United States
                      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 June 30, 1999

                        Commission File Number 333-34323


                   HYDROCHEM INDUSTRIAL SERVICES, INC. (*)
            (Exact name of registrant as specified in its charter)


                      Delaware                          75-2503906
          (State or other jurisdiction of            (I.R.S. Employer
           incorporation or organization)           Identification Number)

                 900 Georgia Avenue
                  Deer Park, Texas                          77536
          (Address of principal executive offices)        (Zip Code)

                                 (713) 393-5600
              (Registrant's telephone number, including area code)


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

                                    Yes X       No


     The  number  of shares of Common  Stock of the  Registrant  outstanding  on
     February  28, 1999 was 100 shares.  The  Registrant's  Common  Stock is not
     registered under the Securities Act of 1933, as amended,  or the Securities
     Exchange Act of 1934, as amended.



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


     * HydroChem  International,  Inc., a wholly-owned  subsidiary  of HydroChem
Industrial Services, Inc., is a Co-Registrant. It is incorporated under the laws
of  the  State  of  Delaware.  Its  I.R.S.  Employer  Identification  Number  is
75-2512100.
<PAGE>


                              TABLE OF CONTENTS


Part I. Financial Information

        Item 1. Financial Statements

              Consolidated Balance Sheets as of December 31, 1998 and
                 June 30, 1999 (unaudited)............................     3

              Consolidated  Statements of  Operations  for each of the
                 three and six month periods ended June 30, 1998
                 and 1999 (unaudited).................................     4

              Consolidated Statement of Stockholder's Equity for the six
                 month period ended June 30, 1999 (unaudited).........     5

              Consolidated  Statements  of Cash Flows for each of the
                 six month periods ended June 30, 1998 and
                 1999 (unaudited).....................................     6

              Notes to Consolidated Financial Statements (unaudited)..     7

        Item 2. Management's Discussion and Analysis of Financial Condition
                   and Results of Operations..........................    11

        Item 3. Quantitative and Qualitative Disclosures About
                   Market Risk........................................    17

Part II.Other Information

        Item 1. Legal Proceedings.....................................   18

        Item 6. Exhibits and Reports on Form 8-K......................   18

Signatures............................................................   22

Exhibit Index.........................................................   23


                                       2
<PAGE>



                     HYDROCHEM INDUSTRIAL SERVICES, INC.
                               AND SUBSIDIARIES

                         CONSOLIDATED BALANCE SHEETS
                      (in thousands, except share data)

<TABLE>
<CAPTION>

                                                     December 31,      June 30,
                                                        1998             1999
                                                        ----             ----
                                ASSETS
   <S>                                               <C>               <C>
   Current assets:
      Cash and cash equivalents...................   $ 33,775          $  2,557
      Receivables, less allowance of $536 and $731,
        respectively..............................     23,941            37,549
      Inventories.................................      3,902             4,823
      Prepaid expenses and other current assets...      1,714             2,733
      Income taxes receivable.....................        243               243
      Deferred income taxes.......................      1,467             1,655
                                                      -------          --------
         Total current assets.....................     65,042            49,560

   Property and equipment, at cost................     81,459            91,634
      Accumulated depreciation....................    (33,322)          (38,447)
                                                      -------           -------
                                                       48,137            53,187

   Intangible assets, net.........................     43,246            68,670
                                                      -------          --------

         Total assets.............................   $156,425          $171,417
                                                      =======           =======

                     LIABILITIES AND STOCKHOLDER'S EQUITY
   Current liabilities:
      Accounts payable............................   $  4,973          $  6,146
      Accrued liabilities.........................     13,193            19,901
      Current portion of long-term debt (Note 3)..        121               165
                                                      -------           -------
         Total current liabilities................     18,287            26,212

   Long-term debt (Note 3)........................    115,996           119,297
   Deferred income taxes..........................      8,626             8,814
   Commitments and contingencies (Note 6)

   Stockholder's equity:
      Common stock, $.01 par value:
         1,000 shares authorized, 100 shares
         outstanding                                        1                 1
      Additional paid-in capital..................     16,558            16,558
      Retained earnings (deficit).................     (3,043)              535
                                                      -------           -------
      Total stockholder's equity..................     13,516            17,094
                                                      -------           -------

         Total liabilities and stockholder's equity  $156,425          $171,417
                                                     ========          ========
</TABLE>




                           See accompanying notes.

                                       3
<PAGE>


                     HYDROCHEM INDUSTRIAL SERVICES, INC.
                               AND SUBSIDIARIES

                    CONSOLIDATED STATEMENTS OF OPERATIONS
                                (in thousands)
<TABLE>
<CAPTION>

                                     Three months ended       Six months ended
                                          June 30,                June 30,
                                       1998       1999        1998      1999
                                     -------    -------      ------    -------
<S>                                 <C>        <C>          <C>        <C>
Revenue..........................   $ 45,067   $ 52,194     $ 85,955   $103,099
Cost of revenue..................     28,185     30,437       53,070     60,700
                                      ------     ------       ------    -------
   Gross profit..................     16,882     21,757       32,885     42,399

Selling, general and administrative
 expense                              10,961     12,874       21,748     25,374
Depreciation.....................      2,239      2,839        4,432      5,752
                                      ------     ------       ------    -------
   Operating income..............      3,682      6,044        6,705     11,273

Other (income) expense:
   Interest expense, net.........      2,599      3,228        5,116      6,496
   Special charge................        300        -            300        -
   Other (income) expense, net...         13        (26)          16        (68)
   Amortization of intangibles...        374        633          750      1,267
                                      ------     ------       ------    -------
Income before taxes..............        396      2,209          523      3,578

   Income tax provision (Note 4).        237        -            312        -
                                      ------     ------       ------    -------
Net income ......................   $    159   $  2,209     $    211   $  3,578
                                     ========   =======      =======    =======

</TABLE>


















                           See accompanying notes.

                                       4

<PAGE>


                     HYDROCHEM INDUSTRIAL SERVICES, INC.
                               AND SUBSIDIARIES

                CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
                                (in thousands)


<TABLE>
<CAPTION>
                                             Additional    Retained
                                    Common    Paid-in      Earnings
                                    Stock     Capital      (Deficit)    Total
                                    -----     -------      ---------    -----
<S>                                 <C>       <C>          <C>          <C>

Balance at December 31, 1998 ....   $    1    $16,558      $(3,043)     $13,516


   Net income....................        -         -         3,578        3,578
                                    ------     ------       ------       ------


Balance at June 30, 1999 ........   $    1    $16,558      $   535      $17,094
                                     =====     ======       ======       ======

</TABLE>




























                           See accompanying notes.

                                       5
<PAGE>


                     HYDROCHEM INDUSTRIAL SERVICES, INC.
                               AND SUBSIDIARIES

                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (in thousands)

<TABLE>
<CAPTION>
                                                        Six months ended
                                                           June 30,
                                                     1998          1999
                                                   --------      --------

<S>                                                 <C>           <C>
Operating activities:
   Net income...................................    $    211      $ 3,578
   Adjustments to reconcile net income
       to net cash provided by operating activities:
      Depreciation..............................       4,432        5,752
      Amortization..............................         750        1,267
      Amortization of deferred financing costs..         183          218
      Deferred income tax provision.............        (225)          -
      Gain on sale of property and equipment....         (32)          (5)
   Changes in operating assets and liabilities,
    net of effects of acquisition:
      Restricted cash...........................       2,858           -
      Receivables, net..........................      (4,380)      (8,568)
      Inventories...............................        (700)        (921)
      Prepaid expenses and other current assets.      (1,274)        (378)
      Income taxes receivable...................         407           -
      Accounts payable..........................       2,728          424
      Income taxes payable......................         (16)          -
      Accrued liabilities.......................         475        5,015
                                                     -------      -------
         Net cash provided by operating activities     5,417        6,382
                                                     -------      -------
Investing activities:
   Expenditures for property and equipment......     (10,449)      (3,423)
   Proceeds from sale of property and equipment.         135          111
   Purchase of assets, net of cash..............          -       (31,971)
                                                     -------      -------
         Net cash used in investing activities..     (10,314)     (35,283)
                                                     -------      -------
Financing activities:
   Repayments of long-term debt, net............        (124)      (2,317)
                                                     -------      -------
         Net cash used in financing activities..        (124)      (2,317)
                                                     -------      -------

Net decrease in cash............................      (5,021)     (31,218)
Cash at beginning of period.....................      33,862       33,775
                                                     -------      -------

Cash at end of period...........................    $ 28,841      $ 2,557
                                                    ========      =======

</TABLE>



                           See accompanying notes.


                                       6
<PAGE>


                     HYDROCHEM INDUSTRIAL SERVICES, INC.
                               AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                June 30, 1999



1.    Organization, Formation and Basis of Presentation

      The consolidated  financial  statements  include the accounts of HydroChem
   Industrial Services,  Inc.  ("HydroChem") and its wholly-owned  subsidiaries,
   including  HydroChem   International,   Inc.   ("International").   HydroChem
   generally conducts business outside the United States through  International.
   (HydroChem and its subsidiaries are hereinafter  sometimes referred to either
   separately or  collectively  as the  "Company.")  HydroChem is a wholly-owned
   subsidiary of HydroChem Holding, Inc.
   ("Holding").

      The Company is engaged in the  business of providing  industrial  cleaning
   services to a wide range of processing  industries,  including  petrochemical
   plants,  oil refineries,  electric  utilities,  pulp and paper mills,  rubber
   plants,  and  aluminum  plants.  This  type of work  is  typically  recurring
   maintenance to improve or sustain the operating  efficiencies  and extend the
   useful lives of process  equipment and facilities.  Services provided include
   high-pressure water cleaning (hydroblasting),  chemical cleaning,  industrial
   vacuuming   and  other   services.   Other   services   include   mechanical,
   commissioning, waste minimization and specialized services.

      The accompanying  unaudited  consolidated  financial  statements presented
   herein have been prepared in accordance  with generally  accepted  accounting
   principles for interim financial information and the rules and regulations of
   the Securities and Exchange Commission.  Accordingly, they do not include all
   of the information and disclosures  required by generally accepted accounting
   principles  for  complete  financial  statements.   Certain  information  and
   disclosures  normally included in financial statements prepared in accordance
   with generally accepted accounting principles have been condensed or omitted.
   In the opinion of management,  the accompanying  unaudited  interim financial
   statements  include all  adjustments,  consisting  of only  normal  recurring
   accruals,  necessary  for a fair  presentation  of the results of the interim
   periods.  Operating results for the three and six month interim periods ended
   June 30,  1999 are not  necessarily  indicative  of the  results  that may be
   expected for the year ending December 31, 1999. These unaudited  consolidated
   financial statements should be read in conjunction with the Company's audited
   consolidated  financial statements included in the Company's Annual Report on
   Form 10-K for the year ended December 31, 1998.

2.    Derivative Financial Instruments

      HydroChem entered into an interest rate swap agreement dated July 17, 1998
   (the  "Interest  Rate  Swap")  with a  financial  institution  to manage  the
   interest  rate  exposure of the  $7,500,000  Term Loan (as defined in Note 3)
   with  the  same  financial   institution.   Under  the  Interest  Rate  Swap,
   HydroChem's  effective  fixed  borrowing  rate for the Term Loan is 7.82% per
   annum. The Company is exposed to credit loss in the event of  non-performance
   by  the  financial  institution;  however,  management  does  not  anticipate
   non-performance and, in the event of non-performance,  no material loss would
   be expected.  The Company does not hold or issue  financial  instruments  for
   trading purposes. See Note 3.

                                       7
<PAGE>

3. Long-term Debt

      Long-term  debt at December 31, 1998 and June 30, 1999  consisted of the
   following (in thousands):
<TABLE>
<CAPTION>
                                                     1998             1999
                                                     ----             ----
      <S>                                          <C>             <C>
      Senior subordinated notes..............      $ 110,000       $ 110,000
      Construction loan......................          6,117             -
      Term loan..............................            -             7,462
      Credit facility........................            -             2,000
                                                    --------        --------
      Total long-term debt...................        116,117         119,462
       Less current portion of long-term debt           (121)           (165)
                                                    --------        --------
                                                   $ 115,996       $ 119,297
                                                     =======         =======
</TABLE>

      HydroChem has outstanding  $110,000,000 of Senior  Subordinated Notes (the
   "Notes"). The Notes mature on August 1, 2007 and bear interest at 10 3/8% per
   annum which is payable semi-annually in arrears on February 1 and August 1 of
   each year. The Notes are  redeemable at the option of HydroChem,  in whole or
   in part,  on or after  August  1, 2002 at  specified  redemption  prices.  In
   addition,  until August 4, 2000, up to 35% of the Notes are redeemable at the
   option of HydroChem with the proceeds from one or more equity  offerings at a
   redemption price of 109.375% of the principal  amount thereof.  All HydroChem
   subsidiaries are guarantors of the Notes.

      HydroChem is a party to a credit  agreement  dated  December 31, 1997,  as
   amended,  with a financial  institution  for a credit facility which provides
   for unsecured  borrowings  of up to  $25,000,000,  subject to borrowing  base
   limitations (the "Credit Facility").  The Credit Facility matures on December
   31, 2000 and any  borrowings  thereunder  bear  interest at rates,  which are
   adjusted quarterly. At the discretion of HydroChem,  interest rates are based
   on (i) LIBOR plus an applicable margin of 1.75% to 3.00%, or, (ii) the higher
   of (a) the prime rate plus an  applicable  margin of up to 1.00%,  or (b) the
   Federal Funds Rate plus an applicable  margin of 0.50% to 1.50%. In addition,
   a  commitment  fee of 0.25% to 0.50% per annum is  payable  quarterly  on the
   unborrowed  portion of the Credit  Facility.  The  specific  rate within each
   range depends upon the Company's operating  performance.  The Credit Facility
   requires  the  Company  to  meet  certain  customary   financial  ratios  and
   covenants,  and generally  restricts the Company from pledging its assets. At
   June 30,  1999,  HydroChem's  borrowing  base under the Credit  Facility  was
   $25,000,000,  of which  $4,742,000  had been  utilized  and  $20,258,000  was
   available.  The amounts utilized consisted of advances and standby letters of
   credit of $2,000,000 and  $2,742,000,  respectively.  The standby  letters of
   credit  principally were issued in connection with the Company's property and
   casualty insurance program.

      For the purpose of financing the land purchase and  construction  costs of
   the Company's headquarters and operating facility in the Houston, Texas area,
   HydroChem is a party to a loan  agreement  dated July 17,  1998,  as amended,
   with  a  financial  institution  (the  "Construction  Loan  Agreement").  The
   Construction  Loan Agreement  provided for an interim  construction loan (the
   "Interim Loan") of up to $7,500,000  which was converted to a term loan as of
   March 31, 1999 (the "Term Loan").  The Term Loan is  collateralized  by first
   priority  liens on the land and  improvements.  Interest on the Interim Loan,
   which was payable  quarterly,  was at the lender's  commercial loan rate less
   0.50%.  The Term Loan  matures on September  30,  2006.  Under the Term Loan,
   principal  and interest are payable in  quarterly  installments  with a final
   payment of  $5,977,000  due at maturity.  Pursuant to the Interest Rate Swap,
   HydroChem's  effective  fixed  borrowing  rate for the Term Loan is 7.82% per
   annum. The Construction  Loan Agreement  requires the Company to meet certain
   customary  financial ratios and covenants and generally restricts the Company
   from transferring or pledging the facility's  assets.  The Company obtained a
   waiver with respect to one of the ratios for  non-compliance  resulting  from
   special and restructuring  charges recorded during the quarter ended December
   31, 1998. At June 30, 1999,  HydroChem had $7,462,000  outstanding  under the
   Term Loan and was in  compliance  with the  financial  ratios  and  covenants
   contained in the Construction Loan Agreement.

                                       8
<PAGE>

4. Income Taxes

      The Company files a  consolidated  tax return with Holding.  The Company's
   effective  income  tax rate for the  interim  periods  presented  is based on
   management's  estimate of the Company's effective tax rate for the applicable
   year and differs from the federal  statutory income tax rate primarily due to
   nondeductible  permanent  differences,  state income taxes and changes in the
   valuation allowance of deferred tax assets.

5. Summary Financial Information

      Summary  financial  information for  International  as  consolidated  with
   HydroChem is as follows (in thousands):
<TABLE>
<CAPTION>

                                              As of          As of
                                           December 31,     June 30,
                                              1998           1999
                                              ----           ----
<S>                                         <C>            <C>
      Current assets...................     $ 1,377        $ 2,004
      Noncurrent assets................         103             98
      Current liabilities..............          68            208
      Noncurrent liabilities...........         -              -
</TABLE>
<TABLE>
<CAPTION>
                                     Three months ended     Six months ended
                                           June 30,             June 30,
                                      1998         1999       1998      1999
                                     ------       ------     ------    ------
      <S>                            <C>         <C>        <C>       <C>
      Revenue..............          $ 1,051     $ 1,705    $ 1,618   $ 2,815
      Gross profit.........              329         685        537     1,107
      Net income (loss)....             (143)        318       (204)      481
</TABLE>

6. Commitments and Contingencies

      The  Company  is a  defendant  in various  lawsuits  arising in the normal
   course of business.  Substantially  all of these suits are being  defended by
   the Company's insurance  carriers.  While the results of litigation cannot be
   predicted with  certainty,  management  believes that adequate  provision has
   been made for such claims and that the final outcome of such  litigation will
   not have a material  adverse effect on the Company's  consolidated  financial
   position.

      Also, the Company is a defendant in approximately  70 lawsuits  originally
   filed in the 18th  Judicial  District  Court  for the  Parish  of  Iberville,
   Louisiana against Georgia Gulf Corporation  ("Georgia Gulf"), the Company and
   other defendants,  which arose from a chemical exposure incident at a Georgia
   Gulf facility in  Plaquemine,  Louisiana in September  1996.  The suits cover
   claims by approximately 640 non-Company employees present at the facility and
   by  approximately  1,400  persons  who  are  related  to  or  live  with  the
   non-Company  employees.  All of the plaintiffs seek damages for alleged toxic
   exposure resulting from this incident. All but a few of these suits have been
   removed to the  United  States  District  Court for the  Middle  District  of
   Louisiana.

      Pursuant  to a  Memorandum  of  Understanding  effective  April 15,  1999,
   virtually  all of the  plaintiffs  and each of the  defendants in the actions
   pending in federal court have agreed upon a settlement. Under this agreement,
   the Company's  insurance  carriers have deposited the Company's  share of the
   settlement  into escrow,  to be released  upon receipt of a release from each
   participating  plaintiff or the  dismissal of the claims of any plaintiff who
   does not  participate.  Separately,  Georgia  Gulf has agreed in principal to
   indemnify  the  Company  against  the  claims of any  plaintiff  who does not
   participate  in  the  settlement,  the  claims  of the  approximately  twenty
   plaintiffs who are not parties to the agreement and against any future claims
   which may arise in connection with this incident.

                                       9
<PAGE>

      All payments by the Company under these  arrangements have been or will be
   covered  by  insurance.  Accordingly,  subject  to  the  consummation  of the
   settlement, management believes that the resolution of these matters will not
   have a  material  adverse  effect  on the  Company's  consolidated  financial
   position.

7. Acquisition

      On January 5, 1999, the Company acquired  substantially  all of the assets
   and assumed certain liabilities of Valley Systems, Inc. and Valley Systems of
   Ohio, Inc. (collectively  "Valley"), a regional industrial services provider.
   The  acquisition,  which was effective as of January 1, 1999, was pursuant to
   the terms and  conditions  of a Second  Amended and Restated  Asset  Purchase
   Agreement  dated as of  September  8,  1998.  The assets  acquired  consisted
   primarily of (i) accounts  receivable,  (ii)  property,  plant and equipment,
   (iii)  intangibles,  and (iv) other operating  assets.  The adjusted purchase
   price for the  acquired  assets  was  $30,857,000,  of which  $4,000,000  was
   deposited into escrow.  As part of the transaction,  the Company also assumed
   $2,493,000  in capital lease  obligations  and  $5,594,000 in bank debt.  The
   Company has converted the capital leases to operating  leases and retired the
   bank  debt.  The source of funds for the  purchase  price and  retirement  of
   Valley's bank debt was a combination of cash on hand and borrowings under the
   Credit Facility.

      The  acquisition  has been  accounted  for  using the  purchase  method of
   accounting.   The  Company's  financial   statements  reflect  a  preliminary
   allocation of the purchase price based upon the Company's initial  valuation.
   The  excess  of the  purchase  price  over the fair  value of the net  assets
   acquired is being  amortized over periods  ranging from 10 to 25 years and is
   estimated as follows (in thousands):
<TABLE>
<CAPTION>
         <S>                                        <C>
         Purchase price (as adjusted).......        $ 30,857
         Transaction and acquisition costs..           2,101
                                                     -------
                                                      32,958
         Fair value of net assets acquired..           5,995
                                                      -------
         Excess of purchase price over fair value   $ 26,963
                                                      ======
</TABLE>

      The book value of net assets  acquired was determined to approximate  fair
   value at the date of acquisition. Transaction costs consist primarily of fees
   to attorneys,  accountants and other outside service providers,  and costs of
   transferring  ownership of the acquired assets.  Acquisition  costs primarily
   represent (i) severance and relocation  costs for certain  Valley  employees,
   (ii) expenses  incurred in connection  with the closing or  consolidation  of
   certain  facilities,  and (iii)  certain  other  costs  incurred  directly in
   connection with the acquisition.

      The results of  operations  derived from assets  acquired  from Valley are
   included in the Company's  financial  statements  from the effective  date of
   acquisition. Unaudited pro forma consolidated results of operations have been
   prepared as if the  acquisition  of the Valley assets had occurred on January
   1, 1998 and include (in thousands):
<TABLE>
<CAPTION>

                                          Three Months          Six Months
                                          Ended June 30,       Ended June 30,
                                              1998                  1998
                                          -------------        ---------------
         <S>                               <C>                   <C>
         Revenue.......................    $ 51,719              $ 98,472
         Net income....................         297                   411
</TABLE>

      The unaudited pro forma consolidated results of operations presented above
   do not purport to be  indicative  of results that would have occurred had the
   acquisition been in effect for the period  presented,  nor do they purport to
   be indicative of results that will be obtained in the future.

                                       10
<PAGE>




                     HYDROCHEM INDUSTRIAL SERVICES, INC.
                               AND SUBSIDIARIES

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

Statement Regarding Forward-Looking Information

      Management's  Discussion  and Analysis  and other items in this  Quarterly
Report on Form 10-Q contain forward-looking  statements and information that are
based on management's  beliefs,  as well as assumptions made by, and information
currently  available  to,  management.  When  used in this  document,  the words
"believe", "anticipate", "estimate", "expect", "intend", and similar expressions
are  intended  to  identify  forward-looking  statements.   Although  management
believes that the expectations reflected in such forward-looking  statements are
reasonable,  it can give no assurance that such  expectations will prove to have
been correct.  Such statements are subject to certain risks,  uncertainties  and
assumptions.  Should one or more of these risks or uncertainties materialize, or
should  underlying   assumptions  prove  incorrect,   actual  results  may  vary
materially  from those  anticipated.  The Company  undertakes  no  obligation to
release publicly the result of any revisions to these forward-looking statements
that may be made to reflect events or circumstances  after the date hereof or to
reflect the occurrence of unanticipated events.

   For supplemental  information,  it is suggested that "Management's Discussion
and  Analysis  of  Financial  Condition  and Results of  Operations"  be read in
conjunction  with the  corresponding  sections  included in the Company's Annual
Report on Form 10-K for the year ended  December  31,  1998.  The Form 10-K also
includes the Company's  Consolidated  Financial Statements and the Notes thereto
for certain prior  periods,  as well as other  relevant  financial and operating
information.

Results of Operations

   The  following  table sets  forth,  for the  periods  indicated,  information
derived from the Company's consolidated statements of operations, expressed as a
percentage  of revenue.  There can be no assurance  that the trends in operating
results will continue in the future.
<TABLE>
<CAPTION>
                                       Three months ended      Six months ended
                                            June 30,                June 30,
                                         1998       1999        1998      1999
                                       -------     ------      ------   -------
      <S>                               <C>        <C>         <C>      <C>
      Revenue....................       100.0%     100.0%      100.0%   100.0%
      Cost of revenue............        62.5       58.3        61.7     58.9
                                        -----      -----       -----    -----
         Gross profit............        37.5       41.7        38.3     41.1
      SG&A expense...............        24.3       24.7        25.3     24.6
      Depreciation...............         5.0        5.4         5.2      5.6
                                        -----      -----       -----    -----
         Operating income........         8.2       11.6         7.8     10.9
      Other (income) expense:
         Interest expense, net...         5.8        6.2         6.0      6.3
         Special charge..........         0.7        -           0.3      -
         Other (income) expense, net        -        -           -       (0.1)
         Amortization of intangibles      0.8        1.2         0.9      1.2
                                        -----      -----       -----    -----
       Income before taxes........        0.9        4.2         0.6      3.5
              Income tax provision        0.5        -           0.4      -
                                        -----      -----       -----    -----
      Net income ................         0.4%       4.2%        0.2%     3.5%
                                        =====      =====       =====    =====

      EBITDA(1)..................        13.1%      17.0%       13.0%    16.5%
                                        =====      =====       =====    =====
</TABLE>

(1) EBITDA for any relevant  period  presented  above  represents  income before
taxes plus interest expense,  depreciation,  amortization,  and other income and
expense  (including  a special  charge of  $300,000  in the three and six months
ended  June 30,  1998).  EBITDA  should not be  construed  as a  substitute  for
operating  income,  as an indicator of liquidity or as a substitute for net cash
provided by  operating  activities,  which are  determined  in  accordance  with
generally accepted accounting principles.  EBITDA is included because management
believes it to be a useful tool for analyzing operating  performance,  leverage,
liquidity and a company's ability to service debt.

                                       11
<PAGE>


Three Months Ended June 30, 1999 Compared to Three Months Ended June 30, 1998
-----------------------------------------------------------------------------

   Revenue.  Revenue increased $7.1 million,  or 15.8%, to $52.2 million for the
three  months  ended June 30, 1999 from $45.1  million in the prior year period.
The  increase in revenue,  which  applied to all service  lines,  resulted  from
increases in industrial  vacuuming revenue of $2.8 million,  or 54.2%, from $5.2
million to $8.0 million; other services revenue of $2.3 million, or 103.9%, from
$2.1 million to $4.4 million;  chemical  cleaning  revenue of $1.2  million,  or
7.1%,  from  $16.1  million  to $17.4  million;  and  hydroblasting  revenue  of
$817,000,  or 3.8%,  from  $21.6  million  to $22.4  million.  The  increase  in
industrial  vacuuming  revenue resulted from additional  vacuum trucks placed in
service  by the  Company  in 1998 and 1999,  and the  acquisition  of the Valley
assets. The increase in other services revenue resulted from mechanical services
projects, which the Company began performing in 1998, and an increased volume of
commissioning  services  projects.  The  increase in chemical  cleaning  revenue
principally  resulted from an increase in the volume of projects.  Hydroblasting
revenue increased as a result of the acquisition of the Valley assets, partially
offset by a reduced volume of projects in other locations.

   Gross profit. Gross profit increased $4.9 million, or 28.9%, to $21.8 million
in 1999 from $16.9  million  in the prior  year  period.  Gross  profit  margins
increased from 37.5% to 41.7%. Cost of revenue increased $2.3 million,  or 8.0%,
to $30.4 million for 1999 from $28.2 million in the prior year period  primarily
due to the revenue increases described above. Gross profit margins improved,  in
part,  as a result of a cost  reduction  program,  which  included,  among other
things, a reduction in work force that was implemented in late 1998.

   SG&A expense. SG&A expense increased $1.9 million, or 17.5%, to $12.9 million
in 1999 from $11.0  million in the prior year period.  This  increase  primarily
resulted from the  acquisition of the Valley assets and was partially  offset by
the cost  reduction  program  described  above.  SG&A expense as a percentage of
revenue increased to 24.7% in 1999 from 24.3% in the prior year period.

   EBITDA.  Increased gross profit,  partially offset by increased SG&A expense,
resulted in a $3.0 million, or 50.0%, increase in EBITDA to $8.9 million in 1999
from $5.9 million in the prior year period.  As a percentage of revenue,  EBITDA
increased to 17.0% in 1999, compared to 13.1% in the prior year period.

   Depreciation.  Depreciation  expense  increased  $600,000,  or 26.8%, to $2.8
million in 1999 from $2.2 million in the prior year period and was 5.4% and 5.0%
of revenue,  respectively.  The  increase in  depreciation  expense  principally
resulted from the acquisition of the Valley assets and from capital expenditures
in 1998 and 1999.

   Operating income.  Increased gross profit, partially offset by increased SG&A
and  depreciation  expense,  resulted in an increase in operating income of $2.4
million,  or 64.1%,  to $6.0 million in 1999 from $3.7 million in the prior year
period. As a percentage of revenue, operating income increased to 11.6% in 1999,
compared to 8.2% in the prior year period.

   Interest expense, net. Interest expense, net increased $629,000, or 24.2%, to
$3.2  million  in 1999 from $2.6  million in the prior  year  period.  Increased
interest  expense,  net resulted  from (i) an increase in debt due to borrowings
under the  Construction  Loan  Agreement  beginning in July 1998 and  borrowings
under the Credit  Facility in January  1999 to finance a portion of the purchase
price of the Valley assets and the  retirement of the Valley bank debt, and (ii)
a decrease in interest income due to lower invested cash balances.

   Special charge. The Company incurred approximately $300,000 of expense in the
prior year period related to a terminated acquisition.

   Amortization.  Amortization expense increased $259,000, or 69.3%, to $633,000
in 1999 from $374,000 in the prior year period.  Increased  amortization expense
resulted from goodwill incurred in connection with the acquisition of the Valley
assets.

                                       12
<PAGE>

   Income before taxes.  For the reasons  described  above,  income before taxes
increased  $1.8 million to $2.2 million in 1999 from  $396,000 in the prior year
period.  As a  percentage  of  revenue,  income  before  taxes was 4.2% in 1999,
compared to 0.9% in the prior year period.

   Income tax  provision.  The effective tax rate decreased to zero in 1999 from
59.8% of income before taxes in the prior year period. This decrease principally
resulted from changes in the valuation allowance of deferred tax assets.

   Net  income.  For the  reasons  described  above,  the  Company's  net income
increased  $2.1 million to $2.2 million in 1999 from  $159,000 in the prior year
period.  As a percentage  of revenue,  net income was 4.2% in 1999,  compared to
0.4% in the prior year period.

Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998
-------------------------------------------------------------------------

   Revenue. Revenue increased $17.1 million, or 19.9%, to $103.1 million for the
six months ended June 30, 1999 from $86.0 million in the prior year period.  The
increase in revenue, which applied to all service lines, resulted from increases
in industrial vacuuming revenue of $6.8 million, or 65.2%, from $10.5 million to
$17.3  million;  hydroblasting  revenue of $4.4  million,  or 10.1%,  from $43.6
million to $48.1  million;  other services  revenue of $3.7 million,  or 100.7%,
from $3.7  million  to $7.4  million;  and  chemical  cleaning  revenue  of $2.2
million,  or  7.8%,  from  $28.2  million  to $30.4  million.  The  increase  in
industrial  vacuuming  revenue resulted from additional  vacuum trucks placed in
service  by the  Company  in 1998 and 1999,  and the  acquisition  of the Valley
assets. Hydroblasting revenue increased primarily as a result of the acquisition
of the Valley assets,  partially offset by a reduced volume of projects in other
locations.  The increase in other  services  revenue  principally  resulted from
mechanical services projects,  which the Company began performing in April 1998,
and an increased  volume of  commissioning  services  projects.  The increase in
chemical cleaning revenue principally resulted from an increase in the volume of
projects.

   Gross profit. Gross profit increased $9.5 million, or 28.9%, to $42.4 million
in 1999 from $32.9  million  in the prior  year  period.  Gross  profit  margins
increased from 38.3% to 41.1%. Cost of revenue increased $7.6 million, or 14.4%,
to $60.7 million for 1999 from $53.1 million in the prior year period  primarily
due to the revenue increases described above. Gross profit margins improved,  in
part,  as a result of a cost  reduction  program,  which  included,  among other
things, a reduction in work force that was implemented in late 1998.

   SG&A expense. SG&A expense increased $3.6 million, or 16.7%, to $25.4 million
in 1999 from $21.7  million in the prior year period.  This  increase  primarily
resulted from the  acquisition of the Valley assets and was partially  offset by
the cost  reduction  program  described  above.  SG&A expense as a percentage of
revenue decreased to 24.6% in 1999 from 25.3% in the prior year period.

   EBITDA.  Increased gross profit,  partially offset by increased SG&A expense,
resulted in a $5.9  million,  or 52.9%,  increase in EBITDA to $17.0  million in
1999 from $11.1  million in the prior year period.  As a percentage  of revenue,
EBITDA increased to 16.5% in 1999, compared to 13.0% in the prior year period.

   Depreciation.  Depreciation expense increased $1.3 million, or 29.8%, to $5.8
million in 1999 from $4.4 million in the prior year period and was 5.6% and 5.2%
of revenue,  respectively.  The  increase in  depreciation  expense  principally
resulted from the acquisition of the Valley assets and from capital expenditures
in 1998 and 1999.

   Operating income.  Increased gross profit, partially offset by increased SG&A
and  depreciation  expense,  resulted in an increase in operating income of $4.6
million,  or 68.1%, to $11.3 million in 1999 from $6.7 million in the prior year
period. As a percentage of revenue, operating income increased to 10.9% in 1999,
compared to 7.8% in the prior year period.

   Interest  expense,  net.  Interest  expense,  net increased $1.4 million,  or
27.0%,  to $6.5  million in 1999 from $5.1  million  in the prior  year  period.
Increased  interest  expense,  net resulted  from (i) an increase in debt due to
borrowings  under the  Construction  Loan  Agreement  beginning in July 1998 and
borrowings under the Credit Facility in January

                                       13
<PAGE>

1999 to finance a portion  of the  purchase  price of the Valley  assets and the
retirement of the Valley bank debt,  and (ii) a decrease in interest  income due
to lower invested cash balances.

   Special charge. The Company incurred approximately $300,000 of expense in the
prior year period related to a terminated acquisition.

   Amortization.  Amortization  expense  increased  $517,000,  or 68.9%, to $1.3
million in 1999 from $750,000 in the prior year period.  Increased  amortization
expense  resulted from goodwill  incurred in connection  with the acquisition of
the Valley assets.

   Income before taxes.  For the reasons  described  above,  income before taxes
increased  $3.1 million to $3.6 million in 1999 from  $523,000 in the prior year
period.  As a  percentage  of  revenue,  income  before  taxes was 3.5% in 1999,
compared to 0.6% in the prior year period.

   Income tax  provision.  The effective tax rate decreased to zero in 1999 from
59.7% of income before taxes in the prior year period. This decrease principally
resulted from changes in the valuation allowance of deferred tax assets.

   Net  income.  For the  reasons  described  above,  the  Company's  net income
increased  $3.4 million to $3.6 million in 1999 from  $211,000 in the prior year
period.  As a percentage  of revenue,  net income was 3.5% in 1999,  compared to
0.2% in the prior year period.


Liquidity and Capital Resources

   The Company principally has financed its operations through net cash provided
by operating  activities,  existing cash balances,  available credit facilities,
and capital contributions from Holding. HydroChem has outstanding $110.0 million
of Senior  Subordinated Notes (the "Notes").  The Notes mature on August 1, 2007
and bear interest at 10 3/8% per annum which is payable semi-annually in arrears
on February 1 and August 1 of each year.  The Notes are redeemable at the option
of  HydroChem,  in whole or in part,  on or after  August 1,  2002 at  specified
redemption prices. In addition, until August 4, 2000, up to 35% of the Notes are
redeemable at the option of HydroChem  with the proceeds from one or more equity
offerings at a redemption price of 109.375% of the principal amount thereof. All
HydroChem subsidiaries, including International, are guarantors of the Notes.

   HydroChem  is a party to a credit  agreement  dated  December  31,  1997,  as
amended,  with a  financial  institution  for a  credit  facility  (the  "Credit
Facility")  which  provides for  unsecured  borrowings  of up to $25.0  million,
subject to borrowing base  limitations.  The Credit Facility matures on December
31,  2000  and  any  borrowings  thereunder  bear  interest  at  rates  adjusted
quarterly. At the discretion of HydroChem, interest rates are based on (i) LIBOR
plus an  applicable  margin of 1.75% to 3.00%,  or,  (ii) the  higher of (a) the
prime rate plus an  applicable  margin of up to 1.00%,  or (b) the Federal Funds
Rate plus an applicable margin of 0.50% to 1.50%. In addition,  a commitment fee
of 0.25% to 0.50% per annum is payable  quarterly on the  unborrowed  portion of
the Credit  Facility.  The  specific  rate  within each range  depends  upon the
Company's  operating  performance.  The Credit Facility  requires the Company to
meet certain customary  financial ratios and covenants,  and generally restricts
the Company from pledging its assets.  At June 30, 1999,  HydroChem's  borrowing
base under the Credit Facility was $25.0 million, of which $4.7 million had been
utilized and $20.3  million was  available.  The amounts  utilized  consisted of
advances  and  standby  letters  of credit  of $2.0  million  and $2.7  million,
respectively.   The  standby  letters  of  credit  principally  were  issued  in
connection with the Company's property and casualty insurance program.

   For the purpose of financing the land purchase and construction  costs of the
Company's  headquarters  and  operating  facility  in the  Houston,  Texas area,
HydroChem is a party to a loan agreement dated July 17, 1998, as amended, with a
financial institution (the "Construction Loan Agreement"). The Construction Loan
Agreement  provided for an interim  construction loan (the "Interim Loan") of up
to $7.5  million  which was  converted  to a term loan as of March 31, 1999 (the
"Term Loan").  The Term Loan is  collateralized  by first  priority liens on the
land  and  improvements.  Interest  on  the  Interim  Loan,  which  was  payable
quarterly,  was at the lender's  commercial loan rate less 0.50%.  The Term Loan



                                       14
<PAGE>

matures on September 30, 2006.  Under the Term Loan,  principal and interest are
payable in quarterly  installments  with a final  payment of $6.0 million due at
maturity.  Pursuant  to the  Interest  Rate Swap,  HydroChem's  effective  fixed
borrowing  rate for the Term  Loan is 7.82% per  annum.  The  Construction  Loan
Agreement  requires the Company to meet certain  customary  financial ratios and
covenants and generally  restricts the Company from transferring or pledging the
facility's  assets.  The Company  obtained a waiver  with  respect to one of the
ratios for  non-compliance  resulting  from  special and  restructuring  charges
recorded during the quarter ended December 31, 1998. At June 30, 1999, HydroChem
had borrowed  $7.5 million  under the Term Loan and was in  compliance  with the
financial ratios and covenants contained in the Construction Loan Agreement.

   For the six months  ended June 30,  1999,  the Company used net cash of $28.9
million in operating and investing  activities,  which consisted of $6.4 million
provided by operating activities and $35.3 million used in investing activities.
For the six months  ended June 30,  1998,  $4.9  million of net cash was used in
operating and investing activities,  which consisted of $5.4 million provided by
operating activities and $10.3 million used in investing activities.  Except for
the purchase of the Valley assets in the current  period,  investing  activities
for both periods consisted primarily of expenditures for property and equipment.

   Expenditures  for  property and  equipment  for the six months ended June 30,
1999 were $3.4 million.  Of this amount,  $1.9 million was used  principally for
purchases  of  operating  equipment,  $1.0  million to  implement  new field and
corporate  software and hardware  systems,  and $501,000 in connection  with the
construction of the headquarters and operating facility.

   On January 5, 1999, the Company acquired  substantially all of the assets and
assumed certain  liabilities of Valley. The assets acquired consisted  primarily
of  (i)  accounts  receivable,   (ii)  property,  plant  and  equipment,   (iii)
intangibles,  and (iv) other operating  assets.  The adjusted purchase price for
the acquired  assets was $30.9  million,  of which $4 million was deposited into
escrow.  As part of the  transaction,  the Company  also assumed $2.5 million in
capital  lease  obligations  and $5.6  million in bank  debt.  The  Company  has
converted the capital leases to operating  leases and retired the bank debt. The
source of funds for the purchase  price and retirement of Valley's bank debt was
a combination of cash on hand and borrowings under the Credit Facility.

   Management believes that cash and cash equivalents at June 30, 1999, net cash
expected to be provided by operating  activities  and funds  available  from its
existing credit  facilities will be sufficient to meet its cash requirements for
operations  and  expenditures  for  property and  equipment  for the next twelve
months and the foreseeable future thereafter.


Impact of Year 2000

   The Year 2000 issue is the result of computer  programs  being  written using
two digits  rather than four digits to define the  applicable  year.  This could
result in a system failure or miscalculation if, for example, a computer program
recognizes  a date of "00" as the year  1900  instead  of 2000.  Management  has
assessed the Year 2000 issue with regard to the Company's internal financial and
operating  systems as well as certain  third  parties with which the Company has
material relationships.

   With regard to the Company's  financial and operating systems,  HydroChem has
developed,  acquired and  implemented  software and  hardware  systems  which it
believes to be Year 2000 compliant,  including new software and hardware systems
for  which  the  Company  expended  a total of $2.0  million  in 1998 and  1999.
Management estimates it will incur an aggregate of approximately $2.6 million in
connection with these systems by the end of 1999.  Certain of these systems have
been tested for compliance  and testing of the remaining  systems is expected to
be  completed by September  1999.  Although the Company has not yet  developed a
comprehensive  contingency  plan to  address  situations  that may result if the
Company  is unable to  achieve  Year 2000  readiness,  the  Company's  Year 2000
compliance   program  is  ongoing  and  its  ultimate  scope,  as  well  as  the
consideration  of  contingency  plans,  will  continue  to be  evaluated  as new
information becomes available.



                                       15
<PAGE>

   As part of its  Year  2000  compliance  program,  management  has  identified
certain third parties with which the Company has material  relationships.  These
parties  are  primarily  large  financial,   telecommunication  and  information
processing  entities,  and other third party  suppliers.  Certain of these third
parties  have  reported  to the  Company  that they are on  schedule  with their
projects to remediate Year 2000 issues, and that they anticipate being Year 2000
compliant  on a timely  basis.  Management  intends to  continue  to monitor the
progress of these third parties and expects to develop  contingency plans during
1999 in the event one or more of these third  parties  fail to  remediate  their
Year 2000 issues in such a way as to  materially  affect the  operations  of the
Company.

   The Year 2000 issue  involves  significant  risks.  There can be no assurance
that the Company will succeed in implementing its Year 2000 program, potentially
as a result of factors,  which are beyond the Company's  control.  The following
describes  the Company's  most  reasonably  likely  worst-case  scenario,  given
current  uncertainties:  if the Company's software and hardware systems fail the
testing phase, or any software application or embedded  microprocessors  central
to the Company's  operations are overlooked in the assessment or  implementation
phases,  significant  problems could occur,  including  delays in accounting and
financial reporting. It is also possible, given the numerous other uncertainties
which could occur, that the Company's business,  financial condition and results
of operations  could be adversely  affected.  Management is unable to assess the
likelihood  of such events  occurring  or the extent of their  effect.  Although
there can be no  assurance,  management  has no reason to believe  that any Year
2000 issues that the Company may experience will have a material  adverse effect
on its operations.

   The foregoing Year 2000 discussion contains forward-looking  statements. Such
statements,  including  without  limitation  anticipated  costs and the dates by
which management expects to complete certain actions,  are based on management's
best current estimates,  which were derived utilizing numerous assumptions about
future  events,  including  the  continued  availability  of certain  resources,
representations  received from third parties, and other factors.  However, there
can be no guarantee that these  estimates  will be achieved,  and actual results
could differ  materially  from those  anticipated.  Specific  factors that might
cause such material  differences include, but are not limited to, the ability to
identify and remediate all relevant  information  technology and non-information
technology  systems,  results of Year 2000 testing,  adequate resolution of Year
2000 issues by  businesses  and other third  parties who are service  providers,
suppliers or customers of the Company,  unanticipated system costs, the adequacy
of  and  ability  to  develop  and  implement  contingency  plans,  and  similar
uncertainties.  The forward  looking  statements made in the foregoing Year 2000
discussion  speak only as of the date on which such statements are made, and the
Company  undertakes no obligation  to update any  forward-looking  statements to
reflect events or circumstances after the date on which such statements are made
or to reflect the occurrence of unanticipated events.







                                       16
<PAGE>


                     HYDROCHEM INDUSTRIAL SERVICES, INC.
                               AND SUBSIDIARIES

                   QUANTITATIVE AND QUALITATIVE DISCLOSURES
                              ABOUT MARKET RISK


   The  following  discussion  regarding  the  Company's  market  risk  includes
forward-looking  statements that involve risk and uncertainties.  Actual results
could differ materially from those projected in the forward-looking statements.

   The  Company is  exposed to certain  market  risks  which  include  financial
instruments such as short-term  investments,  trade  receivables,  and long-term
debt.  The  adverse  effects  of  potential  changes in these  market  risks are
discussed below. The sensitivity  analyses  discussed below do not reflect:  (i)
the effects that such adverse changes may have on overall economic activity; or,
(ii) additional  actions  management may take to mitigate the Company's exposure
to such changes.  The Company does not engage in  speculative  transactions  and
does not use derivative instruments or engage in hedging activities,  except for
the Interest Rate Swap which is being utilized in connection with the Term Loan.

   The  Company  provides  industrial  cleaning  services  to a  wide  range  of
processing industries including  petrochemical plants, oil refineries,  electric
utilities,  pulp and paper mills, rubber plants, and aluminum plants. Management
believes the Company's portfolio of accounts receivable is well diversified and,
as  a  result,   its  credit  risks  are  minimal.   Management   evaluates  the
creditworthiness  of the Company's customers and monitors accounts on a periodic
basis,  but  typically  does  not  require   collateral.   The  Company's  trade
receivables  are  primarily  denominated  in U.S.  dollars and are generally due
within 30 days. In general,  trade receivables are collected in a timely manner,
and  historically  bad  debts  have  been  immaterial  and  within  management's
expectations.  Management believes that diversification and timely collection of
accounts receivable reduces associated credit risk.

   The  Company's  surplus cash is placed in overnight  investments  with a high
quality financial institution, in accordance with investment guidelines relative
to credit quality,  diversification  and maturity to reduce risk and provide for
liquidity. As of June 30, 1999, the Company had overnight investment deposits in
a cash reserves  money market  mutual fund  totaling  $3.0  million.  Due to the
short-term nature of these investments,  management  believes the carrying value
approximates market value. Management expects to continue to invest surplus cash
amounts in overnight  deposits during 1999 and, as a result,  a decrease of 1.0%
from current  average  investment  rates would not have a material effect on the
Company's consolidated financial position.

   As of June 30, 1999,  the Company's  outstanding  long-term debt consisted of
the Credit  Facility,  the Term Loan,  and the Notes.  The Notes totaled  $110.0
million,  are due August 1, 2007,  and bear  interest at a fixed rate of 10 3/8%
per annum.  As of June 30, 1999,  the market value of the Notes was estimated to
be $101.2 million.

   At the same date,  outstanding  borrowings  under the Credit Facility and the
Term Loan  totaled  $9.5  million and  approximated  their fair  values.  At the
discretion of HydroChem,  interest rates under the Credit  Facility are based on
(i) a range from LIBOR plus 1.75% to LIBOR plus 3.00%, or (ii) the higher of (a)
the prime rate or (b) the  Federal  Funds Rate plus  0.50%,  plus an  applicable
margin of up to 1.00%.  The Term Loan bears  interest  at LIBOR rates plus 1.75%
adjusted quarterly. To protect the Term Loan against interest rate fluctuations,
the Company  entered into the  Interest  Rate Swap which  effectively  fixes the
interest rate at 7.82% per annum.

   Market  risk,  estimated  as a  potential  increase  in  fair  value  of debt
instruments  resulting from a hypothetical  1.0% decrease in interest  rates, is
estimated to not be material to the Company during 1999.





                                       17
<PAGE>


Part II.  Other Information

   Item 1.  Legal Proceedings

         The  Company is a defendant  in  approximately  70 lawsuits  originally
   filed in the 18th  Judicial  District  Court  for the  Parish  of  Iberville,
   Louisiana against Georgia Gulf Corporation  ("Georgia Gulf"), the Company and
   other defendants,  which arose from a chemical exposure incident at a Georgia
   Gulf facility in  Plaquemine,  Louisiana in September  1996.  The suits cover
   claims by approximately 640 non-Company employees present at the facility and
   by  approximately  1,400  persons  who  are  related  to  or  live  with  the
   non-Company  employees.  All of the plaintiffs seek damages for alleged toxic
   exposure resulting from this incident. All but a few of these suits have been
   removed to the  United  States  District  Court for the  Middle  District  of
   Louisiana.

         Pursuant to a Memorandum  of  Understanding  effective  April 15, 1999,
   virtually  all of the  plaintiffs  and each of the  defendants in the actions
   pending in federal court have agreed upon a settlement. Under this agreement,
   the Company's  insurance  carriers have deposited the Company's  share of the
   settlement  into escrow,  to be released  upon receipt of a release from each
   participating  plaintiff or the  dismissal of the claims of any plaintiff who
   does not  participate.  Separately,  Georgia  Gulf has agreed in principal to
   indemnify  the  Company  against  the  claims of any  plaintiff  who does not
   participate  in  the  settlement,  the  claims  of the  approximately  twenty
   plaintiffs who are not parties to the agreement and against any future claims
   which may arise in connection with this incident.

         All payments by the Company under these  arrangements have been or will
   be covered by  insurance.  Accordingly,  subject to the  consummation  of the
   settlement, management believes that the resolution of these matters will not
   have a  material  adverse  effect  on the  Company's  consolidated  financial
   position.


   Item 6.  Exhibits and Reports on Form 8-K
         (a)      Exhibits

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

            3.1      Certificate  of  Incorporation   of  HydroChem   Industrial
                     Services,  Inc. as amended.  (Exhibit 3.1 to the  Company's
                     Registration  Statement on Form S-4, filed August 25, 1997,
                     is hereby incorporated by reference.)

            3.2      Certificate of  Incorporation  of HydroChem  International,
                     Inc.,   as   amended.   (Exhibit   3.2  to  the   Company's
                     Registration  Statement on Form S-4, filed August 25, 1997,
                     is hereby incorporated by reference.)

            3.3      By-Laws of HydroChem Industrial Services, Inc. (Exhibit 3.3
                     to the Company's  Registration Statement on Form S-4, filed
                     August 25, 1997, is hereby incorporated by reference.)

            3.4      By-Laws of HydroChem  International,  Inc.  (Exhibit 3.4 to
                     the  Company's  Registration  Statement on Form S-4,  filed
                     August 25, 1997, is hereby incorporated by reference.)

            4.1      Purchase Agreement, dated as of July 30, 1997, by and among
                     HydroChem    Industrial    Services,     Inc.,    HydroChem
                     International,   Inc.  and  Donaldson,  Lufkin  &  Jenrette
                     Securities Corporation,  as Initial Purchaser,  relating to
                     the 10 3/8%  Series A Senior  Subordinated  Notes due 2007.
                     (Exhibit  4.1 to the  Company's  Registration  Statement on
                     Form S-4, filed August 25, 1997, is hereby  incorporated by
                     reference.)



                                       18
<PAGE>


            4.2      Indenture,  dated as of August  1,  1997,  among  HydroChem
                     Industrial Services, Inc., HydroChem  International,  Inc.,
                     as  Guarantor,  and  Norwest  Bank,  Minnesota,   N.A.,  as
                     Trustee.   (Exhibit  4.2  to  the  Company's   Registration
                     Statement on Form S-4,  filed  August 25,  1997,  is hereby
                     incorporated by reference.)

            4.3      Registration  Rights Agreement dated August 4, 1997, by and
                     among  HydroChem  Industrial   Services,   Inc.,  HydroChem
                     International,   Inc.  and  Donaldson,  Lufkin  &  Jenrette
                     Securities Corporation, as Initial Purchaser.  (Exhibit 4.3
                     to the Company's  Registration Statement on Form S-4, filed
                     August 25, 1997, is hereby incorporated by reference.)

            10.1     HydroChem   Holding,   Inc.   1994   Stock   Option   Plan.
                     (Exhibit 10.1 to  the  Company's  Registration Statement on
                     Form S-4,  filed August 25, 1997,  is  hereby  incorporated
                     by reference.)

            10.2     Employment  Agreement  dated December 15, 1993 by and among
                     HydroChem Holding,  Inc.,  HydroChem  Industrial  Services,
                     Inc. and B. Tom Carter, Jr., as amended through December 9,
                     1996. (Exhibit 10.5 to the Company's Registration Statement
                     on Form S-4, filed August 25, 1997, is hereby  incorporated
                     by reference.)

            10.3     Fourth  Amendment to  Employment  Agreement  dated April 9,
                     1998  by  and  among  HydroChem  Holding,  Inc.,  HydroChem
                     Industrial  Services,  Inc. and B. Tom Carter, Jr. (Exhibit
                     10.8 to the  Company's  Form 10-Q,  filed May 14, 1998,  is
                     hereby incorporated by reference.)

            10.4     Secured  Promissory  Note dated  April 30, 1999 from B. Tom
                     Carter, Jr. to HydroChem Holding, Inc. (Exhibit 10.4 to the
                     Company's  Form  10-Q,   filed  May  11,  1999,  is  hereby
                     incorporated by reference.)

            10.5     Pledge  Agreement  dated April 30, 1999  between  HydroChem
                     Holding,  Inc. and B. Tom Carter,  Jr. (Exhibit 10.5 to the
                     Company's  Form  10-Q,   filed  May  11,  1999,  is  hereby
                     incorporated by reference.)

            10.6     Employment   Agreement   dated  November  1,  1992  between
                     HydroChem Industrial Services, Inc. and Gary Noto. (Exhibit
                     10.3 to the Company's  Registration  Statement on Form S-4,
                     filed  August  25,   1997,   is  hereby   incorporated   by
                     reference.)

            10.7     Amendment  dated January 27, 1999 to  Employment  Agreement
                     dated  November  1,  1992  between   HydroChem   Industrial
                     Services,  Inc.  and  Gary D.  Noto.  (Exhibit  10.8 to the
                     Company's  Form  10-K,  filed  March  29,  1999,  is hereby
                     incorporated by reference.)

            10.8     Employment   Agreement   dated  November  1,  1992  between
                     HydroChem  Industrial  Services,  Inc.  and J. Pat  DeBusk.
                     (Exhibit  10.2 to the Company's  Registration  Statement on
                     Form S-4, filed August 25, 1997, is hereby  incorporated by
                     reference.)

            10.9     Employment  Agreement  dated  September  26,  1997  between
                     HydroChem  Industrial  Services,  Inc. and Donovan W. Boyd.
                     (Exhibit 10.10 to the Company's Form 10-K,  filed March 29,
                     1999, is hereby incorporated by reference.)

            10.10    First Amendment dated June 28, 1999 to Employment Agreement
                     dated  September  26,  1997  between  HydroChem  Industrial
                     Services, Inc. and Donovan W. Boyd. (Filed herewith.)

                                       19
<PAGE>

            10.11    Employment  Offer Letter dated June 3, 1996 from  HydroChem
                     Industrial Services, Inc. to Selby F. Little, III. (Exhibit
                     10.6 to the Company's  Registration  Statement on Form S-4,
                     filed  August  25,   1997,   is  hereby   incorporated   by
                     reference.)

            10.12    Letter  Agreement regarding  severance  compensation  dated
                     October 31, 1997  between  HydroChem  Industrial  Services,
                     Inc. and Pelham H. A. Smith. (Exhibit 10.7 to the Company's
                     Form 10-Q, filed November 14, 1997, is hereby  incorporated
                     by reference.)


            10.13    Form  of   Indemnification   Agreement  entered  into  with
                     directors  and  officers.  (Exhibit  10.8 to the  Company's
                     Amendment No. 1 to the Registration  Statement on Form S-4,
                     filed   October  3,  1997,   is  hereby   incorporated   by
                     reference.)

            10.14    Deferred Bonus Plan of HydroChem  Industrial Services, Inc.
                     effective May 1, 1999. (Filed herewith.)

            10.15    Credit  Agreement  dated December 31, 1997 among  HydroChem
                     Industrial  Services,  Inc.  and  NationsBank,  N.  A.  and
                     financial  institutions  named  in  the  Credit  Agreement.
                     (Exhibit 10.10 to the Company's Form 10-K,  filed March 30,
                     1998, is hereby incorporated by reference.)

            10.16    Letter  Agreement  dated  March 6,  1998  regarding  Credit
                     Agreement   dated  December  31,  1997  between   HydroChem
                     Industrial  Services,  Inc. and NationsBank,  N.A. (Exhibit
                     10.11 to the Company's Form 10-K,  filed March 30, 1998, is
                     hereby incorporated by reference.)

            10.17    Letter  Agreement  dated August 14, 1998  regarding  Credit
                     Agreement   dated  December  31,  1997  between   HydroChem
                     Industrial  Services,  Inc. and NationsBank,  N.A. (Exhibit
                     10.15 to the Company's Form 10-Q,  filed November 16, 1998,
                     is hereby incorporated by reference.)

            10.18    Amendment  No. 1 dated as of  September  30, 1998 to Credit
                     Agreement  dated as of December 31, 1997 between  HydroChem
                     Industrial Services, Inc., NationsBank,  N.A. and financial
                     institutions named in the Credit Agreement.  (Exhibit 10.16
                     to the  Company's  Form 10-Q,  filed  November 16, 1998, is
                     hereby incorporated by reference.)

            10.19    Amendment  No. 2 dated as of  December  31,  1998 to Credit
                     Agreement  dated as of December 31, 1997 between  HydroChem
                     Industrial Services, Inc., NationsBank,  N.A. and financial
                     institutions named in the Credit Agreement.  (Exhibit 10.19
                     to the Company's Form 10-K, filed March 29, 1999, is hereby
                     incorporated by reference.)

            10.20    Loan  Agreement  dated  July  17,  1998  between  HydroChem
                     Industrial  Services,  Inc. and Bank One,  Texas,  National
                     Association.  (Exhibit  10.15 to the  Company's  Form 10-Q,
                     filed  August  14,   1998,   is  hereby   incorporated   by
                     reference.)

            10.21    Amendment  No.  1  dated  as of  February  2,  1999 to Loan
                     Agreement dated July 17, 1998 between HydroChem  Industrial
                     Services,  Inc. and Bank One, Texas  National  Association.
                     (Exhibit 10.21 to the Company's Form 10-K,  filed March 29,
                     1999, is hereby incorporated by reference.)

            10.22    Extension  Agreement  dated as of  February 2, 1999 to Loan
                     Agreement dated July 17, 1998 between HydroChem  Industrial
                     Services,  Inc. and Bank One, Texas,  National

                                       20
<PAGE>

                     Association.  (Exhibit 10.22 to  the  Company's  Form 10-K,
                     filed March 29, 1999, is hereby incorporated by reference.)

            10.23    International   Swap  Dealers   Association,   Inc.  Master
                     Agreement   and  Schedule   dated  July  17,  1998  between
                     HydroChem  Industrial  Services,  Inc. and Bank One, Texas,
                     National Association.  (Exhibit 10.16 to the Company's Form
                     10-Q,  filed August 14,  1998,  is hereby  incorporated  by
                     reference.)

            10.24    Amended and Restated Asset Purchase  Agreement by and among
                     HydroChem  Industrial  Services,  Inc.,  Valley  Systems of
                     Ohio, Inc. and Valley  Systems,  Inc. dated as of September
                     8, 1998.  (Exhibit  10.1 to the Company's  Form 8-K,  filed
                     January 20, 1999, is hereby incorporated by reference.)

            27.1     Financial Data Schedule.  (Filed herewith.)

   (b)   Reports on Form 8-K.

         None.













                                       21
<PAGE>




                                  SIGNATURES


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




                                  HYDROCHEM INDUSTRIAL SERVICES, INC.


   Date: August 10, 1999          By: /s/  Selby F.  Little, III
                                      ---------------------------
                                  Selby F. Little, III, Executive Vice President
                                  and Chief Financial Officer






                                  HYDROCHEM INTERNATIONAL, INC.


   Date: August 10, 1999          By: /s/ Selby F.  Little, III
                                      ---------------------------
                                  Selby F. Little, III, Executive Vice President
                                  and Chief Financial Officer





                                       22
<PAGE>



                                 EXHIBIT INDEX





      10.10    First Amendment dated June 28, 1999 to Employment Agreement dated
               September 26, 1997  between  HydroChem  Industrial Services, Inc.
               and Donovan W. Boyd.

      10.14    Deferred  Bonus  Plan  of  HydroChem  Industrial  Services,  Inc.
               effective May 1, 1999.

      27.1     Financial Data Schedule






                                       23