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, 2001

                        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
     August 1,  2001 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
<TABLE>
<CAPTION>


<S>                                                                                                       <C>
Part I.  Financial Information

         Item 1.  Financial Statements

                  Consolidated Balance Sheets as of December 31, 2000 and
                      June 30, 2001 (unaudited).....................................................      3

                  Consolidated Statements of Operations for each of the three and six
                      month periods ended June 30, 2000 and 2001 (unaudited)........................      4

                  Consolidated Statement of Stockholder's Equity for the six
                      month period ended June 30, 2001 (unaudited)..................................      5

                  Consolidated Statements of Cash Flows for each of the six
                      month periods ended June 30, 2000 and 2001 (unaudited)........................      6

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

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

         Item 3.  Quantitative and Qualitative Disclosures About Market Risk  ......................     14

Part II.      Other Information

         Item 1.  Legal Proceedings.................................................................     15

         Item 6.  Exhibits and Reports on Form 8-K..................................................     15

Signatures..........................................................................................     18

Exhibit Index.......................................................................................     19
</TABLE>




                                       2
<PAGE>


                       HYDROCHEM INDUSTRIAL SERVICES, INC.
                                AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                        (in thousands, except share data)


<TABLE>
<CAPTION>
                                                                     December 31,    June 30,
                                                                         2000          2001
                                                                         ----          ----
                                     ASSETS
     <S>                                                              <C>          <C>
     Current assets:
         Cash and cash equivalents ................................   $   6,380    $     291
         Receivables, less allowance of $723 and $954, respectively      39,781       47,136
         Inventories ..............................................       4,467        4,119
         Prepaid expenses and other current assets ................       2,224        2,744
         Income taxes receivable ..................................         328           79
         Deferred income taxes ....................................       1,536        1,176
                                                                      ---------    ---------
              Total current assets ................................      54,716       55,545

     Property and equipment, at cost ..............................     100,419      103,419
         Accumulated depreciation .................................     (53,721)     (58,228)
                                                                      ---------    ---------
                                                                         46,698       45,191

     Intangible assets, net .......................................      96,931       94,549
                                                                      ---------    ---------

              Total assets ........................................   $ 198,345    $ 195,285
                                                                      =========    =========

                      LIABILITIES AND STOCKHOLDER'S EQUITY
     Current liabilities:
         Accounts payable .........................................   $   9,455    $   9,938
         Accrued liabilities ......................................      15,595       13,641
         Current portion of long-term debt (Note 3) ...............       7,858        8,194
                                                                      ---------    ---------
              Total current liabilities ...........................      32,908       31,773

     Long-term debt (Note 3) ......................................     140,350      137,504
     Deferred income taxes ........................................       8,365        8,942
     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
         Accumulated other comprehensive loss .....................          --          (77)
         Retained earnings ........................................         163          584
                                                                      ---------    ---------
         Total stockholder's equity ...............................      16,722       17,066
                                                                      ---------    ---------

              Total liabilities and stockholder's equity ..........   $ 198,345    $ 195,285
                                                                      =========    =========
</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,
                                                   --------                --------
                                                2000      2001         2000      2001
                                                ----      ----         ----      ----
<S>                                          <C>        <C>         <C>        <C>
Revenue ...................................  $ 54,199   $ 57,159    $107,638   $116,549
Cost of revenue ...........................    33,173     35,937      65,437     73,268
                                             --------   --------    --------   --------
      Gross profit ........................    21,026     21,222      42,201     43,281

Selling, general and administrative expense    12,257     13,164      25,058     26,621
Depreciation ..............................     2,882      2,719       5,815      5,420
                                             --------   --------    --------   --------
      Operating income ....................     5,887      5,339      11,328     11,240

Other expense:
      Interest expense, net ...............     4,019      3,893       8,033      7,823
      Amortization of intangibles .........     1,013        996       1,996      1,991
      Other, net ..........................       134         15         161         20
                                             --------   --------    --------   --------

Income before taxes .......................       721        435       1,138      1,406

      Income tax provision ................        --        490          --        985
                                             --------   --------    --------   --------

Net income (loss) .........................  $    721   $    (55)   $  1,138   $    421
                                             ========   ========    ========   ========
</TABLE>





















                             See accompanying notes.

                                       4


<PAGE>


                       HYDROCHEM INDUSTRIAL SERVICES, INC.
                                AND SUBSIDIARIES

                 CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
                                 (in thousands)



<TABLE>
<CAPTION>

                                                                    Accumulated
                                                    Additional         Other
                                          Common     Paid-in       Comprehensive   Retained
                                          Stock      Capital           Loss        Earnings      Total
                                          -----      -------           ----        --------      -----

<S>                                    <C>           <C>           <C>             <C>         <C>
Balance at December 31, 2000 .......   $      1      $ 16,558      $     -         $  163      $ 16,722

    Other comprehensive loss .......          -             -          (77)             -           (77)
    Net income .....................          -             -            -            421           421
                                       --------      --------      -------         ------      --------
    Total other comprehensive income                                                                344
                                                                                               --------

Balance at June 30, 2001 ...........   $      1      $ 16,558      $   (77)        $  584      $ 17,066
                                       ========      ========      =======         ======      ========
</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,
                                                                              2000             2001
                                                                           ---------         --------
<S>                                                                         <C>             <C>
Operating activities:
     Net income........................................................     $ 1,138         $   421
     Adjustments to reconcile net income
         to net cash used in operating activities:
         Depreciation..................................................       5,815           5,420
         Amortization..................................................       1,996           1,991
         Amortization of deferred financing costs......................         359             391
         Deferred income tax provision.................................           -             937
         Loss (gain)on sale of property and equipment..................         165              (7)
     Changes in operating assets and liabilities:
         Receivables, net..............................................      (4,662)         (7,355)
         Inventories...................................................         (89)            348
         Prepaid expenses and other current assets.....................      (1,013)           (520)
         Income taxes receivable.......................................           -             249
         Accounts payable..............................................       1,176             483
         Accrued liabilities...........................................      (2,489)         (2,031)
                                                                            -------         -------
              Net cash provided in operating activities................       2,396             327
                                                                            -------         -------

Investing activities:
     Expenditures for property and equipment...........................      (2,775)         (4,239)
     Proceeds from sale of property and equipment......................         419             333
     Acquisitions, net of cash.........................................        (446)              -
                                                                            -------         -------
              Net cash used in investing activities....................      (2,802)         (3,906)
                                                                            -------         -------

Financing activities:
     Repayments of long-term debt, net.................................          81          (2,510)
     Debt financing costs..............................................        (110)              -
                                                                            -------         -------
              Net cash used by financing activities....................        (191)         (2,510)
                                                                            -------         -------

Net decrease in cash...................................................        (597)         (6,089)
Cash at beginning of period............................................       4,140           6,380
                                                                            -------         -------

Cash at end of period..................................................     $ 3,543         $   291
                                                                            =======         =======
</TABLE>





                             See accompanying notes.



                                       6
<PAGE>


                       HYDROCHEM INDUSTRIAL SERVICES, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2001



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.  (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,  steel  mills,  and  aluminum  plants.   Services  provided  include
     high-pressure  and  ultra-high  pressure  water  cleaning  (hydroblasting),
     chemical  cleaning,   industrial  vacuuming,   tank  cleaning,   mechanical
     services, waste minimization, commissioning and other specialized services.
     The majority of these services involve recurring  maintenance to improve or
     sustain the operating  efficiencies  and extend the useful lives of process
     equipment and facilities.

          The accompanying unaudited consolidated financial statements presented
     herein  have  been  prepared  in  accordance  with  accounting   principles
     generally  accepted in the United States 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 accounting  principles  generally accepted in the United States
     for complete  financial  statements.  Certain  information  and disclosures
     normally  included in  financial  statements  prepared in  accordance  with
     accounting  principles  generally  accepted in the United  States 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 period ended June 30, 2001 are not necessarily  indicative of
     the results  that may be expected  for the year ending  December  31, 2001.
     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, 2000.

2.   Adoption of New Accounting Principle

          On  January  1, 2001,  the  Company  adopted  Statement  of  Financial
     Accounting  Standards  (SFAS)  133,  as  amended  by SFAS 138,  "Accounting
     Derivative Instruments and Hedging Activities".  SFAS 133 requires that all
     derivatives  be recorded on the  consolidated  balance  sheet at their fair
     value. Changes in the fair value of derivatives are recorded each period in
     earnings or other  comprehensive  income  (loss)  depending  on the type of
     hedging  instrument and the effectiveness of those hedges.  All derivatives
     are  adjusted  to their  fair  market  values  at the end of each  quarter.
     Unrealized  net gains and losses for cash flow hedges are recorded in other
     comprehensive income (loss).

          The Company uses an interest  rate swap to fix the interest  rate on a
     variable rate term loan.  This  derivative,  which was designated as a cash
     flow hedge at the time of adoption of SFAS 133,  qualifies  for  evaluation
     using the short cut method for  assessing  effectiveness  and is considered
     highly  effective as defined by SFAS 133. In accordance with the transition
     provisions of SFAS 133, the Company  recorded a cumulative  loss adjustment
     to other comprehensive loss of $39,000,  after taxes, to recognize the fair
     value of this  derivative  at January 1, 200l.  During the six months ended
     June 30, 2001,  unrealized  net losses  totaling  $77,000  after taxes were
     recorded in other  comprehensive  loss,  including  the $39,000  cumulative
     effect adjustment as of January 1, 2001.

                                       7
<PAGE>

          In June 2001, the Financial Accounting Standards Board issued SFAS No.
     141,  "Business  Combinations",  and  SFAS No.  142,  "Goodwill  and  Other
     Intangible Assets", effective for fiscal years beginning after December 15,
     2001. Under the new rules, goodwill will no longer be amortized but will be
     subject to annual impairment tests in accordance with the statements. Other
     intangible  assets will  continue to be amortized  over their useful lives.

          The Company  will apply the new rules on  accounting  for goodwill and
     other intangible assets beginning in the first quarter of 2002. Application
     of the  non-amortization  provisions of the statement is expected to result
     in an increase in net income of $2.6  million per year.  During  2002,  the
     Company will perform the first of the required impairment tests of goodwill
     and indefinite  lived  intangible  assets as of January 1, 2002 and has not
     yet  determined  what the effect of these tests will be on the earnings and
     financial position of the Company.

3.   Long-term Debt

          Long-term debt at December 31, 2000 and June 30, 2001 consisted of the
     following (in thousands):
<TABLE>
<CAPTION>
                                                         2000            2001
                                                         ----            ----
        <S>                                           <C>             <C>
        Senior Subordinated Notes .................   $ 110,000       $ 110,000
        Term Loan .................................      29,000          25,828
        Mortgage Loan .............................       7,208           7,120
        Revolver ..................................          --             750
        Seller Notes ..............................       2,000           2,000
                                                      ---------       ---------
             Total long-term debt .................     148,208         145,698
             Less current portion of long-term debt      (7,858)         (8,194)
                                                      ---------       ---------
                                                      $ 140,350       $ 137,504
                                                      =========       =========
</TABLE>

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,   including
     nondeductible goodwill amortization,  state income taxes and changes in the
     valuation allowance for deferred tax assets.

5.   Summary Financial Information

          Summary financial  information for HydroChem  International,  Inc., as
     consolidated with HydroChem, is as follows (in thousands):
<TABLE>
<CAPTION>
                                                        As of            As of
                                                     December 31,       June 30,
                                                        2000              2001
                                                        ----              ----
        <S>                                           <C>             <C>
        Current assets...........................     $  4,682         $  4,036
        Noncurrent assets........................          189              189
        Current liabilities......................          801              440
        Noncurrent liabilities...................            -                -
</TABLE>

<TABLE>
<CAPTION>
                                                         Three months ended                   Six months ended
                                                               June 30,                            June 30,
                                                               --------                            --------
                                                          2000             2001            2000                2001
                                                          ----             ----            ----                ----
        <S>                                           <C>              <C>              <C>               <C>
        Revenue..................................     $  1,558         $  1,808         $  3,016          $  3,037
        Gross profit.............................          558              643            1,215               963
        Net income (loss)........................          547               31              680              (286)
</TABLE>


                                       8
<PAGE>

6.   Commitments and Contingencies

          The Company is a defendant in various  lawsuits  arising in the normal
     course of business and certain other lawsuits.  Substantially  all of these
     suits are being defended by the Company's  insurance  carriers.  Management
     believes  that any  material  contingent  liability  associated  with  this
     litigation will not exceed the limits of applicable  insurance  policies or
     other indemnities. While the results of litigation cannot be predicted with
     certainty,  management believes adequate provision has been made for all of
     the foregoing  claims and the final outcome of any pending  litigation will
     not have a material adverse effect on the Company's  consolidated financial
     position or results of operations.


                                       9
<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 of Financial Condition and Results of
Operations  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 these  forward-looking  statements are  reasonable,  it can give no
assurance  that  these  expectations  will  prove to have  been  correct.  These
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  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, 2000.
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,
                                                           --------                       --------
                                                       2000           2001            2000        2001
                                                       ----           ----            ----        ----
    <S>                                               <C>            <C>             <C>          <C>
    Revenue..................................         100.0%         100.0%          100.0%       100.0%
    Cost of revenue..........................          61.2           62.9            60.8         62.9
          Gross profit.......................          38.8           37.1            39.2         37.1
    SG&A expense.............................          22.6           23.0            23.3         22.8
    Depreciation.............................           5.3            4.8             5.4          4.7
          Operating income...................          10.9            9.3            10.5          9.6
    Other expense:
          Interest expense, net..............           7.4            6.8             7.5          6.7
          Amortization of intangibles........           1.9            1.7             1.8          1.7
          Other, net.........................           0.3              -             0.1            -
    Income before taxes......................           1.3            0.8             1.1          1.2
          Income tax provision...............             -            0.9               -          0.8
    Net income (loss)........................           1.3%          (0.1)%           1.1%         0.4%

    EBITDA (1)...............................          16.2%          14.1 %          15.9%        14.3%
</TABLE>
----------
(1)  EBITDA for any relevant period presented above represents gross profit less
selling, general and administrative expense. 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 accounting  principles  generally accepted in the United States.
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 June 30, 2001 Compared to Three Months Ended June 30, 2000
-----------------------------------------------------------------------------
     Revenue.  Revenue increased $3.0 million, or 5.5%, to $57.2 million for the
three  months  ended June 30, 2001 from $54.2  million in the prior year period.
The increase  resulted from an increase in industrial  vacuuming revenue of $2.1
million,  or  20.0%,  from  $10.5  million  to $12.6  million,  an  increase  in
hydroblasting  revenue of $1.9  million,  or 9.5%,  from $20.1  million to $22.0
million,  and an increase in revenue from other services of $363,000,  or 11.7%,
from $3.1 million to $3.5 million.  These  increases were partially  offset by a
decrease in tank cleaning revenue of $1.4 million,  or 25.0%,  from $5.5 million
to $4.1 million. Chemical cleaning remained relatively unchanged with revenue of
$14.9 million in the current and prior year periods.  The increase in industrial
vacuuming  revenue  resulted from additional  vacuum trucks placed in service by
the Company in 2000 and 2001.  The increase in  hydroblasting  revenue  resulted
principally from increased  turnaround  activity.  The decrease in tank cleaning
revenue resulted from fewer tank cleaning projects.

     Gross profit. Gross profit increased $196,000, or 0.9%, to $21.2 million in
2001 from $21.0 million in the prior year period. Cost of revenue increased $2.8
million,  or 8.3%, to $35.9 million in 2001 from $33.2 million in the prior year
period.  Gross profit  margin  decreased  from 38.8% to 37.1%,  primarily due to
increases in compensation, operating supplies and equipment rental expense.

     SG&A expense. SG&A expense increased $907,000, or 7.4%, to $13.2 million in
2001 from $12.3  million  in the prior  year  period.  This  increase  primarily
resulted from an increase in compensation and other  employee-related  expenses.
SG&A expense as a percentage of revenue increased to 23.0% in 2001 from 22.6% in
the prior year period.

     EBITDA.  Increased  SG&A expense,  which was partially  offset by increased
gross  profit,  resulted in a decline in EBITDA of  $711,000,  or 8.1%,  to $8.1
million in 2001 from $8.8 million in the prior year period.  As a percentage  of
revenue, EBITDA decreased to 14.1% in 2001 from 16.2% in the prior year period.

     Depreciation.  Depreciation  expense decreased  $163,000,  or 5.7%, to $2.7
million in  2001from  $2.9  million in the prior year  period.  The  decrease in
depreciation  expense  principally  resulted from certain assets  becoming fully
depreciated. As a percentage of revenue,  depreciation expense decreased to 4.8%
in 2001 from 5.3% in the prior year period.

     Operating income.  Increased gross profit and reduced depreciation expense,
partially offset by increased SG&A expense,  resulted in a decrease in operating
income of  $548,000,  or 9.3%,  to $5.3 million in 2001 from $5.9 million in the
prior year period.  As a percentage of revenue,  operating  income  decreased to
9.3% in 2001 from 10.9% in the prior year period.

     Interest expense,  net. Interest expense, net decreased $126,000,  or 3.1%,
to $3.9 million in 2001 from $4.0  million in the prior year  period.  Decreased
interest  expense,  net resulted from a reduction of  outstanding  debt from the
prior year period. Interest expense, net as a percentage of revenue decreased to
6.8% in 2001 from 7.4% in the prior year period.

     Amortization. Amortization expense was relatively unchanged with a decrease
of  $17,000,  or 1.7%,  to $996,000  in 2001 from  $1,013,000  in the prior year
period.  Amortization  expense as a percentage  of revenue  decreased to 1.7% in
2001 from 1.9% in the prior year period.

     Income before taxes. For the reasons  described above, the Company's income
before taxes  decreased  $286,000 to $435,000 in 2001 from $721,000 in the prior
year period.  As a percentage  of revenue,  income before taxes was 0.8% in 2001
compared to 1.3% in the prior year period.

     Income tax  provision.  The  effective  income tax rate  increased  in 2001
primarily as a result of changes in the valuation of deferred tax assets in 2001
as  compared  to 2000.  Additionally,  the higher  effective  income tax rate is
principally due to certain  nondeductible  operating  expenses and nondeductible
goodwill amortization.

                                       11
<PAGE>

     Net income  (loss).  For the reasons  described  above,  the  Company's net
income decreased $776,000 resulting in a loss of $55,000 in 2001, as compared to
net  income of  $721,000  in the prior year  period.  Net  income  (loss),  as a
percentage  of  revenue,  was (0.1%) in 2001  compared to 1.3% in the prior year
period.

Six Months Ended June 30, 2001 Compared to Six Months Ended June 30, 2000
-------------------------------------------------------------------------
     Revenue. Revenue increased $8.9 million, or 8.3%, to $116.5 million for the
six months ended June 30, 2001 from $107.6 million in the prior year period. The
increase resulted from an increase in hydroblasting  revenue of $6.7 million, or
16.4% from  $40.8  million  to $47.5  million,  and an  increase  in  industrial
vacuuming  revenue  of $4.7  million,  or 22.1%,  from  $21.1  million  to $25.7
million.  These  increases were partially  offset by a decrease in tank cleaning
revenue of $1.5 million or 16.9%, from $8.8 million to $7.3 million,  a decrease
in chemical  cleaning revenue of $738,000,  or 2.5%, from $29.3 million to $28.6
million and a decrease in revenue from other services of $199,000, or 2.6%, from
$7.5 million to $7.3 million.  The increase in  hydroblasting  revenue  resulted
principally  from increased  turnaround  activity in the first half of 2001. The
increase in industrial  vacuuming revenue resulted from additional vacuum trucks
placed in service by the Company in 2000 and 2001.  Tank and  chemical  cleaning
revenues decreased primarily due to fewer projects.

     Gross  profit.  Gross profit  increased  $1.1  million,  or 2.6%,  to $43.3
million in 2001 from $42.2  million  in the prior year  period.  Cost of revenue
increased $7.8 million, or 12.0%, to $73.3 million in 2001 from $65.4 million in
the prior  year  period.  Gross  profit  margin  decreased  from 39.2% to 37.1%,
primarily  due to increases in  compensation,  operating  supplies and equipment
rental expense.

     SG&A  expense.  SG&A expense  increased  $1.6  million,  or 6.2%,  to $26.6
million  in 2001 from  $25.1  million in the prior  year  period.  The  increase
primarily  resulted from an increase in compensation and other  employee-related
expenses.  SG&A  expense as a percentage  of revenue  decreased to 22.8% in 2001
from 23.3% in the prior year period.

     EBITDA.  Increased  SG&A expense,  which was partially  offset by increased
gross  profit,  resulted in a decline in EBITDA of $483,000,  or 2.8%,  to $16.7
million in 2001 from $17.1 million in the prior year period.  As a percentage of
revenue, EBITDA decreased to 14.3% in 2001 from 15.9% in the prior year period.

     Depreciation.  Depreciation  expense decreased  $395,000,  or 6.8%, to $5.4
million in 2001 from $5.8  million in the prior year  period.  The  decrease  in
depreciation  expense  principally  resulted from certain assets  becoming fully
depreciated. As a percentage of revenue,  depreciation expense decreased to 4.7%
in 2001 from 5.4% in the prior year period.

     Operating income.  Increased gross profit and reduced depreciation expense,
partially offset by increased SG&A expense,  resulted in a decrease in operating
income of $88,000,  or 0.8%, to $11.2 million in 2001, from $11.3 million in the
prior year period.  As a percentage of revenue,  operating  income  decreased to
9.6% in 2001 from 10.5% in the prior year period.

     Interest expense,  net. Interest expense, net decreased $210,000,  or 2.6%,
to $7.8 million in 2001 from $8.0  million in the prior year  period.  Decreased
interest  expense,  net resulted from a reduction of  outstanding  debt from the
prior year period. Interest expense, net as a percentage of revenue decreased to
6.7% in 2001 from 7.5% in the prior year period.

     Amortization. Amortization expense was relatively unchanged at $2.0 million
in the  current  and prior  year  period  with a decrease  of  $5,000,  or 0.3%.
Amortization  expense as a percentage of revenue  decreased to 1.7% in 2001 from
1.8% in the prior year period.

     Income before taxes. For the reasons  described above,  income before taxes
increased  $268,000,  or 23.6%, to $1.4 million in 2001 from $1.1 million in the
prior year period.  As a percentage of revenue,  income before taxes was 1.2% in
2001 compared to 1.1% in the prior year period.

     Income tax  provision.  The  effective  income tax rate  increased  in 2001
primarily as a result of changes in the valuation of deferred tax assets in 2001
as  compared  to 2000.  Additionally,  the higher  effective  income tax rate is
principally due to certain  nondeductible  operating  expenses and nondeductible
goodwill  amortization.

                                       12
<PAGE>

     Net income  (loss).  For the reasons  described  above,  the  Company's net
income  decreased  $717,000,  or 63.0%, to $421,000 in 2001, as compared to $1.1
million in the prior year period.  Net income,  as a percentage of revenue,  was
0.4% in 2001 compared to 1.1% in the prior year period.

Liquidity and Capital Resources

     The Company  historically  has  financed  its  operations  through net cash
provided by operating  activities,  existing  cash  balances,  available  credit
facilities  and capital  contributions  from Holding.  On November 19, 1999, the
Company entered into a credit  agreement with six financial  institutions  which
provided for secured  borrowings of up to $60.0  million,  consisting of a $30.0
million term loan (the "Term  Loan"),  and a $30.0 million  revolving  loan (the
"Revolver") which is subject to borrowing base  limitations.  Effective June 30,
2001, the credit agreement was amended to modify certain covenants applicable to
periods  ending in the future and to reduce the amount of the  Revolver to $22.5
million.  The credit  facility  expires on December  31, 2004 and  requires  the
Company to meet certain customary financial ratios and covenants.

     As of June 30, 2001, $25.8 million was outstanding  under the Term Loan. As
of June 30,  2001,  there was  $750,000  of funded  debt  outstanding  under the
Revolver  and $1.5  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.  The Company  had  available  borrowings  of $15.7
million, net of covenant test limitations.

     For the six months ended June 30,  2001,  the Company used net cash of $3.6
million for  operating  and  investing  activities  which  consisted of $327,000
provided by operating activities and $3.9 million used in investing  activities.
For the six  months  ended  June  30,  2000,  $406,000  of net  cash was used in
operating and investing  activities  which consisted of $2.4 million provided by
operating activities and $2.8 million used in investing activities. Expenditures
for property and  equipment for the six months ended June 30, 2001 and 2000 were
$4.2 million and $2.8 million, respectively. These expenditures were principally
for operating equipment.

     Management  believes that cash and cash  equivalents  at June 30, 2001, net
cash  expected  to be  provided  by  operating  activities  and  borrowings,  if
necessary,  under the Revolver will be  sufficient  to meet the  Company's  cash
requirements  for operations and expenditures for property and equipment for the
next twelve months and the foreseeable future thereafter. From time to time, the
Company  reviews  acquisition  opportunities  as they  arise,  and  may  require
additional financing if it decides to make additional acquisitions. There can be
no assurance,  however, that any such acquisition opportunities will arise, that
any such acquisitions will be consummated, or that any related financing will be
available when required on terms satisfactory to the Company.

                                       13

<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  risks  and  uncertainties.  Actual
results could differ  materially from those  projected in these  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 presented do not consider the effects
that such  adverse  changes may have on overall  economic  activity  nor do they
consider  additional  actions  management  may take to  mitigate  the  Company's
exposure to such changes. The Notes to Consolidated  Financial Statements herein
and in the Company's  Annual Report on Form 10-K for the year ended December 31,
2000  provide a  description  of the  Company's  accounting  policies  and other
information related to these financial instruments.  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 was entered into
during 1998 in connection with the Mortgage Loan.

     As of June 30, 2001, the Company's  outstanding long-term debt consisted of
the Senior  Subordinated  Notes, the Term Loan, the Mortgage Loan, the Revolver,
and the Seller Notes. The Senior Subordinated Notes totaled $110.0 million,  are
due in the year 2007,  and bear  interest at a fixed rate of 10 3/8%. As of June
30, 2001, their fair value was estimated to be $78.0 million.  At the same date,
the Term Loan,  the Mortgage  Loan,  the Revolver,  and the Seller Notes totaled
$25.8  million,  $7.1 million,  $750,000,  and $2.0 million,  respectively,  and
approximated  their  fair  value.  The Term Loan  requires  scheduled  quarterly
principal  payments,  which began September 30, 2000. The Term Loan and Revolver
mature on December 31, 2004.  The interest rates for the Term Loan and Revolver,
at the  discretion of the Company,  are at Base Rate or LIBOR,  plus  applicable
margins.  Margins range from 0.00% to 3.00%,  depending upon which interest rate
option is in effect and the Company's  leverage  ratio as determined  quarterly.
The Company  periodically reviews various alternatives to protect long-term debt
against  interest rate  fluctuations.  The Mortgage Loan bears interest at LIBOR
plus 1.75%,  adjusted  quarterly.  To protect the Mortgage Loan against interest
rate fluctuations,  the Company utilizes the Interest Rate Swap, which fixes the
interest rate at 7.82% per annum.  The remaining  balance of the Seller Notes is
due on November 19, 2001. The Seller Notes bear interest at 8.00% per annum. The
market  risk,  estimated  as a  potential  increase  in fair value of these debt
instruments  resulting from a hypothetical  1.0% decrease in interest  rates, is
estimated not to be material to the Company during 2001.


                                       14

<PAGE>

Part II.  Other Information
---------------------------

     Item 1.  Legal Proceedings

               There have been no material changes to the proceedings previously
     reported in the Registrant's  Annual Report on Form 10-K for the year ended
     December 31, 2000.

     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.)

       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         Deferred  Bonus  Plan of HydroChem Industrial Services,  Inc.
                   effective May 1, 1999.   (Exhibit 10.14 to the Company's Form
                   10-Q  filed  August  10,  1999,  is  hereby  incorporated  by
                   reference.)

      10.3         First  Amendment  to   Deferred   Bonus  Plan  of   HydroChem
                   Industrial Services,  Inc. dated as of May 1, 2000.  (Exhibit
                   10.3 to the  Company's  Form  10-Q  filed August 11, 2000, is
                   hereby incorporated by reference.)

                                       15
<PAGE>

      10.4         Second   Amendment   to  Deferred  Bonus  Plan  of  HydroChem
                   Industrial Services, Inc. dated as of May 1, 2001.   (Exhibit
                   10.4 to the Company's Form 10-Q filed May 11, 2001, is hereby
                   incorporated by reference.)

      10.5         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.)

      10.6         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.)

      10.7         Secured Promissory Note dated  February  9, 2001 from  B. Tom
                   Carter,  Jr. to  HydroChem  Holding,  Inc.  (Exhibit  10.6 to
                   the Company  Form  10-K  filed  March  21,  2001,  is  hereby
                   incorporated by reference.)

      10.8         Pledge Agreement dated February 9, 2001 between B.Tom Carter,
                   Jr. and  HydroChem  Holding,   Inc.   (Exhibit  10.7  to  the
                   Company's  Form  10-K   filed  March  21,  2001,   is  hereby
                   incorporated by reference.)

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

      10.10        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.)

      10.11        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.)

      10.12        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.)

      10.13        First Amendment to Employment  Agreement dated as of June 28,
                   1999 to  Employment  Agreement dated as of September 26, 1997
                   between  HydroChem  Industrial  Services, Inc. and Donovan W.
                   Boyd.  (Exhibit  10.10  to  the  Company's  Form  10-Q  filed
                   August 10, 1999, is hereby incorporated by reference.)

      10.14        Second  Amendment to Employment Agreement dated as of January
                   17,  2001  to  Employment Agreement dated as of September 26,
                   1997  between HydroChem  Industrial  Services  and Donovan W.
                   Boyd.   (Exhibit 10.13 to the Company's Form 10-K filed March
                   21, 2001, is hereby incorporated by reference.)

      10.15        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.)

      10.16        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.)

                                       16
<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        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.)

      10.19        Extension  Agreement  dated  as  of  February 2, 1999 between
                   HydroChem  Industrial  Services,  Inc.  and  Bank One, Texas,
                   National Association.   (Exhibit 10.22 to the Company's  Form
                   10-K  filed  March  29,  1999,   is  hereby  incorporated  by
                   reference.)

      10.20        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.)

      10.21        Credit Agreement dated  November  19,  1999  among  HydroChem
                   Holding, Inc.,  HydroChem Industrial Services, Inc.,  various
                   lenders and Bank of America,  N.A.,  as administrative agent.
                   (Exhibit 2.2 to the Company's  Form  8-K  filed  December  3,
                   1999, is hereby incorporated by reference.)

      10.22        First  Amendment  dated  as  of  December 17, 1999  to Credit
                   Agreement dated  November 19,  1999  among HydroChem Holding,
                   Inc., HydroChem  Industrial  Services,  Inc., various lenders
                   and Bank of America, N.A., as administrative  agent. (Exhibit
                   10.20  to the Company's Form  10-K  filed  March 24, 2000, is
                   hereby incorporated by reference.)

      10.23        Second  Amendment  dated  as  of  June  30,  2000  to  Credit
                   Agreement  dated  November  19, 1999 among HydroChem Holding,
                   Inc., HydroChem  Industrial  Services,  Inc., various lenders
                   and Bank of America, N.A., as administrative  agent. (Exhibit
                   10.24  to the Company's  Form  10-Q filed August 11, 2000, is
                   hereby incorporated by reference.)

      10.24        Third Amendment dated as of June 30, 2001 to Credit Agreement
                   dated  November  19,  1999  among  HydroChem  Holding,  Inc.,
                   HydroChem Industrial Services, Inc., various lenders and Bank
                   of America, N.A., as administrative agent.  (Filed herewith).

      10.25        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.)

      10.26        Stock Purchase Agreement dated November 19, 1999 by and among
                   HydroChem Industrial Services,  Inc.  and each stockholder of
                   Landry  Service  Co., Inc.  including  Kenneth  C. Landry and
                   Charles A. Landry,  Jr.  (Exhibit 2.1  to the Company's  Form
                   8-K  filed  December  3,  1999,  is  hereby  incorporated  by
                   reference.)

      (b)      Reports on Form 8-K.

               None.

                                       17
<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 3, 2001             By:  /s/ Pelham H. A. Smith
                                    ------------------------------------
                                    Pelham H. A. Smith, Executive Vice President
                                    and Chief Financial Officer





                               HYDROCHEM INTERNATIONAL, INC.


   Date: August 3, 2001             By:  /s/ Pelham H. A. Smith
                                    ------------------------------------
                                    Pelham H. A. Smith, Executive Vice President
                                    and Chief Financial Officer




                                       18

<PAGE>



                                                    EXHIBIT INDEX



      10.24        Third Amendment dated as of June 30, 2001 to Credit Agreement
                   dated  November  19,  1999  among  HydroChem  Holding,  Inc.,
                   HydroChem Industrial Services, Inc., various lenders and Bank
                   of America, N.A., as administrative agent.







                                       19