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 September 30, 1998


                       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, par value of $.01 per
   per share, outstanding on November 1, 1998 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 direct and wholly owned  subsidiary of
HydroChem  Industrial  Services,  Inc., is a  Co-Registrant.  It is incorporated
under the laws of the State of Delaware and its I.R.S.  Employer  Identification
Number is 75-2512100.

                                      1


<PAGE>



                              TABLE OF CONTENTS


Part I. Financial Information

      Item 1. Financial Statements

            Consolidated Balance Sheets as of December 31, 1997 and
               September 30, 1998 (unaudited)........................    3

            Consolidated Statements of Operations for each of the three and nine
               month periods ended September 30, 1997 and 1998 (unaudited)4

            Consolidated Statement of Stockholder's Equity for the nine
               month period ended September 30, 1998 (unaudited).....    5

            Consolidated  Statements  of Cash  Flows for each of the nine  month
               periods ended September 30, 1997 and 1998 (unaudited)6

            Notes to Consolidated Financial Statements (unaudited)...    7

      Item 2.  Management's Discussion and Analysis of Financial Condition
                 and Results of Operations...........................   10

Part II. Other Information

         Item 6. Exhibits and Reports on Form 8-K....................   16

Signatures...........................................................   19

Exhibit Index........................................................   20





                                      2

<PAGE>



                     HYDROCHEM INDUSTRIAL SERVICES, INC.
                                AND SUBSIDIARY

                         CONSOLIDATED BALANCE SHEETS
                      (in thousands, except share data)


<TABLE>
<CAPTION>

                                                     December 31,  September 30,
                                                         1997           1998
                                                     ------------  ------------      
   <S>                                                  <C>          <C>
                                ASSETS
   Current assets:
      Cash and cash equivalents...................      $ 33,862      $29,358
      Restricted cash (Note 2)....................         2,858          273
      Receivables, less allowance of
          $1,280 and $1,074, respectively.........        24,341       25,435
      Inventories.................................         3,863        4,514
      Prepaid expenses and other current assets...         1,791        2,637
      Income taxes receivable.....................           407          312
      Deferred income taxes ......................         1,835        1,620
         Total current assets.....................        68,957       64,149

   Property and equipment, at cost ...............        63,210       77,886
      Accumulated depreciation....................       (24,872)     (31,184)
                                                         -------      -------
                                                          38,338       46,702

   Intangible assets, net ........................        44,798       43,568
                                                         -------      -------

         Total assets.............................      $152,093     $154,419
                                                         =======      =======

                     LIABILITIES AND STOCKHOLDER'S EQUITY
 Current liabilities:
      Accounts payable............................      $  4,823      $ 5,975
      Income taxes payable........................            40          -
      Accrued liabilities.........................        11,770        9,942
                                                         -------      -------
         Total current liabilities................        16,633       15,917

   Long-term debt (Note 3)........................       110,000      115,014
   Deferred income taxes .........................         8,753        8,291
   Commitments and contingencies (Note 7)

   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).................           148       (1,362)
                                                         -------      -------
         Total stockholder's equity...............        16,707       15,197
                                                         -------      -------

         Total liabilities and stockholder's equity     $152,093     $154,419
                                                         =======      =======

</TABLE>
                            See accompanying notes.

                                      3

<PAGE>



                     HYDROCHEM INDUSTRIAL SERVICES, INC.
                                AND SUBSIDIARY

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

                                     Three months ended       Nine months ended
                                         September 30,           September 30, 
                                     ------------------       -----------------
                                        1997      1998         1997       1998 
                                        ----      ----         ----       ---- 
<S>                                    <C>       <C>        <C>       <C>     
Revenue..........................      $40,030   $40,509    $120,744  $126,464
Cost of revenue..................       23,687    25,632      71,477    78,702
                                        ------    ------     -------   -------
   Gross profit..................       16,343    14,877      49,267    47,762

Selling, general and administrative
      expense....................       11,128    11,799      32,289    33,547
Depreciation.....................        2,094     2,296       5,983     6,728
                                        ------    ------     -------   -------
   Operating income..............        3,121       782      10,995     7,487

Other (income) expense:
   Interest expense, net.........        2,374     2,626       6,161     7,742
   Special charge (Note 5).......           -        -            -        300
   Other (income) expense, net...          (17)     (142)          6      (126)
   Amortization of intangibles...          376       375       1,155     1,125
                                        -------   ------     -------   -------

Income (loss) before taxes and
   extraordinary item............          388    (2,077)      3,673    (1,554)

Income tax provision (benefit)  (Note 4)   347      (356)      1,885       (44)
                                        ------    ------     -------   -------

Income (loss) before extraordinary item     41    (1,721)      1,788    (1,510)

   Extraordinary loss on early
      extinguishment of debt,
      net of taxes (Note 3)......        2,342        -        2,342        -  
                                        ------    ------     -------   -------

Net loss ........................     $ (2,301)  $(1,721)  $    (554) $ (1,510)
                                        ======    ======     =======   =======
</TABLE>














                            See accompanying notes.

                                      4

<PAGE>



                     HYDROCHEM INDUSTRIAL SERVICES, INC.
                                AND SUBSIDIARY

                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, 1997.....    $     1   $16,558    $   148     $16,707

   Net loss......................         -         -      (1,510)     (1,510)
                                      ------    ------     ------      ------

Balance at September 30, 1998 ...    $     1   $16,558    $(1,362)    $15,197
                                      ======    ======     ======      ======
</TABLE>


































                           See accompanying notes.

                                      5

<PAGE>



                     HYDROCHEM INDUSTRIAL SERVICES, INC.
                                AND SUBSIDIARY

                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (in thousands)
<TABLE>
<CAPTION>
                                                          Nine months ended
                                                              September 30      
                                                      --------------------------
                                                         1997             1998  
                                                      ---------         --------
<S>                                                      <C>            <C>
Operating activities:
   Net loss.....................................         $ (554)        $(1,510)
   Adjustments to reconcile net loss
      to net cash provided by operating activities:
      Depreciation..............................          5,983           6,728
      Amortization..............................          1,155           1,125
      Amortization of deferred financing costs..            395             230
      Write-off of deferred financing costs.....          3,178              -
      Deferred income tax expense...............            (72)           (247)
      Loss (gain) on sale of property and equipment          26             (58)
   Changes in operating assets and liabilities:
      Restricted cash...........................             -            2,585
      Receivables, net..........................         (2,062)         (1,094)
      Inventories...............................           (306)           (651)
      Prepaid expenses and other current assets.           (852)           (846)
      Income taxes receivable...................             -               95
      Accounts payable..........................           (155)          1,152
      Income taxes payable......................            (12)            (40)
      Accrued liabilities.......................            649          (1,828)
                                                        -------          ------
         Net cash provided by operating activities        7,373           5,641
                                                        -------          ------

Investing activities:
   Expenditures for property and equipment......         (7,429)        (15,278)
   Proceeds from sale of property and equipment.            238             244
                                                        -------          ------
         Net cash used in investing activities..         (7,191)        (15,034)

Financing activities:
   Proceeds from issuance of senior subordinated notes,
      net of offering costs.....................        106,832             -
   Proceeds from (repayments of) long-term
      debt, net.................................        (68,325)          4,889
   Dividend to parent...........................         (8,540)            -  
                                                        -------          ------
         Net cash provided by financing activities       29,967           4,889
                                                        -------          ------

Net increase (decrease) in cash.................         30,149          (4,504)
Cash at beginning of period.....................            671          33,862
                                                        -------          ------

Cash at end of period...........................       $ 30,820        $ 29,358
                                                        =======          ======
</TABLE>



                            See accompanying notes.


                                      6

<PAGE>



                     HYDROCHEM INDUSTRIAL SERVICES, INC.
                                AND SUBSIDIARY

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                              September 30, 1998



1. Organization and Basis of Presentation

      The  consolidated   financial   statements    include   the   accounts  of
   HydroChem  Industrial  Services,  Inc.  ("HydroChem")  and  its  wholly-owned
   subsidiary,  HydroChem   International,  Inc.  ("International").   HydroChem
   generally    conducts    business   outside   the   United   States   through
   International.  (HydroChem and International  collectively are referred to 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,  waste  minimization,  and  commissioning  and  other  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 nine month interim periods ended
   September 30, 1998 are not necessarily  indicative of the results that may be
   expected for the year ending December 31, 1998. These unaudited  consolidated
   financial statements should be read in conjunction with the Company's audited
   consolidated financial statements included in the Company's Form 10-K for the
   year  ended  December  31,  1997  filed  with  the  Securities  and  Exchange
   Commission on March 30, 1998.

2. Restricted Cash

      At December 31, 1997,  restricted cash represented security for letters of
   credit  which  principally  were  issued  in  connection  with the  Company's
   property  and casualty  insurance  program.  These  letters of credit now are
   secured by the Credit Facility (as defined in Note 3). At September 30, 1998,
   restricted  cash  represented  security  for a letter  of  credit  issued  in
   connection with an international project.

3. Long-term Debt

      On August 4, 1997,  HydroChem  issued  $110,000,000  of its 10 3/8% Senior
   Subordinated  Notes due 2007 (the  "Series  A Notes")  in a private  offering
   pursuant to Rule 144A under the Securities Act of 1933.  HydroChem registered
   a  substantially  identical  series of notes (the  "Series B Notes") with the
   Securities  and  Exchange  Commission  and on November 7, 1997  completed  an
   exchange  of the  Series B Notes for the  Series A Notes.  The Series B 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,
   commencing on February 1, 1998. The Series B Notes are

                                      7

<PAGE>



   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  Series  B 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.  International  is a
   guarantor of the Series B Notes.

      A portion of the net proceeds from the sale of the Series A Notes was used
   to repay HydroChem's senior debt and subordinated debt and to fund a dividend
   to  Holding  which  Holding  used  to  discharge   accrued  interest  on  its
   indebtedness and accrued dividends on its preferred stock. As a result of the
   early  repayment  of  HydroChem's  prior  debt,  an  extraordinary  loss  was
   recognized  in the  amount of  $2,342,000  (net of a related  tax  benefit of
   $1,435,000).  The extraordinary loss consisted of the write-off of associated
   deferred  financing  costs in the amount of  $3,178,000  before  related  tax
   benefit, as well as a prepayment premium and other related fees and expenses.

      On December  31,  1997,  HydroChem  entered  into a  participating  credit
   agreement  with a financial  institution  for a credit  facility (the "Credit
   Facility")  which  provides for unsecured  borrowings  of up to  $25,000,000,
   subject to borrowing  base  limitations.  The term of the Credit  Facility is
   three years and any  borrowings  thereunder  bear interest at rates  adjusted
   quarterly.  Interest  rates are based on (i) a range from LIBOR plus 1.50% to
   LIBOR plus 2.50%,  or, at the discretion of HydroChem,  (ii) a range from the
   prime rate to the prime rate plus 0.75%.  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. Effective September 30, 1998,
   the credit  agreement was amended to modify,  among other things,  certain of
   these ratios and covenants.  As of September 30, 1998,  HydroChem's borrowing
   base under the Credit Facility was  $18,561,000 of which  $3,250,000 had been
   drawn in the  form of  standby  letters  of  credit,  principally  issued  in
   connection with the Company's  property and casualty  insurance  program.  At
   September 30, 1998,  there were no other borrowings under the Credit Facility
   and HydroChem had available unused borrowings of $15,311,000.

      In connection with the Company's new headquarters and operating facilities
   in the Houston,  Texas area,  HydroChem  entered into a loan agreement with a
   financial  institution (the  "Construction Loan Agreement") on July 17, 1998.
   The   Construction   Loan  Agreement   provides  for  an  interim   financing
   construction loan of up to $7,500,000 which,  under certain conditions and at
   the  option  of  HydroChem,  is  convertible  to a term  loan.  The loans are
   collateralized  by first  priority  liens on the land and  improvements.  The
   construction  loan matures on the earlier of July 14, 1999 or, if  converted,
   on the date of conversion to the term loan and requires quarterly payments of
   interest.  Interest  rates  on the  construction  loan  are  at the  lender's
   commercial  loan rate less  0.50%.  If  converted,  the  resulting  term loan
   matures on September  30, 2006 and requires  quarterly  payments of principal
   and  interest.  Interest  rates on the term loan will be at LIBOR  plus 1.75%
   adjusted quarterly. On July 17, 1998, HydroChem also entered into an interest
   rate protection agreement with the same financial  institution (the "Interest
   Rate  Swap").  Under the  Interest  Rate Swap,  HydroChem's  effective  fixed
   borrowing  rate  for the term  loan  will be  7.79%.  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.  At  September  30,  1998,  HydroChem  had  borrowed
   $5,014,000 under the Construction Loan Agreement.

4. Income Taxes

      The Company files a  consolidated  tax return with Holding.  The Company's
   effective income tax rate differs from the federal  statutory income tax rate
   primarily due to nondeductible permanent differences,  state income taxes and
   a change in deferred tax asset valuation.

5. Special Charge

      On March 20, 1998,  HydroChem signed a letter of intent to acquire all the
   outstanding  capital stock of an industrial  cleaning  company for a purchase
   price of approximately $34,000,000 ($30,000,000 in cash and


   $4,000,000  in  promissory  notes).  The parties  were unable to agree on the
   terms of a definitive  agreement and, as a result,  terminated  negotiations.
   HydroChem incurred $300,000 of expenses  consisting of legal,  accounting and
   other services which were provided in connection with related negotiation and
   due diligence  efforts.  These expenses were recorded as a special charge for
   the three months ended June 30, 1998.

6. 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,     September 30,
                                                 1997               1998        
                                             -------------   ---------------
<S>                                           <C>             <C>    
      Current assets...................       $ 1,623         $ 1,456
      Noncurrent assets................           127             108
      Current liabilities..............           131             148
      Noncurrent liabilities...........           -               -
</TABLE>

<TABLE>
<CAPTION>
                                  Three months ended      Nine months ended
                                     September 30,           September 30,  
                                  ------------------------------------------
                                   1997       1998         1997        1998 
                                  ------     ------       ------      ------
<S>                               <C>        <C>          <C>         <C>   
      Revenue..............       $ 567      $1,075       $2,116      $2,693
      Gross profit.........         208         296          900         833
      Net loss.............         (61)         (2)         (78)       (206)
</TABLE>

7. Commitments and Contingencies

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

      The  Company  has  started  to  consolidate  certain  facilities  into one
   facility  in  the  Houston,   Texas  area.  Estimated  land  acquisition  and
   construction costs for this facility are approximately $9,400,000.  HydroChem
   has entered into the  Construction  Loan  Agreement  for  $7,500,000  of this
   amount (see Note 3).

8. Pending Acquisition

      HydroChem  entered into an Amended and Restated Asset  Purchase  Agreement
   dated as of  September  8, 1998 to  acquire  all of the  operating  assets of
   Valley Systems of Ohio, Inc. and Valley Systems, Inc. (collectively "Valley")
   for  approximately  $29,801,000 plus the assumption of Valley's bank debt and
   certain  other  liabilities.  The  transaction  is subject to (i)  completing
   schedules to the definitive  agreement,  (ii)  completing due diligence,  and
   (iii) obtaining regulatory and Valley stockholder approval. HydroChem intends
   to fund the purchase  price through a combination  of its available  cash and
   additional  borrowings under the Credit Facility.  It is anticipated that the
   acquisition,  if successful,  will be completed early in the first quarter of
   1999.

9. Subsequent Event

      Subsequent  to September  30, 1998,  the Company began to implement a cost
   reduction  program which  includes,  among other things,  a reduction in work
   force.  The Company  expects to incur severance and other costs in the amount
   of $400,000 to $500,000  related to these  actions.  These  expenses  will be
   recorded as a special  charge for the three months ending  December 31, 1998.
   The Company does not expect to realize the favorable financial  effects  that
   these  cost  reduction  actions  will  have upon cost of revenue and selling,
   general and administrative expense earlier than the first quarter of 1999.

                                       9

<PAGE>



                     HYDROCHEM INDUSTRIAL SERVICES, INC.
                                AND SUBSIDIARY

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

Statement Regarding Forward-Looking Information

   This Form 10-Q contains  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  forwardlooking  statements.  Although  the  Company
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 Form 10-K
for the year ended  December  31, 1997 filed with the  Securities  and  Exchange
Commission  on March  30,  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    Nine months ended
                                          September 30,        September 30,
                                        ----------------     --------------- 
                                         1997      1998       1997     1998 
                                        ------    ------     ------   ------
<S>                                      <C>       <C>        <C>      <C>   
      Revenue....................        100.0%    100.0%     100.0%   100.0%
      Cost of revenue............         59.2      63.3       59.2     62.2
                                        ------    ------     ------   ------
         Gross profit............         40.8      36.7       40.8     37.8
      SG&A expense...............         27.8      29.1       26.7     26.5
      Depreciation...............          5.2       5.7        5.0      5.3
                                        ------    ------     ------   ------
         Operating income........          7.8       1.9        9.1      6.0
      Other (income) expense:
         Interest expense, net...          5.9       6.5        5.1      6.1
         Special charge..........          -         -          -        0.2
         Other expense, net......          -        (0.3)       -         -
         Amortization of intangibles       0.9       0.9        1.0      0.9
                                        ------    ------     ------   ------
      Income (loss) before taxes and
         Extraordinary item......          1.0      (5.2)       3.0     (1.2)
      Income tax provision (benefit)       0.9      (0.9)       1.5       -
                                        ------    ------     ------   ------
      Income (loss) before extraordinary
         item ...................          0.1%     (4.3)%      1.5%   ( 1.2)%
                                        ======    ======     ======   ======

      EBITDA(1)..................         13.0%      7.6%      14.1%    11.3 %
                                        ======   =======     ======   ======
</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  for the nine  months  ended
September  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 principals.  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.

                                       10

<PAGE>



Three Months Ended  September 30, 1998 Compared to Three Months Ended  September
30, 1997

   Revenue.  Revenue increased $479,000, or 1.2%, to $40.5 million for the three
months ended September 30, 1998 from $40.0 million in the prior year period. The
increase  principally  resulted from an increase in industrial vacuuming revenue
of $2.3 million,  or 51.8%, from $4.5 million to $6.8 million and an increase in
other  services  revenue of $1.4  million,  or 53.2%,  from $2.6 million to $3.9
million.  These increases were partially  offset by a decrease in  hydroblasting
revenue of $2.7 million,  or 12.5%,  from $21.3 million to $18.7 million,  and a
decrease in chemical  cleaning revenue of $531,000,  or 4.6%, from $11.6 million
to $11.1 million.  The increase in industrial  vacuuming  revenue  resulted from
additional  vacuum trucks  placed in service by HydroChem in 1997 and 1998.  The
increase in other services revenue principally resulted from mechanical services
projects,  which the  Company  began  performing  in April  1998.  Hydroblasting
revenue  decreased  primarily as a result of certain large projects in the prior
year which did not recur.

   Gross profit.  Gross profit decreased $1.5 million, or 9.0%, to $14.9 million
in 1998 from $16.3  million  in the prior  year  period.  Gross  profit  margins
decreased from 40.8% to 36.7%. Cost of revenue increased $1.9 million,  or 8.2%,
to $25.6 million for 1998 from $23.7 million in the prior year period  primarily
due to the revenue increases  described above and increased direct  compensation
costs.  Subsequent to September 30, 1998,  the Company began to implement a cost
reduction program which includes, among other things, a reduction in work force.
(See Note 9 of Notes to Consolidated Financial Statements.)

   SG&A expense.  SG&A expense increased $671,000,  or 6.0%, to $11.8 million in
1998 from $11.1  million in the prior year period.  SG&A expense as a percentage
of revenue increased to 29.1% in 1998 from 27.8% in the prior year period.  This
increase primarily resulted from increases in compensation  expense and bad debt
expense which was partially offset by decreased  insurance expense.  (See Note 9
of Notes to Consolidated Financial Statements.)

   EBITDA.  Decreased gross profit and increased SG&A expense resulted in a $2.1
million,  or 41.0%  decrease in EBITDA to $3.1 million in 1998 from $5.2 million
in the prior year period.  As a percentage of revenue,  EBITDA decreased to 7.6%
in 1998, compared to 13.0% in the prior year period.

   Depreciation.  Depreciation  expense  increased  $202,000,  or 9.6%,  to $2.3
million in 1998 from $2.1 million in the prior year period and was 5.7% and 5.2%
of revenue,  respectively.  The  increase in  depreciation  expense  principally
resulted  from  increased  capital  expenditures  for  vacuum  trucks  and other
operating equipment.

   Operating income.  Decreased gross profit and increased SG&A and depreciation
expense resulted in a decrease in operating income of $2.3 million, or 74.9%, to
$782,000 in 1998 from $3.1 million in the prior year period.  As a percentage of
revenue,  operating  income  decreased to 1.9% in 1998,  compared to 7.8% in the
prior year period.

   Interest expense,  net. Net interest expense increased $252,000, or 10.6%, to
$2.6  million  in 1998 from $2.4  million in the prior  year  period.  Increased
interest expense resulted from an increase in debt due to the issuance in August
1997 of $110.0  million of  HydroChem's  10 3/8% Senior  Subordinated  Notes due
2007, which was partially  offset by increased  interest income earned on higher
invested cash balances.

   Amortization.   Amortization  expense  of  $375,000  in  1998  was relatively
unchanged from $376,000 in the prior year period.

   Income (loss) before taxes and extraordinary  item. For the reasons described
above, the Company incurred a loss before taxes and  extraordinary  item of $2.1
million in 1998 as compared to income of $388,000 in the prior year period. This
represented  a decrease of $2.5  million.  As a  percentage  of revenue,  income
(loss) before taxes and extraordinary item was (5.2)% in 1998,  compared to 1.0%
in the prior year period.

   Income tax provision (benefit). The effective tax (benefit) rate decreased to
(17.1)% of loss before  taxes in 1998 from 89.4% of income  before  taxes in the
prior year period. This decrease  principally resulted from a change in deferred
tax asset valuation.

   Extraordinary  item.  In 1997,  as a result  of the  early  repayment  of the
Company's  debt,  an  extraordinary  loss was  recognized  in the amount of $2.3
million (net of the related tax benefit of $1.4 million). The extraordinary loss
consisted of the write-off of associated  deferred financing costs in the amount
of $3.2 million before related tax benefit,  as well as a prepayment premium and
other related fees and expenses.

                                      11

<PAGE>




   Net loss. For the reasons  described  above, the Company's net loss decreased
$580,000,  or  25.2%,  to a loss of  $1.7  million  in 1998  from a loss of $2.3
million in the prior year period.

Nine Months Ended September 30, 1998 Compared to Nine Months Ended September 30,
1997

   Revenue.  Revenue increased $5.7 million,  or 4.7%, to $126.5 million for the
nine months  ended  September  30,  1998 from  $120.7  million in the prior year
period.  The  increase  principally  resulted  from an  increase  in  industrial
vacuuming  revenue  of $5.0  million,  or 41.2%,  from  $12.2  million  to $17.2
million; and an increase in hydroblasting revenue of $1.8 million, or 2.9%, from
$60.5 million to $62.3  million.  These  increases  were  partially  offset by a
decrease in chemical  cleaning revenue of $868,000,  or 2.2%, from $40.1 million
to $39.3 million; and a decrease in revenue from all other services of $221,000,
or 2.8%,  from $7.9 million to $7.7  million.  Hydroblasting  revenue  increased
primarily due to the  implementation  of sole source provider  arrangements with
certain  existing  customers.  The  increase  in  industrial  vacuuming  revenue
resulted  from  additional  vacuum trucks placed in service by HydroChem in 1997
and 1998. The decrease in chemical  cleaning  revenue  primarily was caused by a
small number of projects in the prior year period which did not recur, while the
decrease in other services revenue  primarily  resulted from decreased  pipeline
cleaning  offset by  increased  mechanical  services,  which the  Company  began
performing in April 1998..

   Gross profit.  Gross profit decreased $1.5 million, or 3.0%, to $47.8 million
in 1998 from $49.3  million  in the prior  year  period.  Gross  profit  margins
decreased from 40.8% to 37.8%. Cost of revenue increased $7.2 million, or 10.1%,
to $78.7 million for 1998 from $71.5 million in the prior year period  primarily
due to the revenue increases  described above and increased direct  compensation
costs.  Subsequent to September 30, 1998,  the Company began to implement a cost
reduction program which includes, among other things, a reduction in work force.
(See Note 9 of Notes to Consolidated Financial Statements.)

   SG&A expense.  SG&A expense increased $1.3 million, or 3.9%, to $33.5 million
in 1998 from $32.3  million in the prior year period.  This  increase  primarily
resulted from increases in compensation  expense which were partially  offset by
decreased  insurance expense.  SG&A expense as a percentage of revenue decreased
to 26.5% in 1998 from  26.7% in the prior year  period.  (See Note 9 of Notes to
Consolidated Financial Statements.)

   EBITDA.  Decreased gross profit and increased SG&A expense resulted in a $2.8
million, or 16.3% decrease in EBITDA to $14.2 million in 1998 from $17.0 million
in the prior year period. As a percentage of revenue,  EBITDA decreased to 11.2%
in 1998, compared to 14.1% in the prior year period.

   Depreciation.  Depreciation  expense  increased  $745,000,  or 12.5%, to $6.7
million in 1998 from $6.0 million in the prior year period and was 5.3% and 5.0%
of revenue,  respectively.  The  increase in  depreciation  expense  principally
resulted  from  increased  capital  expenditures  for  vacuum  trucks  and other
operating equipment.

   Operating income.  Decreased gross profit and increased SG&A and depreciation
expense,  resulted in a decrease in operating income of $3.5 million,  or 31.9%,
to $7.5  million in 1998 from  $11.0  million  in the prior  year  period.  As a
percentage of revenue,  operating income decreased to 6.0% in 1998,  compared to
9.1% in the prior year period.

   Interest expense, net. Net interest expense increased $1.6 million, or 25.7%,
to $7.7 million in 1998 from $6.2  million in the prior year  period.  Increased
interest expense resulted from an increase in debt due to the issuance in August
1997 of $110.0 million of HydroChem's 10 3/8% Senior Subordinated Notes due 2007
which  was  partially  offset  by  increased  interest  income  earned on higher
invested cash balances.

   Special charge.   The  Company  incurred  $300,000  of  expense  related to a
terminated  acquisition.   (See  Note  5  of  Notes  to  Consolidated  Financial
Statements.)

   Amortization.   Amortization expense of  $1.1 million  in 1998 was relatively
unchanged from $1.2 million in the prioryear period.

   Income (loss) before taxes and extraordinary  item. For the reasons described
above, the Company incurred a loss before taxes and  extraordinary  item of $1.5
million in 1998 as compared to income of $3.7  million in the prior year period.
This represented a decrease of $5.2 million. As a percentage of revenue,  income
(loss) before taxes and extraordinary item was (1.2)% in 1998,  compared to 3.0%
in the prior year period.

                                      12

<PAGE>



   Income tax provision (benefit). The effective tax (benefit) rate decreased to
(2.8)% of loss  before  taxes in 1998 from 51.3% of income  before  taxes in the
prior year period. This decrease  principally resulted from a change in deferred
tax asset valuation.

   Extraordinary  item.  In 1997,  as a result  of the  early  repayment  of the
Company's  debt,  an  extraordinary  loss was  recognized  in the amount of $2.3
million (net of the related tax benefit of $1.4 million). The extraordinary loss
consisted of the write-off of associated  deferred financing costs in the amount
of $3.2 million before related tax benefit,  as well as a prepayment premium and
other related fees and expenses.

   Net loss. For the reasons  described above, net loss increased  $956,000,  or
172.6% to a loss of $1.5  million in 1998 from a loss of  $554,000  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.  In August 1997,  HydroChem  issued $110.0
million of Series A Notes in a private offering  pursuant to Rule 144A under the
Securities Act of 1933. HydroChem registered the substantially  identical Series
B Notes with the  Securities  and Exchange  Commission  and on November 7, 1997,
completed an exchange of the Series B Notes for the Series A Notes. The Series B
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,
commencing on February 1, 1998.  The Series B 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 Series B
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.  A portion of the net proceeds  from the sale of the Series A Notes was
used to repay indebtedness, accrued interest and fees under HydroChem's existing
senior  debt and  subordinated  debt,  and to fund a dividend  to Holding  which
Holding  used to  discharge  accrued  interest on its  indebtedness  and accrued
dividends on its  preferred  stock.  The  remaining  proceeds  were  invested in
commercial paper and other interest bearing deposits with short-term  maturities
and have been or are  intended to be used for  general  corporate  purposes  and
funding potential acquisitions.

   On December  31,  1997,  HydroChem  entered  into the Credit  Facility  which
provides for  unsecured  borrowings  of up to $25 million,  subject to borrowing
base  limitations.  The term of the  Credit  Facility  is three  years,  and any
borrowings thereunder bear interest at rates adjusted quarterly.  Interest rates
are based on (i) a range from LIBOR plus 1.50% to LIBOR plus  2.50%,  or, at the
discretion of HydroChem, (ii) a range from the prime rate to the prime rate plus
0.75%.  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 on 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.
Effective September 30, 1998, the credit agreement was amended to modify,  among
other things,  certain of these ratios and covenants.  As of September 30, 1998,
HydroChem's borrowing base under the Credit Facility was $18.6 million, of which
$3.3 million had been drawn in the form of standby letters of credit principally
issued in connection with the Company's property and casualty insurance program.
At September 30, 1998,  there were no other borrowings under the Credit Facility
and HydroChem had available unused borrowings of $15.3 million.

   In connection with the Company's new headquarters and operating facilities in
the Houston,  Texas area, HydroChem entered into the Construction Loan Agreement
on July 17,  1998.  The  Construction  Loan  Agreement  provides  for an interim
financing  construction  loan  of  up  to  $7.5  million  which,  under  certain
conditions  and at the option of HydroChem,  is  convertible to a term loan. The
loans are  collateralized  by first priority liens on the land and improvements.
The construction loan requires  quarterly  payments of interest,  and matures on
the earlier of July 14, 1999 or, if converted,  on the date of conversion to the
term  loan.  Interest  rates  on the  construction  loan  are  at  the  lender's
commercial loan rate less 0.50%.  If converted,  the resulting term loan matures
on September 30, 2006 and requires quarterly payments of principal and interest.
Interest rates on the term loan will be at LIBOR plus 1.75% adjusted  quarterly.
On July 17, 1998,  HydroChem also entered into the Interest Rate Swap. Under the
Interest Rate Swap, the Company's  effective  fixed  borrowing rate for the term
loan will be 7.79%. The Construction Loan Agreement requires the Company to meet
certain  customary  financial  ratios and covenants and generally  restricts the
Company from

                                      13

<PAGE>



transferring  or pledging the  facility's  assets.  At September  30, 1998,  the
Company has borrowed $5.0 million under the Construction Loan Agreement.

   For the nine months ended  September  30, 1998,  the Company used net cash of
$9.4 million for  operating and investing  activities,  which  consisted of $5.6
million  provided by operating  activities  and $15.0  million used in investing
activities.  For the nine months ended September 30, 1997,  $182,000 of net cash
was provided by operating  and  investing  activities,  which  consisted of $7.4
million  provided by  operating  activities  and $7.2  million used in investing
activities.  Investing  activities  for  both  periods  consisted  primarily  of
expenditures for property and equipment.

   Expenditures  for property and equipment for the nine months ended  September
30, 1998 were $15.3  million.  Of this amount,  $3.0 million was used for vacuum
truck purchases,  $4.0 million for purchases of other operating  property,  $1.5
million to implement new field and corporate  information  software and hardware
systems, and $6.8 million for land and construction costs for a new headquarters
and operating  facility in the Houston,  Texas area.  Funds expended for the new
headquarters and operating  facility  consisted of $1.1 million for the purchase
of land and $5.7  million for related  construction  costs.  Total  construction
costs for the new  facility  are  projected to be  approximately  $8.3  million.
HydroChem  has entered  into a  construction  loan,  convertible  under  certain
conditions to a term loan, with a financial institution for $7.5 million of this
amount.

   Management believes that cash and cash equivalents at September 30, 1998, 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 and to fund the pending acquisition
described  below.  (See  Notes 2 and 3 of  Notes to the  Consolidated  Financial
Statements.)


Pending Acquisition

   HydroChem entered into an Amended and Restated Asset Purchase Agreement dated
as of  September  8, 1998 to acquire all of the  operating  assets of Valley for
approximately  $29.8  million  plus the  assumption  of  Valley's  bank debt and
certain  other  liabilities.  The  transaction  is  subject  to  (i)  completing
schedules to the definitive agreement,  (ii) completing due diligence, and (iii)
obtaining regulatory and Valley stockholder approval.  HydroChem intends to fund
the purchase  price through a combination  of its available  cash and additional
borrowings under the Credit Facility. It is anticipated that the acquisition, if
successful, will be completed early in the first quarter of 1999.


Terminated Acquisition

   On March 20,  1998,  HydroChem  signed a letter of intent to acquire  all the
outstanding capital stock of an industrial cleaning company for a purchase price
of  approximately  $34.0  million  ($30.0  million  in cash and $4.0  million in
promissory notes). The parties were unable to agree on the terms of a definitive
agreement and, as a result, terminated negotiations. HydroChem incurred $300,000
of expenses relating to legal,  accounting and other related services which were
provided in connection with related negotiation and due diligence efforts. These
expenses  were  recorded as a special  charge in the three months ended June 30,
1998. (See Note 5 of Notes to the Consolidated Financial Statements.)


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 a computer program  recognizes a
date of "00" as the year 1900 instead of 2000. The Company has assessed the Year
2000 issue with regard to its internal  financial and operating  systems as well
as certain third parties with which the Company has material relationships.

   With regard  to  the Company's  internal  financial  and  operating  systems,
HydroChem  has  acquired  new  software  and  hardware  and is  currently in the
implementation phase to resolve this issue by March 31, 1999. The Company is

                                       14

<PAGE>



currently  evaluating the need for various  contingency  plans. Costs of the new
software and hardware are estimated to be approximately $1.7 million.

   The Company has  identified  certain third parties with which it has material
relationships to address the Year 2000 issue.  These parties are primarily large
financial,  telecommunication  and information  processing entities,  customers,
vendors,  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.  The Company  intends to continue to monitor the progress of
these third parties and will 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. Although there
can be no assurance,  the Company has no reason to believe that the risk of such
third party  failures  having a material  impact on the Company's  operations is
anything other than remote.



                                      15

<PAGE>



Part II.  Other Information

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

            Exhibit
            Number   Description

            3.1      Certificate  of  Incorporation   of  HydroChem   Industrial
                     Services,  Inc.,  as amended  through  December  15,  1993.
                     (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 through  October 4, 1994.  (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  103/8%  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.)

            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 referenc .)

            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  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.)

            10.3     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.)



                                      16

<PAGE>



            10.4     Employment   Agreement   dated  November  1,  1992  between
                     HydroChem  Industrial  Services,   Inc.  and  Craig  Kaple.
                     (Exhibit  10.4 to the Company's  Registration  Statement on
                     Form S-4, filed August 25, 1997, is hereby  incorporated by
                     reference.)

            10.5     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.)

            10.6     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.)

            10.7     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.)

            10.8     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.)

            10.9     Secured  Promissory  Note  dated  April 9, 1998 from B. Tom
                     Carter, Jr. to HydroChem Industrial Services, Inc. (Exhibit
                     10.9  to  the  Company's Form 10-Q,  filed May 14, 1998, is
                     hereby incorporated by reference.)

            10.10    Pledge  Agreement  dated  April 9, 1998  between  HydroChem
                     Industrial  Services,  Inc. and B. Tom Carter, Jr. (Exhibit
                     10.10 to the  Company's  Form 10-Q,  filed May 14, 1998, is
                     hereby incorporated by reference.)

            10.11    Lease  Agreement  dated December 4, 1979 between  HydroChem
                     Industrial  Services,  Inc.  and  Gracey  Corporation,   as
                     amended  through  May  29,  1996.   (Exhibit  10.7  to  the
                     Company's  Registration Statement on Form S-4, filed August
                     25, 1997, is hereby incorporated by reference.)

            10.12    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.)

            10.13    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.)

            10.14    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.)

            10.15    Letter  Agreement  dated August 14, 1998  regarding  Credit
                     Agreement   dated  December  31,  1997  between   HydroChem
                     Industrial  Services,  Inc. and  NationsBank,  N.A.  (Filed
                     herewith.)

            10.16    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.   (Filed
                     herewith.)

                                      17

<PAGE>



            10.17    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.)

            10.18    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.)

            10.19    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.  (Filed herewith.)

            10.20    Letter agreement dated September 8, 1998 from the principal
                     stockholders of Valley Systems, Inc.  (Filed herewith.)

            27.1     Financial Data Schedule.  (Filed herewith.)

            99.1     Press Release dated  September 9, 1998 regarding  agreement
                     to acquire the operating assets and certain  liabilities of
                     Valley Systems, Inc. (Filed herewith)

         (b)Reports on Form 8-K
            None

                                      18

<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: November 16, 1998          By:   /s/ Selby F. Little, III              
                                          --------------------------------------
                                          Selby F. Little, III,  Executive Vice
                                          President and Chief Financial Officer






                                    HYDROCHEM INTERNATIONAL, INC.


   Date: November 16, 1998          By:   /s/ Selby F. Little, III              
                                          --------------------------------------
                                          Selby F. Little, III,  Executive Vice
                                          President and Chief Financial Officer



                                      19

<PAGE>



                                 EXHIBIT INDEX




10.15 Letter  Agreement dated August 14, 1998 regarding  Credit  Agreement dated
      December  31,  1997  between  HydroChem  Industrial  Services,   Inc.  and
      NationsBank, N.A.

10.16 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.

10.19 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.

10.20 Letter  agreement dated September 8, 1998 from the principal  stockholders
of Valley Systems, Inc.

27.1  Financial Data Schedule

99.1  Press Release dated  September 9, 1998 regarding  agreement to acquire the
      operating assets and certain liabilities of Valley Systems, Inc.




                                      20