      -----------------------------------------
                                                                            1996                   1997
                                                                      ------------------     ------------------
<S>                                                                   <C>                    <C>

NET SALES                                                             $      14,934,491      $      20,271,994

COST OF PRODUCTS SOLD, excluding depreciation and amortization                6,598,350              9,421,847
                                                                      ------------------     ------------------

                  Gross profit                                                8,336,141             10,850,147
                                                                      ------------------     ------------------

EXPENSES:
    Operating and administrative                                              5,589,523              7,139,159
    Depreciation and amortization                                             1,308,900              1,764,032
                                                                      ------------------     ------------------

                  Total expenses                                              6,898,423              8,903,191
                                                                      ------------------     ------------------

                  Income from operations                                      1,437,718              1,946,956
                                                                      ------------------     ------------------

INTEREST EXPENSE                                                                389,185                614,923
                                                                      ------------------     ------------------

OTHER INCOME/(EXPENSE):
    Interest and dividend income                                                 80,189                 71,918
    Gain on sale of investments                                                       -                 73,586
    Rental income                                                                34,167                    650
    Gain on disposal of assets                                                    6,620                  8,581
    Other income                                                                 59,741                 19,675
                                                                      ------------------     ------------------

                  Total other income                                            180,717                174,410
                                                                      ------------------     ------------------

NET INCOME                                                            $       1,229,250      $       1,506,443
                                                                      ==================     ==================

</TABLE>
<TABLE>
<CAPTION>
                                                                          Pro Forma Information (Unaudited)
                                                                      -------------------------------------------
                                                                             1996                   1997
                                                                      -------------------    --------------------
<S>                                                                   <C>                    <C>

NET INCOME                                                            $       1,229,250      $       1,506,443

PRO FORMA INCOME TAXES                                                          491,700                602,577
                                                                      -------------------    --------------------

PRO FORMA NET INCOME                                                  $         737,550      $         903,866
                                                                      ===================    ====================

PRO FORMA NET INCOME PER SHARE                                        $           0.10       $           0.11
                                                                      ===================    ====================

PRO FORMA WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING                       7,267,074              8,335,282
                                                                      ===================    ====================

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

</TABLE>
                                       5
<PAGE>
<TABLE>

                       VALLEY NATIONAL GASES INCORPORATED
                       CONDENSED STATEMENTS OF OPERATIONS
                                   (Unaudited)
<CAPTION>
                                                                                  Nine Months Ended
                                                                                      March 31,
                                                                      -------------------------------------------
                                                                             1996                   1997
                                                                      -------------------    --------------------
<S>                                                                   <C>                    <C>

NET SALES                                                             $      39,072,324      $      54,049,282

COST OF PRODUCTS SOLD, excluding depreciation and amortization               17,276,767             24,926,122
                                                                      -------------------    --------------------

                  Gross profit                                               21,795,557             29,123,160
                                                                      -------------------    --------------------

EXPENSES:
    Operating and administrative                                             14,785,112             19,706,352
    Depreciation and amortization                                             3,307,608              4,698,272
                                                                      -------------------    --------------------

                  Total expenses                                             18,092,720             24,404,624
                                                                      -------------------    --------------------

                  Income from operations                                      3,702,837              4,718,536
                                                                      -------------------    --------------------

INTEREST EXPENSE                                                              1,064,481              1,607,774
                                                                      -------------------    --------------------

OTHER INCOME/(EXPENSE):
    Interest and dividend income                                                244,507                245,016
    Gain on sale of investments                                                       -                 73,586
    Rental income (expense)                                                      65,477                 (9,430)
    Loss on disposal of assets                                                   (2,861)                (9,049)
    Other income                                                                179,631                 24,302
                                                                      -------------------    --------------------

                  Total other income                                            486,754                324,425
                                                                      -------------------    --------------------

NET INCOME                                                            $       3,125,110      $       3,435,187
                                                                      ===================    ====================
</TABLE>
<TABLE>
<CAPTION>
                                                                          Pro Forma Information (Unaudited)
                                                                      -------------------------------------------
                                                                             1996                   1997
                                                                      -------------------    --------------------
<S>                                                                   <C>                    <C>

NET INCOME                                                            $       3,125,110      $       3,435,187

PRO FORMA INCOME TAXES                                                        1,250,044              1,374,075
                                                                      -------------------    --------------------

PRO FORMA NET INCOME                                                  $       1,875,066      $       2,061,112
                                                                      ===================    ====================

PRO FORMA NET INCOME PER SHARE                                        $           0.26       $           0.25
                                                                      ===================    ====================

PRO FORMA WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING                       7,267,074              8,335,282
                                                                      ===================    ====================

                    The accompanying notes are an integral part of these financial statements.
</TABLE>
                                       6
<PAGE>
<TABLE>

                       VALLEY NATIONAL GASES INCORPORATED
             CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                      FOR THE YEAR ENDED JUNE 30, 1996 AND
                      THE NINE MONTHS ENDED MARCH 31, 1997


<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, 1995       18,300,653     $18,301   11,300,653     $(3,705,000)   $       -    $17,482,478     $  13,795,779

    Net income                        -           -            -               -            -      4,100,928         4,100,928

    Contribution of
       capital                        -           -            -               -       95,914              -            95,914

    Dividends paid                    -           -            -               -            -     (1,621,529)       (1,621,529)
                             ----------    --------   ----------    ------------    ---------    ------------   --------------

BALANCE, June 30, 1996       18,300,653      18,301   11,300,653      (3,705,000)      95,914     19,961,877        16,371,092

    Net income                        -           -            -               -            -      3,435,187         3,435,187

    Dividends paid                    -           -            -               -            -       (783,430)         (783,430)
                             ----------    --------   ----------    ------------    ---------    ------------   --------------    
BALANCE, March 31, 1997
    (Unaudited)              18,300,653     $18,301   11,300,653     $(3,705,000)   $  95,914    $22,613,634     $  19,022,849
                             ==========    ========   ==========    ============   ==========   ============    ==============








                    The accompanying notes are an integral part of these financial statements.
</TABLE>
                                       7
<PAGE>
<TABLE>

                       VALLEY NATIONAL GASES INCORPORATED
                       CONDENSED STATEMENTS OF CASH FLOWS
                                   (Unaudited)


<CAPTION>
                                                                            Nine Months Ended
                                                                                March 31,
                                                                -------------------------------------------
                                                                       1996                    1997
                                                                -------------------     -------------------
<S>                                                             <C>                     <C>

NET CASH PROVIDED BY OPERATING ACTIVITIES                       $       4,143,499       $       3,953,035
                                                                -------------------     -------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Proceeds from disposal of assets                                       43,659                  42,302
    Purchases of property and equipment                                (2,263,184)             (2,841,855)
    Business acquisitions, net of cash acquired                        (5,420,806)             (4,961,045)
    Change in restricted cash                                                   -                 400,000
                                                                -------------------     -------------------

                  Net cash used by investing activities                (7,640,331)             (7,360,598)

CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from borrowings                                            6,530,000               5,511,102
    Principal payments on loans                                        (2,011,061)             (2,191,673)
    Dividends paid                                                       (642,082)               (783,430)
                                                                -------------------     -------------------
            Net cash provided by financing
            activities                                                  3,876,857               2,535,999
                                                                -------------------     -------------------

NET CHANGE IN CASH AND CASH EQUIVALENTS                                   380,025                (871,564)

CASH AND CASH EQUIVALENTS, beginning of period                          3,854,889               4,148,546
                                                                -------------------     -------------------

CASH AND CASH EQUIVALENTS, end of period                        $       4,234,914       $       3,276,982
                                                                ===================     ===================

SUPPLEMENTAL CASH FLOW INFORMATION:
    Cash payments for interest                                        $ 1,064,481       $       1,450,925
                                                                ===================     ===================









                    The accompanying notes are an integral part of these financial statements.
</TABLE>
                                       8

<PAGE>
                       VALLEY NATIONAL GASES INCORPORATED
                     NOTES TO CONDENSED 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, 1996.

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:

                   June 30, 1996        March 31, 1997
                 -----------------    -----------------
                                         (Unaudited)

Hardgoods             $3,529,294           $5,672,563
Gases                    628,612            1,295,442
                 -----------------    -----------------

                      $4,157,906           $6,968,005
                 =================    =================

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.

In August 1996, the Company  purchased  Weber Gas & Welding Supply Co. Inc. for
an aggregate purchase price of approximately $1,549,000.

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

                                       9
<PAGE>

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.

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

                                                      Nine Months Ended
                                                       March 31, 1997
                                                     --------------------
                                                         (Unaudited)

Cash paid                                            $        5,283,830
Notes issued to sellers                                       8,822,187
Notes payable and capital leases assumed                        405,674
Other liabilities assumed and acquisition costs               4,921,766
                                                     --------------------

Total purchase price allocated to assets acquired    $       19,433,457
                                                     ====================

                                       10
<PAGE>


4. LONG-TERM DEBT:

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

                                                                                 June 30, 1996         March 31, 1997
                                                                               -------------------    ------------------
                                                                                                         (Unaudited)
<S>                                                                            <C>                    <C>

Revolving note, interest at LIBOR plus 2% payable monthly through
    September 2003.  Secured by the assets of the Company.                          $         -            $10,162,514

Term note, interest at same rate as revolving note, payable monthly
    through September 1999.  Secured by the assets of the Company.                            -             12,071,429

Acquisitions  offering  revolving  line of credit,  interest at prime rate minus
    .125%,  as defined,  payable in full on November  1997 or if notified by the
    bank in equal monthly installments. Secured by the assets of Company.             9,748,696                      -

Term note, interest at prime rate, as defined, payable in monthly
    installments through November 2000.  Secured by the assets of the
    Company.                                                                          7,000,000                      -

Term note, interest at prime rate minus  .125%,  as defined,  payable in monthly
    installments through April 2002. Secured by the assets of the Company.              833,330                      -

Term note, interest  at prime  rate  plus 1%, as  defined,  payable  in  monthly
    installments through April 2005. Secured by the assets of the Company.            1,048,184                      -

Convertible  notes,  interest at 6.6% payable  annually  through  October  2003.
    Secured by letter of credit and certain assets of the Company.                            -              7,886,721

Note payable, interest at 7.0% payable  monthly  through  July 2003.  Secured by
    certain assets of the Company.                                                            -                877,078

Individuals and corporations, mortgages and notes, interest at 2.978% to 10.50%,
    payable at various dates through 2010.                                            3,843,591              4,008,609
                                                                               -------------------    ------------------

                                                                                     22,473,811             35,006,351
                  Original issue discount                                              (230,269)              (211,019)
                  Current maturities                                                 (2,736,814)            (4,186,750)
                                                                               -------------------    ------------------

Total long-term debt                                                                $19,506,728            $30,608,582
                                                                               ===================    ==================

</TABLE>

Prime rate was 8.5% and LIBOR was 5.6875% at March 31, 1997.

On October 4, 1996, the Company executed a three year revolving credit agreement
with Bank One for the purpose of refinancing the then existing  revolving credit
agreement with NationsBank and to provide additional

                                       11
<PAGE>


acquisition capital. This agreement provides 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 provides 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 agreement  also  contains  various
financial covenants  including minimum fixed charge coverage,  maximum of funded
debt to EBITDA, and minimum net worth level.

5. SUBSEQUENT EVENTS:

     A. Initial Public Offering and Reorganization

     On April 15, 1997, the Company  completed an initial  public  offering (the
     Offering) of its  common  stock  with  2.2 million  shares  being  sold by
     the  Company at $8.00 per share  (including  300,000  overallotment  shares
     subsequently sold on May 2, 1997). The net proceeds of approximately  $15.9
     million  have  been  or will be  used  to pay  the  Company's  estimated  S
     Corporation  distribution  of $11.2 million and to reduce the loans of $4.7
     million outstanding under its revolving credit facility.

     In connection with the Offering, the following transactions occurred on
     April 9, 1997:

     a.    Termination of the Company's S Corporation status. In connection with
           the  termination  of S  Corporation  status,  the Company  declared a
           distribution   (the  S  Corporation   Distribution)  of  all  of  its
           undistributed earnings, estimated to be $11.2 million as of March 31,
           1997. In addition,  the Company will be required to record a deferred
           tax  liability  with  a  corresponding   one-time  tax  provision  of
           approximately $4.2 million in accordance with SFAS No. 109.

     b.    The  reorganization,  whereby  Valley  National  Gases,  Inc., a West
           Virginia corporation,  has become an indirect wholly owned subsidiary
           of Valley National Gases Incorporated, a Pennsylvania corporation, by
           exchange of stock.  Valley National Gases Incorporated has authorized
           common stock of 30,000,000  shares,  par value $.001,  and authorized
           preferred stock of 5,000,000 shares, par value $.01.

     c.    Issuance of 267,084  shares of common  stock as part of  compensation
           agreements  with  certain  executive   officers  and  directors.   In
           connection  with these  compensation  arrangements,  the Company will
           incur an expense of approximately $1.9 million in the period in which
           the closing of the Offering occurred.

     d.    The cancellation of treasury stock of Valley National Gases, Inc.

     Accordingly,  the Company's shareholders' equity accounts and the number of
     shares in the  accompanying  financial  statements have been  retroactively
     restated to give effect to the  reorganization  and increase in  authorized
     capital stock.

                                       12
<PAGE>


     B. Business Acquisitions

     In April 1997, the Company  purchased  substantially all of the assets of 
     an  industrial  gas and  welding  supply  distributor  and a fire safety
     equipment distributor for an aggregate purchase price of approximately $4.3
     million. These acquisitions were financed by borrowings under the Company's
     credit facility and a note payable to one of the sellers.

     C. 1997 Stock Option Plan

     The Company adopted the 1997 Stock Option Plan (the Plan) in February 1997.
     The Plan  provides  for the  issuance  of options to purchase up to 650,000
     shares of Common  Stock to key  employees,  officers  and  directors of the
     Company and is administered by the Nominating and Compensation Committee of
     the Board of Directors.

     The Company granted options to purchase  175,000 shares effective as of the
     closing of the Offering,  which includes  options to purchase 42,000 shares
     and 25,000 shares, respectively,  granted to two executives, and options to
     purchase  5,000 shares granted to each of the five  independent  directors.
     The options  granted to the two executives  vest in annual  installments of
     12,500  options  until all such options are vested.  All other options vest
     three years  after the date of the grant and have a term of ten years.  The
     options are  exercisable  at a price equal to the fair market  value of the
     shares  of  Common  Stock  on the  date of the  grant.  In the  case of key
     employees  and  officers,  unexercised  options  granted under the Plan are
     subject to forfeiture  upon  termination of employment for any reason other
     than death, disability or normal retirement.

     D. Right of First Refusal

     In  September  1991,  in  connection  with the  purchase  by the Company of
     certain  assets of  Praxair,  Inc.  (Praxair),  the  Company,  Mr. West and
     certain of his affiliates  entered into a Right of First Refusal  Agreement
     with Praxair.  In March 1997, the parties to such agreement entered into an
     Amended and Restated  Right of First Refusal  Agreement (the Right of First
     Refusal  Agreement)  in  connection  with  the  Company's   reorganization.
     Pursuant to this agreement, if at any time during the term of the agreement
     the  Company  wishes to accept a third  party  offer to  purchase  all or a
     material part of the assets of the Company,  or Mr. West and his affiliates
     wish to accept an offer to purchase  shares of capital stock of the Company
     (the Capital Stock) owned by them in a transaction that would result in Mr.
     West and his affiliates  collectively owning less than 51% of the Company's
     issued and outstanding  shares of Capital Stock on a fully diluted basis or
     owning less than 51% of the combined voting power of all outstanding voting
     securities of the Company,  then Praxair will have a right of first refusal
     to match the offer. In addition,  in the absence of a third party offer, if
     (a) Mr. West and his  affiliates  wish to sell shares of Common Stock which
     would  result  in their  owning  collectively  less than 51% or more of the
     Company's issued and outstanding shares of Common Stock, (b) the Company

                                       13
<PAGE>


     wishes to sell all or a material  part of its  assets,  or (c) the  Company
     wishes to issue additional shares, or options or securities  exercisable or
     convertible  into  shares of  Common  Stock,  pursuant  to  employee  stock
     options, a public offering,  private placement,  merger,  share exchange or
     otherwise,  which in the aggregate on a fully diluted basis would result in
     Mr. West and his  affiliates  collectively  owning less than 51% of all the
     issued and outstanding  shares of Common Stock,  then Praxair will have the
     right to purchase from Mr. West and his  affiliates up to all of the issued
     and outstanding  shares of Common Stock held by them (but not less than 51%
     of all of the issued and outstanding  shares of the Company's  Common Stock
     on a fully diluted basis) at the then  prevailing  market price. If Praxair
     does purchase  shares of Capital Stock from Mr. West and his  affiliates as
     described in this paragraph, then Mr. West and his affiliates will be bound
     by  certain  non-compete  provisions,  as  described  in the Right of First
     Refusal Agreement, for a period of three years from such purchase.

6. PRO FORMA INFORMATION (UNAUDITED):

The pro forma  adjustments for income taxes included in the accompanying  income
statements  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 net income by the weighted  average  shares  outstanding  for
each 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 as adjusted
to reflect (i) the assumed  issuance of  1,068,208  shares to fund the excess of
dividends  (including the estimated S Corporation  Distribution) over net income
for the nine months ended March 31, 1997 (ii) the issuance of 170,718  shares of
common stock to two executive  officers  immediately prior to the closing of the
Offering in connection  with the  termination of certain  deferred  compensation
agreements,  and  (iii) the  issuance  of  96,366  shares  of common  stock to a
director  immediately prior to the closing of the Offering,  pursuant to a right
under a consulting  agreement to convert deferred  consulting payments to common
stock.  In connection  with these  compensation  arrangements,  the Company will
incur an expense of approximately  $1.9 million ($2.2 million gross compensation
net of related  accruals of $0.3  million) in the period in which the closing of
the Offering occurred.


                                       14
<PAGE>


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 nine 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  16% per year since the Company started business in
1958, increasing from $190,000 in that year to $68.6 million for the last twelve
months.  In fiscal 1996,  gases  accounted for  approximately  46% of net sales,
welding equipment and supplies accounted for approximately 40% 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  22  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 Company  anticipates  that the benefits of the Weldco and Weber
acquisitions  will be realized over a comparable  period.  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.

                                       15
<PAGE>


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 comparison to prior years, even
though the dollar amount of the gross margin has increased.  Future acquisitions
may  affect  this  pattern  depending  upon  the  product  mix of  the  acquired
businesses.

Prior to April 9, 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 the Offering and become a C Corporation. As a result
of  termination of the S Corporation  election,  the Company will be required to
recognize  approximately  $4.2 million of deferred income taxes in the period in
which the closing of the Offering occurred.

RESULTS OF OPERATIONS

Comparison of Three Months Ended March 31, 1997 and 1996

Net sales increased 35.7%, or $5.3 million,  to $20.3 million from $14.9 million
for the three months ended March 31, 1997 and 1996,  respectively.  Acquisitions
made during the preceding twelve months contributed $4.7 million of the increase
in net  sales,  while  base  business  growth  contributed  $0.6  million of the
increase.  Gases and  cylinder  revenue  represented  55.6% of net sales for the
three months ended March 31, 1997,  with hard goods  representing  the remaining
44.4%.  In  comparison,  net sales for the three  months  ended  March 31,  1996
reflected  gases and  cylinder  revenue as 60.9% and hard  goods as 39.1%.  This
change  in sales mix  reflects  the  effect  of  acquisitions  made  during  the
preceding twelve months.

Gross profit, which excludes depreciation and amortization,  increased 30.2%, or
$2.5  million,  to $10.9  million  from $8.3  million for the three months ended
March 31, 1997 and 1996,  respectively.  Acquisitions  made during the preceding
twelve months  contributed  $2.1 million of the increase in gross profit,  while
the base business  contributed  $0.4 million of the increase.  Gross profit as a
percentage  of net sales was 53.5% for the three  months  ended March 31,  1997,
compared  to 55.8% for the  three  months  ended  March 31,  1996.  This  change
reflected an increase in the  proportion of hard good sales,  which have a lower
gross profit  margin as a percentage  of net sales than gases.  This increase in
the  proportion  of hard good sales was primarily  attributable  to the two most
recent acquisitions.

Operating and administrative  expenses increased 27.7%, or $1.5 million, to $7.1
million  from $5.6  million for the three  months ended March 31, 1997 and 1996,
respectively.  Of this increase, $1.2 million was related to acquired businesses
and the remaining $0.3 million reflected increases in the amounts accrued by the
Company for bonuses and profit sharing, facility lease expenses and inflationary
impacts on wages and other  operating  expenses.  Operating  and  administrative
expenses as a percentage of sales  decreased to 35.2% for the three months ended
March 31, 1997,  as compared to 37.4% 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

                                       16
<PAGE>


before  the  acquisitions  were  made.  Depreciation  and  amortization  expense
increased $0.5 million for the three months ended March 31, 1997 compared to the
same period in 1996,  primarily as a result of acquisitions made during the last
twelve  months.  Interest  expense  increased  $0.2  million  for  the  quarter,
reflecting the financing of acquisitions made during the last twelve months.

Net income increased  22.5%, or $0.3 million,  to $1.5 million from $1.2 million
for the three months ended March 31, 1997 and 1996, respectively.

Comparison of Nine Months Ended March 31, 1997 and 1996

Net sales increased 38.3%, or $15.0 million, to $54.0 million from $39.0 million
for the nine months  ended March 31, 1997 and 1996,  respectively.  Acquisitions
made  during  the  preceding  twelve  months  contributed  $12.7  million of the
increase in net sales,  while base business growth  contributed  $2.3 million of
the increase.  Gases and cylinder revenue represented 56.7% of net sales for the
nine months ended March 31, 1997,  with hard goods  representing  the  remaining
43.3%.  In  comparison,  net  sales for the nine  months  ended  March 31,  1996
reflected  gases and  cylinder  revenue as 61.2% and hard  goods as 38.8%.  This
change in sales mix reflects  primarily the effect of  acquisitions  made during
the preceding twelve months.

Gross profit, which excludes depreciation and amortization,  increased 33.6%, or
$7.3  million,  to $29.1  million  from $21.8  million for the nine months ended
March 31, 1997 and 1996,  respectively.  Acquisitions  made during the preceding
twelve months  contributed  $6.0 million of the increase in gross profit,  while
the base business  contributed  $1.3 million of the increase.  Gross profit as a
percentage  of net sales was 53.9% for the nine  months  ended  March 31,  1997,
compared  to 55.8%  for the nine  months  ended  March  31,  1996.  This  change
reflected an increase in the  proportion of hard good sales,  which have a lower
gross profit  margin as a percentage  of net sales than gases.  This increase in
the  proportion  of hard good sales was primarily  attributable  to the two most
recent acquisitions.

Operating and administrative expenses increased 33.3%, or $4.9 million, to $19.7
million  from $14.8  million for the nine months  ended March 31, 1997 and 1996,
respectively.  Of this increase, $3.8 million was related to acquired businesses
and the remaining $1.1 million reflected increases in the amounts accrued by the
Company for bonuses and profit sharing, facility lease expenses and inflationary
impacts on wages and other  operating  expenses.  Operating  and  administrative
expenses as a percentage  of sales  decreased to 36.5% for the nine months ended
March 31, 1997, as compared to 37.8% for the same period 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 $1.4 million for the nine
months ended March 31, 1997, compared to the same period in 1996, primarily as a
result of  acquisitions  made during the last twelve  months.  Interest  expense
increased $0.5 million for the nine months ended March 31, 1997,  reflecting the
financing of acquisitions made during the last twelve months.

Net income  increased  9.9%, or $0.3 million,  to $3.4 million from $3.1 million
for the nine months ended March 31, 1997 and 1996, respectively.

                                       17
<PAGE>


LIQUIDITY AND CAPITAL RESOURCES

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. Since April 1994, required debt service on borrowings
from banks has been limited primarily to interest payments.

At March 31,  1997,  the  Company  had  working  capital of  approximately  $9.7
million.  Funds  provided by operations for the nine months ended March 31, 1997
were  approximately  $4.0  million.  Funds used for  investing  activities  were
approximately $7.4 million for the nine months ended March 31, 1997,  consisting
primarily of capital  spending and  financing for two  acquisitions.  Sources of
funds from  financing  activities  for the nine months ended March 31, 1997 were
approximately  $3.3  million  from  net  borrowings  net of  $0.8  million  of S
Corporation distribution for payment of shareholder taxes.

On October 4, 1996,  the Company  entered  into a new credit  facility  totaling
$38.0 million,  consisting of a $13.0 million term loan,  which matures in seven
years and is amortized in equal monthly payments,  and a $25.0 million revolving
loan with a $15.0  million  sublimit  for  letters of credit,  which  matures in
October 1999.  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 7.44% as of March 31, 1997.  The
Company pays a fee for the unused portion of the revolving loan. As of March 31,
1997,  availability  under the revolving loan was  approximately  $10.0 million,
with  outstanding  borrowings of  approximately  $10.1  million and  outstanding
letters of credit of approximately $4.9 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 10.5%
per annum, and maturities  through 2010. The outstanding  balance of these notes
as of March 31,  1997 was $12.6  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.
Outstanding letters of credit as of March 31, 1997 were $4.9 million.


                                       18
<PAGE>


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 are higher for the second and third quarters
than for the first and fourth quarters of the fiscal year.


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 April 15, 1997, the Company  completed an  initial  public  offering of its
common  stock with 2.2  million  shares  being sold by the  Company at $8.00 per
share (including 300,000 overallotment shares subsequently sold on May 2, 1997).
The net proceeds of approximately $15.9 million have been or will be used to pay
the  Company's  estimated  S Corporation  distribution  of $11.2 million and to
reduce  the  loans  of $4.7  million  outstanding  under  its  revolving  credit
facility.

In April 1997, the  Company purchased  substantially  all of  the assets  of an
industrial  gas and  welding  supply  distributor  and a fire  safety  equipment
distributor for an aggregate purchase price of approximately $4.3 million. These
acquisitions were financed by borrowings under the  Company's  credit  facility
and a note payable to the one of the sellers.


RECENT ACCOUNTING PRONOUNCEMENTS

Statement of Financial  Accounting  Standards (SFAS) No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of, was
issued  in March  1995.  SFAS  No.  121  requires  that  the  carrying  value of
long-lived  operating assets, when determined to be impaired,  be adjusted so as
not to exceed the  estimated  undiscounted  cash flows  provided by such assets.
SFAS No. 121 also addresses the accounting for long-lived  assets that are to be
disposed of in future  periods.  The Company  adopted the provisions of SFAS No.
121 in the first  quarter of fiscal  1997.  The adoption of SFAS No. 121 did not
have any effect on the Company's financial position or results of operations for
the six months ended December 31, 1996.

                                       19
<PAGE>


Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation", was issued in October 1995. The Company will be required to adopt
the new  standard  no  later  than  fiscal  1997,  although  early  adoption  is
permitted.  This standard  establishes the fair value based method (the SFAS 123
Method) rather than the intrinsic value based method as the preferred accounting
methodology for stock-based compensation  arrangements.  Entities are allowed to
either (i) continue to use the intrinsic value based  methodology in their basic
financial  statements  and  provide  in the  footnotes  pro forma net income and
earnings  per share  information  as if the SFAS 123 Method had been  adopted or
(ii) adopt the SFAS 123 Method.  Following  adoption,  the  Company  anticipates
providing the required disclosures in the notes to its financial statements.

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 will adopt SFAS No. 128 in fiscal 1998 and does not anticipate  that the
statement will have a significant impact on its reported EPS.

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 will adopt SFAS No. 129 in fiscal 1998 and does not
anticipate that the statement will have a significant impact on its disclosure.




                                       20
<PAGE>

                           PART II. OTHER INFORMATION


Item 6. Exhibits and Reports on Form 8-K

        (a)       Exhibits:

                  See Exhibit Index on page 23.

        (b)       Reports on Form 8-K:

                  There  were no reports  on Form 8-K filed  during the  quarter
                  ended March 31, 1997.


                                       21
<PAGE>


                                   SIGNATURES



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


                                    VALLEY NATIONAL GASES INCORPORATED



May 23, 1997                        /s/ Robert D. Scherich
                                    --------------------------------------------
                                        Robert D. Scherich
                                        Chief Financial Officer


                                       22
<PAGE>

                                  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)

11.1             Computation of Earnings Per Share

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


                                       23