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, 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)

                    6210 Rothway
                    Houston, Texas                          77040
             (Address of principal executive offices)     (Zip Code)

                                 (713) 462-2130
              (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 August 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
               June 30, 1998 (unaudited).............................    3

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

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

            Consolidated  Statements  of Cash  Flows  for each of the
                six  month periods ended
                June 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.........................  15

Signatures...........................................................   17

Exhibit Index........................................................   18






                                      2

<PAGE>




                     HYDROCHEM INDUSTRIAL SERVICES, INC.
                                AND SUBSIDIARY

                         CONSOLIDATED BALANCE SHEETS
                      (in thousands, except share data)


                                                  December 31,   June 30,
                                                       1997        1998
                                                  ------------   ---------
                                 ASSETS
   Current assets:
      Cash and cash equivalents...................   $33,862      $28,841
      Restricted cash (Note 2)....................     2,858          -
      Receivables, less allowance of $1,280 and
        $961, respectively........................    24,341       28,721
      Inventories.................................     3,863        4,563
      Prepaid expenses and other current assets...     1,791        3,065
      Income taxes receivable.....................       407          312
      Deferred income taxes ......................     1,835        1,582
                                                     -------     --------
         Total current assets.....................    68,957       67,084

   Property and equipment, at cost ...............    63,210       73,262
      Accumulated depreciation....................   (24,872)     (29,010)
                                                     -------     --------
                                                      38,338       44,252

   Intangible assets, net ........................    44,798       43,989
                                                     -------     --------

         Total assets.............................  $152,093     $155,325
                                                    ========     ========

                     LIABILITIES AND STOCKHOLDER'S EQUITY
 Current liabilities:
      Accounts payable............................   $ 4,823      $ 7,551
      Income taxes payable........................        40           24
      Accrued liabilities.........................    11,770       12,245
                                                    --------     --------
         Total current liabilities................    16,633       19,820

   Long-term debt (Note 3)........................   110,000      110,000
   Deferred income taxes .........................     8,753        8,587
   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...........................       148          359
                                                    --------     --------
         Total stockholder's equity...............    16,707       16,918
                                                    --------     --------

         Total liabilities and stockholder's
           equity.................................  $152,093     $155,325
                                                    ========     ======== 



                            See accompanying notes.

                                      3

<PAGE>



                     HYDROCHEM INDUSTRIAL SERVICES, INC.
                                AND SUBSIDIARY

                    CONSOLIDATED STATEMENTS OF OPERATIONS
                                (in thousands)

                                       Three months ended      Six months ended
                                            June 30,               June 30,
                                       -------------------     -----------------
                                        1997      1998          1997     1998
                                       ------    ------        ------    -----


Revenue..........................      $42,326   $45,067      $80,714   $85,955
Cost of revenue..................       24,871    28,185       47,790    53,070
                                        ------    ------       ------    ------
   Gross profit..................       17,455    16,882       32,924    32,885

Selling, general and
   administrative expense........       10,863    10,961       21,161    21,748
Depreciation.....................        1,978     2,239        3,889     4,432
                                        -------   -------      -------   ------
   Operating income..............        4,614     3,682        7,874     6,705

Other (income) expense:
   Interest expense, net.........        1,925     2,599        3,787     5,116
   Special charge (Note 5).......           -        300           -        300
   Other expense, net............           19        13           23        16
   Amortization of intangibles...          391       374          779       750
                                        --------  --------     --------  ------

Income before taxes..............        2,279       396        3,285       523

Income tax provision  (Note 4)...        1,091       237        1,538       312
                                        -------   --------     -------   ------

Net income ......................      $ 1,188   $   159      $ 1,747   $   211
                                        =======   ========     =======   ======





















                            See accompanying notes.

                                      4

<PAGE>



                     HYDROCHEM INDUSTRIAL SERVICES, INC.
                                AND SUBSIDIARY

                CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
                                (in thousands)



                                              Additional
                                      Common    Paid-in    Retained
                                       Stock    Capital    Earnings     Total
                                       -----    -------    --------     -----

Balance at December 31, 1997.....    $     1    $16,558    $   148    $16,707

   Net income....................          -          -        211        211
                                      ------    -------    -------    -------

Balance at June 30, 1998 ........    $     1    $16,558    $   359    $16,918
                                      ======    =======    =======    =======


































                           See accompanying notes.

                                      5

<PAGE>



                     HYDROCHEM INDUSTRIAL SERVICES, INC.
                                AND SUBSIDIARY

                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (in thousands)

                                                        Six months ended
                                                           June 30,
                                                      -------------------
                                                      1997          1998
                                                      ----          ----
Operating activities:
   Net income ..................................     $1,747       $  211
   Adjustments to reconcile net income to net
    cash provided by operating activities:
    Depreciation................................      3,889        4,432
    Amortization................................        779          750
    Amortization of deferred financing costs....        288          183
    Deferred income tax expense ................        290           87 
    Loss (gain) on sale of property and
     equipment..................................         16          (32)
   Changes in operating assets and liabilities:
    Restricted cash.............................          -        2,858
    Receivables, net............................     (2,863)      (4,380)
    Inventories.................................        (52)        (700)
    Prepaid expenses and other current assets...       (798)      (1,274)
    Income taxes receivable.....................         -            95
    Accounts payable............................        592        2,728
    Income taxes payable........................        783          (16)
    Accrued liabilities.........................      1,536          475
                                                     -------     --------
     Net cash provided by operating activities..      6,207        5,417
                                                     -------     --------

Investing activities:
   Expenditures for property and equipment......     (2,847)     (10,449)
   Proceeds from sale of property and equipment.        170          135
                                                     -------     --------
     Net cash used in investing activities......     (2,677)     (10,314)
                                                     -------     --------

Financing activities:
   Repayments of long-term debt, net............     (2,743)        (124)
                                                      -------    --------
     Net cash used in financing activities......     (2,743)        (124)
                                                     -------     --------

Net increase (decrease) in cash.................        787       (5,021)
Cash at beginning of period.....................        671       33,862
                                                     -------     --------

Cash at end of period...........................     $1,458     $ 28,841
                                                     =======     ========







                            See accompanying notes


                                      6

<PAGE>



                     HYDROCHEM INDUSTRIAL SERVICES, INC.
                                AND SUBSIDIARY

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                June 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 six
     month interim periods ended June 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  Amendment No. 1 to Form S-4 and Form 10-K filed
     with the  Securities  and Exchange  Commission on October 3, 1997 and March
     30, 1998, respectively.

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 Company's New Credit Facility (see Note 3).

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 "New
     Credit  Facility")  which  provides  for  unsecured  borrowings  of  up  to
     $25,000,000,  subject to borrowing  base  limitations.  The term of the New
     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 1.25% to LIBOR plus 2.00%,  or, at the  discretion of HydroChem,
     (ii) a range from the prime rate to the prime rate plus 0.25%. The specific
     rate within each range depends upon the Company's operating performance. In
     addition,  a commitment fee of 0.25% per annum is payable  quarterly on the
     unborrowed  portion of the New  Credit  Facility.  The New Credit  Facility
     requires  the  Company  to meet  certain  customary  financial  ratios  and
     covenants, and generally restricts the Company from pledging its assets. As
     of June 30,  1998,  the  Company's  borrowing  base  under  the New  Credit
     Facility was $24,388,000 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 June 30, 1998, there
     were no other borrowings under the New Credit Facility.  Also at such date,
     HydroChem had available unused borrowings of $21,138,000 (see Note 2).

          In  connection  with the  Company's  new  headquarters  and  operating
     facilities  currently  under  construction  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  being  constructed.  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 June 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 entered into an interest
     rate  protection  agreement  with  the  same  financial   institution  (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
     transferring  or pledging the  facility's  assets.  Subsequent  to June 30,
     1998,  HydroChem  has  borrowed  $3,187,000  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 and
     state income taxes.

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, have

                                      8

<PAGE>



     terminated  negotiations.  HydroChem incurred $300,000 of expenses relating
     to legal,  accounting  and other services which were provided in connection
     with  negotiation  and due  diligence  efforts.  These  expenses  have been
     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):

                                          As of          As of
                                       December 31,    June 30,
                                          1997           1998
                                     ---------------  -----------
      Current assets...................    $ 1,623      $ 1,381
      Noncurrent assets................        127          112
      Current liabilities..............        131           77
      Noncurrent liabilities...........         -             -

                               Three months ended      Six months ended
                                     June 30,               June 30,
                               --------------------    -------------------
                                 1997         1998         1997      1998
                               --------     --------     -------   ------
      Revenue..............      $1,079      $1,051       $1,549    $1,618
      Gross profit.........         482         329          692       537
      Net income (loss)....          23        (143)         (17)     (204)

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.

          Beginning in September 1998, the Company plans to consolidate  certain
     facilities into one facility  currently under  construction in the Houston,
     Texas area.  Estimated land  acquisition  and  construction  costs for this
     facility  are  approximately  $9,400,000.  HydroChem  has  entered  into  a
     construction  loan,  convertible  under certain  conditions to a term loan,
     with a financial institution for $7,500,000 of this amount (see Note 3).

                                      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  forward-  looking  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 Amendment
No.  1 to Form  S-4 and  Form  10-K  filed  with  the  Securities  and  Exchange
Commission  on October 3, 1997 and March 30, 1998,  respectively.  The Forms S-4
and 10-K also include 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.

                                    Three months ended     Six months ended
                                         June 30,              June 30,
                                   ---------------------   ---------------------
                                        1997       1998       1997       1998
                                       ------     ------     ------     ------

      Revenue....................        100.0%    100.0%     100.0%     100.0%
      Cost of revenue............         58.8      62.5       59.2       61.7
                                        ------    ------      -----     ------
         Gross profit............         41.2      37.5       40.8       38.3
      SG&A expense...............         25.6      24.3       26.2       25.3
      Depreciation...............          4.7       5.0        4.8        5.2
                                       -------   -------     ------    -------
         Operating income........         10.9       8.2        9.8        7.8
      Other (income) expense:
         Interest expense, net...          4.6       5.8        4.7        6.0
         Special charge..........          -         0.7        -          0.3
         Other (income) expense, net       -         -          -           -
         Amortization of intangibles       0.9       0.8        1.0        0.9
                                       -------   -------    -------    -------
      Income before taxes........          5.4       0.9        4.1        0.6
              Income tax provision         2.6       0.5        1.9        0.4
                                       -------   -------    -------    -------
      Net income ................          2.8%      0.4%       2.2%       0.2%
                                       =======   =======    =======    =======

      EBITDA(1)..................         15.6%     13.1%      14.6%      13.0%
                                        ======    ======     ======    =======

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


(1) EBITDA for any relevant  period  presented  above  represents  income before
taxes plus interest expense,  depreciation,  amortization,  and other income and
expense  (including a special  charge of $300,000 in the three months ended June
30, 1998.  EBITDA should not be construed as a substitute for operating  income,
as an  indicator  of  liquidity  or as a  substitute  for net cash  provided  by
operating activities, which are determined in accordance with generally accepted
accounting 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 June 30, 1998 Compared to Three Months Ended June 30, 1997
-----------------------------------------------------------------------------

     Revenue.  Revenue increased $2.7 million, or 6.5%, to $45.1 million for the
three  months  ended June 30, 1998 from $42.3  million in the prior year period.
The increase principally  resulted from an increase in hydroblasting  revenue of
$2.4  million,  or 12.5%,  from $19.2 million to $21.6  million;  an increase in
industrial  vacuuming  revenue of $975,000,  or 23.2%, from $4.2 million to $5.2
million; and an increase in chemical cleaning revenue of $341,000, or 2.2%, from
$15.8 million to $16.1 million.  Partially  offsetting these increases,  revenue
from all other  services  decreased by  $977,000,  or 30.9% from $3.1 million to
$2.2   million.   Hydroblasting   revenue   increased   primarily   due  to  the
implementation  of sole  source  provider  arrangements  with  certain  existing
customers  and a small  number  of large  projects  with  other  customers.  The
increase in industrial  vacuuming revenue resulted from additional vacuum trucks
placed in service by the  Company in 1997 and 1998.  The  increase  in  chemical
cleaning  revenue  was  primarily  caused by a small  number of  projects in the
current year period,  while the decrease in other  services  primarily  resulted
from decreased pipeline cleaning.

     Gross profit. Gross profit decreased $573,000, or 3.3%, to $16.9 million in
1998 from $17.5 million in the prior year period. Gross profit margins decreased
from 41.2% to 37.5%. Cost of revenue increased $3.3 million,  or 13.3%, to $28.2
million for 1998 from $24.9  million in the prior year period  primarily  due to
the revenue increases described above and increased direct compensation costs.

     SG&A expense. SG&A expense as a percentage of revenue decreased to 24.3% in
1998 from 25.6% in the prior year period,  while SG&A expense increased $98,000,
or 0.9%,  to $11.0  million in 1998 from $10.9 million in the prior year period.
This increase  primarily  resulted from increases in compensation  expense which
was partially offset by decreased insurance expense.

     EBITDA.  Decreased  gross profit and  increased  SG&A  expense  resulted in
EBITDA of $5.9 million in 1998, a decrease of $671,000, or 10.2%, from the prior
year period.  As a  percentage  of revenue,  EBITDA  decreased to 13.1% in 1998,
compared to 15.6% in the prior year period.

     Depreciation.  Depreciation  expense increased $261,000,  or 13.2%, to $2.2
million in 1998 from $2.0 million in the prior year period and was 5.0% and 4.7%
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 $932,000, or
20.2%, to $3.7 million in 1998 from $4.6 million in the prior year period.  As a
percentage of revenue,  operating income decreased to 8.2% in 1998,  compared to
10.9% in the prior year period.

     Interest expense,  net. Net interest expense increased $674,000,  or 35.0%,
to $2.6 million in 1998 from $1.9  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 in the current
period related to a terminated acquisition. (See Note 5 of Notes to Consolidated
Financial Statements).

     Amortization.  Amortization  expense  of  $374,000  in 1998 was  relatively
unchanged from $391,000 in the prior year period.

     Income before taxes. For the reasons  described above,  income before taxes
decreased $1.9 million,  or 82.6%,  to $396,000 in 1998 from $2.3 million in the
prior year period.  As a percentage of revenue,  income before taxes was 0.9% in
1998, compared to 5.4% in the prior year period.

     Income tax  provision.  The effective tax rate increased to 59.8% of income
before  taxes in 1998  from  47.9%  in the  prior  year  period.  This  increase
principally  resulted  from  proportionately   higher  nondeductible   permanent
differences in 1998 than in the prior year period.

     Net income.  For the reasons  described  above,  net income  decreased $1.0
million,  or 86.6% to  $159,000  in 1998 from  $1.2  million  in the prior  year
period.

                                       11

<PAGE>



Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997
-------------------------------------------------------------------------

     Revenue.  Revenue increased $5.2 million, or 6.5%, to $85.9 million for the
six months ended June 30, 1998 from $80.7 million in the prior year period.  The
increase principally resulted from an increase in hydroblasting  revenue of $4.5
million,  or 11.4%,  from $39.2  million to $43.6  million;  and an  increase in
industrial  vacuuming  revenue of $2.7 million,  or 35.1%,  from $7.7 million to
$10.5 million.  These increases were partially  offset by a decrease in chemical
cleaning revenue of $337,000, or 1.2%, from $28.5 million to $28.2 million; and,
a decrease in revenue  from all other  services of $1.6  million,  or 30.2% from
$5.3 million to $3.7 million.  Hydroblasting  revenue increased primarily due to
the  implementation  of sole source provider  arrangements with certain existing
customers  and a small  number  of large  projects  with  other  customers.  The
increase in industrial  vacuuming revenue resulted from additional vacuum trucks
placed in service by the  Company in 1997 and 1998.  The  decrease  in  chemical
cleaning revenue was primarily caused by a small number of projects in the prior
year period which did not recur,  while the decrease in other services primarily
resulted from decreased pipeline cleaning.

     Gross profit.  Gross profit was relatively  unchanged from $32.9 million in
the prior year period.  Gross profit margins decreased from 40.8% to 38.3%. Cost
of revenue  increased  $5.3  million,  or 11.0%,  to $53.1 million for 1998 from
$47.8 million in the prior year period  primarily  due to the revenue  increases
described above and increased direct compensation costs.

     SG&A expense. SG&A expense as a percentage of revenue decreased to 25.3% in
1998 from 26.2% in the prior year period, while SG&A expense increased $587,000,
or 2.8%,  to $21.7  million in 1998 from $21.2 million in the prior year period.
This increase  primarily  resulted from increases in compensation  expense which
was partially offset by decreased insurance expense.

     EBITDA.  Decreased  gross profit and  increased  SG&A  expense  resulted in
EBITDA of $11.1 million in 1998, a decrease of $626,000, or 4.7%, from the prior
year period.  As a  percentage  of revenue,  EBITDA  decreased to 13.0% in 1998,
compared to 14.6% in the prior year period.

     Depreciation.  Depreciation  expense increased $543,000,  or 14.0%, to $4.4
million in 1998 from $3.9 million in the prior year period and was 5.2% and 4.8%
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 $1.2
million,  or 14.8%,  to $6.7 million in 1998 from $7.9 million in the prior year
period. As a percentage of revenue,  operating income decreased to 7.8% in 1998,
compared to 9.8% in the prior year period.

     Interest  expense,  net. Net interest  expense  increased $1.3 million,  or
35.1%,  to $5.1  million in 1998 from $3.8  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 in the current
period related to a terminated acquisition. (See Note 5 of Notes to Consolidated
Financial Statements.)

     Amortization.  Amortization  expense  of  $750,000  in 1998 was  relatively
unchanged from $779,000 in the prior year period.

     Income before taxes. For the reasons  described above,  income before taxes
decreased $2.8 million,  or 84.1%,  to $523,000 in 1998 from $3.3 million in the
prior year period.  As a percentage of revenue,  income before taxes was 0.6% in
1998, compared to 4.1% in the prior year period.

     Income tax  provision.  The effective tax rate increased to 59.6% of income
before  taxes in 1998  from  46.8%  in the  prior  year  period.  This  increase
principally  resulted  from  proportionately   higher  nondeductible   permanent
differences in 1998 than in the prior year period.

     Net income.  For the reasons  described  above,  net income  decreased $1.5
million,  or 87.9% to  $211,000  in 1998 from  $1.7  million  in the prior  year
period.

                                       12

<PAGE>


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 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 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  the
Company's  existing  senior debt ($45.7  million) and  subordinated  debt ($18.7
million). In addition, $8.5 million was used 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 have been invested in
commercial paper and other interest bearing deposits with short-term maturities.
These funds are intended to be used for general  corporate  purposes,  including
expanding the Company's  industrial  vacuuming and other  business lines through
expenditures for property and equipment,  increasing the Company's marketing and
sales efforts, and funding potential acquisitions.

     On December 31, 1997,  HydroChem  entered  into a credit  agreement  with a
financial  institution (the "New Credit  Facility") which provides for unsecured
borrowings of up to $25 million, subject to borrowing base limitations. The term
of the New 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 1.25% to LIBOR plus 2.00%,  or, at the  discretion of HydroChem,
(ii) a range from the prime rate to the prime rate plus 0.25%. The specific rate
within each range depends on the Company's operating performance. In addition, a
commitment fee of 0.25% per annum is payable quarterly on the unborrowed portion
of the New Credit Facility. The New Credit Facility requires the Company to meet
certain  customary  financial  ratios and covenants and generally  restricts the
Company from pledging its assets.  As of June 30, 1998, the Company's  borrowing
base under the New Credit  Facility was $23.5  million of which $3.2 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 June
30, 1998, there were no other borrowings under the New Credit Facility.  Also at
such date, HydroChem had available unused borrowings of $20.3 million.

     In connection with the Company's new headquarters and operating  facilities
currently under construction 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 $7.5 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
being  constructed.  The construction  loan matures 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 June 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 entered into an interest rate protection
agreement with the same financial  institution (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 transferring or pledging the facility's  assets.  Subsequent to
June 30, 1998, the Company has borrowed $3.2 million under the Construction Loan
Agreement.

     For the six months ended June 30,  1998,  the Company used net cash of $4.9
million for operating and investing activities,  which consisted of $5.4 million
provided by operating activities and $10.3 million used in investing activities.
For the six months ended June 30, 1997, $3.5 million of net cash was provided by
operating and investing activities,  which consisted of $6.2 million provided by
operating  activities and $2.7 million used in investing  activities.  Investing
activities for both periods consisted primarily of expenditures for property and
equipment.


                                       13

<PAGE>


     Expenditures  for property and  equipment for the six months ended June 30,
1998 were $10.4 million.  Of this amount, $3.0 million was used for vacuum truck
purchases, $2.7 million for purchases of other operating property and equipment,
and $4.7 million for the purchase of land and  construction of a new 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 $3.6 million for
related  construction  costs.  Construction  costs  for  the  new  facility  are
estimated  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 June 30, 1998 and net
cash  expected  to be  provided  by  operating  activities  and  borrowings,  if
necessary,  under the New Credit Facility, and the construction loan and related
term loan 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.  (See Notes 2 and 3 of Notes to the Consolidated
Financial Statements.)

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 terms of a  definitive
agreement and, as a result,  have terminated  negotiations.  HydroChem  incurred
$300,000 of expenses  relating to legal,  accounting and other related  services
which were provided in connection with  negotiation  and due diligence  efforts.
These expenses have been recorded as a special charge for 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 to define  the  applicable  year.  Certain of the
Company's computer programs and hardware have date-sensitive  software which may
recognize  a date using "00" as the year 1900  rather  than the year 2000.  This
could  result in a system  failure or  miscalculations  causing  disruptions  of
certain day-to-day accounting operations.  The Company has acquired new software
and hardware and is currently in the implementation  phase to resolve this issue
by year end  1998.  The  Company  estimates  the costs of the new  software  and
hardware to be approximately  $1.7 million.  Although there can be no assurance,
the Company  does not  anticipate  that any  foreseeable  problems  would have a
material adverse impact on the Company.



                                       14

<PAGE>


Part II.  Other Information

   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  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
                    reference.)

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

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

              10.2  Employment   Agreement   dated   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.)



                                       15

<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. (Filed herewith.)

               10.9 Secured  Promissory  Note  dated  April 9,  1998 from B. Tom
                    Carter, Jr. to HydroChem  Industrial  Services,  Inc. (Filed
                    herewith.)

              10.10 Pledge  Agreement  dated  April 9, 1998   between  HydroChem
                    Industrial  Services,  Inc.  and B. Tom Carter,  Jr.  (Filed
                    herewith.)

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

              10.15 Loan  agreement  dated  July  17,  1998  between   HydroChem
                    Industrial  Services,  Inc and  Bank  One,  Texas,  National
                    Association. (Filed herewith.)

              10.16 International   Swap  Dealers   Association,   Inc.   Master
                    Agreement and Schedule dated July 17, 1998 between HydroChem
                    Industrial  Services,  Inc.  and Bank One,  Texas,  National
                    Association. (Filed herewith.)

              27.1  Financial Data Schedule.  (Filed herewith.)

          (b) Reports on Form 8-K
              None

                                       16

<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 14, 1998            By:    /S/ Selby F. Little, III
                                          -------------------------
                                          Selby F. Little, III,
                                          Executive Vice President
                                          and Chief Financial Officer






                                    HYDROCHEM INTERNATIONAL, INC.


   Date: August 14, 1998            By:    /S/ Selby F. Little, III
                                          -------------------------
                                          Selby F. Little, III,
                                          Executive Vice President
                                          and Chief Financial Officer



                                       17

<PAGE>



                                  EXHIBIT INDEX




              10.15 Loan  agreement  dated  July  17,  1998  between   HydroChem
                    Industrial  Services,  Inc and  Bank  One,  Texas,  National
                    Association.

              10.16 International   Swap  Dealers   Association,   Inc.   Master
                    Agreement and Schedule dated July 17, 1998 between HydroChem
                    Industrial  Services,  Inc.  and Bank One,  Texas,  National
                    Association.

              27.1  Financial Data Schedule.


                                       18